Treasury doubles down on BEE in draft procurement rules

Companies wishing to do business with the government will have to demonstrate that at least 40% of previous procurement was spent on enterprises that are majority black-owned and managed to qualify for state tenders, according to new draft procurement regulations.

The draft regulations were published by the National Treasury on Friday, marking a big step forward in operationalising the Public Procurement Act, which was assented to by President Cyril Ramaphosa two years ago.

The act is intended to replace the Preferential Public Procurement Framework Act. Under the proposed regulations, part of the first major reform of public procurement in years, bidders will have to show that at least 40% of their prior procurement was spent on enterprises that are at least 51%
owned and managed by black people, and provide proof of having met that requirement. Bidders will also be required to subcontract at least 30% of the estimated contract value to South African citizens and disclose the names of proposed subcontractors in their bid documents.

The draft regulations place a high premium on beneficiation, demanding that procuring institutions include in their procurement policies measures to promote beneficiation by advancing local production rather than procuring imported goods and “requiring suppliers to use goods made or services provided by South African entities or citizens”.

With R1-trillion in annual government spending on goods and services, the draft regulations are set to attract much public commentary and input. Entities such as Sakeliga already took issue with the wording of the Public Procurement Act when President Cyril Ramaphosa assented to it in 2024,
saying if implemented the act would be a “recipe for accelerated state failure”, drive up procurement costs and degrade state performance and service deliver The National Treasury said due to the length and complexity of the draft regulations a longer consultation period had been put in place by the finance minister. 

The final date for submitting comments is June 15. The government also wants to use its huge procurement budget to create jobs, demanding that its institutions set targets in bid specifications for the employment of South African citizens “including, where appropriate, targets relating to the creation of jobs for citizens within specified geographical areas”. This will require bidders to demonstrate how they will advance the employment of locals.

In another major proposal the draft regulations also create room for state institutions to procure directly from a supplier if the required goods and services are “provided by an international organisation in terms of an international or bilateral government agreement”. South Africa has several bilateral trade agreements with nations worldwide. The draft regulations appear to suggest that these agreements will have a free pass in public procurement The regulations furthermore set guardrails for unsolicited bids, stating that the procuring institution may only consider an unsolicited proposal if the product or service is innovative or presents a new, cost-effective method of
service delivery.

Before accepting unsolicited bids government departments and entities first have to conduct a comprehensive project feasibility study that establishes a clear business case, and publish an expression of interest to test the market for the existence of other suppliers capable of providing the product or service or alternative products or services.

Finance minister Enoch Godongwana introduced significant reforms to the regulatory framework governing unsolicited bids last year to foster private sector participation in infrastructure development while ensuring transparency and curbing corruption. To this end Godongwana amended the Public Finance Management Act, creating a separate approval process for public-private partnership projects (PPPs) with an estimated total cost of less than R2bn, exempting these projects from Treasury approval. The amended regulations allow for unsolicited bids to be submitted for the creation of PPP projects.
 

When using emergency procurement mechanisms procuring institutions will have to produce a post procurement report detailing the circumstances that gave rise to the emergency, and make the report public within a month. Bidders will also be required to undergo security vetting, including criminal record checks and verification of ownership and beneficial interest.