SUPPLY CHAIN MANAGEMENT
LIMPOPO TREASURY PROVINCIAL
SUMMIT
3RD FEBRUARY 2011
National Treasury
CONTENTS
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Statutory Framework
Constitutional Rights
Market Price Analysis
Alignment of PPPFA with the aims of BBBEE
Combating Fraudulent and Corrupt Practices
Supplier Performance
Price / Bid Rigging
Conclusion
STATUTORY FRAMEWORK FOR PUBLIC
SECTOR SUPPLY CHAIN MANAGEMENT
Constitution
PFMA / MFMA Act
PPPFA Act
B-BBEE Act
Treasury Regulations
Standard for
Uniformity
National
Treasury Best
practice
guidelines
Legislative
Framework
Other prescripts
Uniform Procurement
directives to three
spheres of government
Supply Chain Management Guidelines
Standard Bidding Documents
Practice Notes
CODES OF CONDUCT FOR SCM PRACTICTIONERS AND
BID COMMITTEE MEMBERS
THE CONSTITUTION
– Section 217(1) of The Constitution provides the basis for
procurement by determining that:
“When an organ of state in the national, provincial or local
sphere of government, or any other institution identified
in national legislation, contracts for goods and services,
it must do so in accordance with a system which is fair,
equitable, transparent, competitive and costeffective”.
– The PFMA and MFMA with their respective regulations give effect
to this prescript.
Constitutional Rights
This PRESCRIPT is not only a directive to officials, but it
also confers a constitutional right on every potential
supplier to offer his or her service to government when
needed.
Section 217(I) of The Constitution also confers: an
obligation for national legislation to prescribe a
framework providing for preferential procurement to
address the social and economic imbalances of the past
The Preferential Procurement Policy Framework Act
(PPPFA) of 2000 and its accompanying Regulations,
2001 were promulgated to achieve these goals.
PREFERENTIAL PROCUREMENT
SYSTEM
The PPPFA and Regulations incorporate the 90/10 and 80/20
preference point systems
Allows the state to pay a maximum of 11.1% and 25%
premiums respectively to promote equity ownership for HDIs
or the RDP goals
A maximum of 90 and 80 points represents price.
Contracts awarded to the bidder who scores the highest total
points (points for price added to points for HDI and RDP
goals)
BROAD-BASED BLACK ECONOMIC
EMPOWERMENT
Changing the Preferential Procurement
landscape in the Public Sector
•Preferential Procurement Being is being aligned with
the aims of the B-BBEE Act And Its Codes Of Good
Practice (In Consultation with the dti and EDD)
•Joint Cab Memo (NT, dti and EDD) is in process of
being tabled before Cabinet
Market Price Analysis
• Market price analysis is generally neglected – Minister of Finance
• Concerns the actual prices prevailing in the market and the manner in which
they are determines
• It also determines how closely buyers and sellers are brought into
communication with each other
• It is the process determining if the asking price is fair and reasonable.
Basically a process of comparing the price with known indicators of
reasonableness
• Fair and reasonable describes that the price is acceptable to both buyer and
seller.
• Examples of Price Analysis:
• Analysis of previous price paid
• Normal retail prices
• Comparison of bidder’s price with prices of other bidders or published price
lists
When adequate price competition does not exist some reasons could be that
specifications are not definitive, tolerances are restricted or production
capacity limits those eligible to bid.
Supplier Performance
Bid Submission
• Duly completed bid including standard bidding documents, tax
clearance certificates, samples etc must be submitted before
closing date and time of bid – late bids will be disqualified
• Bids must be submitted to correct address
• Offers must meet required specifications and conditions of bid
• Must have the ability to deliver the required goods/services at
right place, in the right quantity, with the right quality, at the
right cost and at the right time.
• Flexibility to meet clients demands
• Any conflict of interest must be declared
Supplier Performance
Post Award
• Supplier to appreciate green environment, good
business ethics and being socially responsible
• A financially stable supplier that is able to execute
projects upon receipt of an official order
• Must be able to adapt to latest technologies
• Must have good record and reputation from previous
clients and be able to maintain same standards
• Must be able to attain the specified goals in the
performance of a contract – avoid breach of contract
COMBATING FRAUDULENT AND
CORRUPT PRACTICES
• Bidders to declare any conflict of interest (employed
by state or spouses employed by state)
• SCM practitioners to declare interest, impartiality and
confidentiality
• SCM Practitioners and BAC members compelled to
sign undertaking of adherence to Codes of Conduct
• Enterprises will be prohibited from conducting
business with government for fraud or corruption or
not adhering to contract conditions
• No contracts will be awarded to persons whose
names appear on the database for restricted
suppliers or the Register for Tender Defaulters
SCM ANTI-CORRUPTION INITIATIVES
Tightening of controls
•Institutions to submit tender programme
•Variation orders – construction 20%, others 15%
•Management of Contracts –
(i) Evaluation – does the preferred bidder have the
capacity / ability to execute the contract?
(ii) Contracts to be vetted by legal council prior to signature
(iii) Performance by contractors
•Ensure payment within 30 days
•Control of orders – order books, no funds budgeted, etc.
•Contract above specified threshold to be awarded in consultation with
the relevant treasury
•Large contracts – process to be audited
BID / PRICE RIGGING
What is Bid Rigging
• Any agreement (written or oral) between bidders that limits or
reduces competition. It is a form of price fixing.
• Bidders secretly conspire to increase prices or lower the quality
of goods / reduce outputs (maximize profits)
• It undermines the benefits of competitive bidding and eliminates
competition.
• Bid rigging which is a form of price fixing is bid fraud and is
prohibited in terms of the Competition Act, Act 89 o 1998.
“..On both a moral and practical level, there is not a great deal
of difference between price fixing and theft…(Whish, 2001)
BID / PRICE RIGGING
Examples of Bid Rigging
• Agreement on who will win the bid
• Agreement on prices
– Agreement to raise, lower, or maintain prices
– Agreement not to negotiate on price
– Agreement to limit discounts / rebates
– Agreement on price formulas or guidelines
• Agreement on who will bid for certain government departments
• Agreement on who will bid in certain geographic areas
BID / PRICE RIGGING
Cover Bidding
• In order to implement the bid rigging scheme, offenders often
use a cover bidding scheme
• Cover bidding (also called complementary, token or
symbolic) occurs when firms or individuals agree to submit bids:
 That are higher than the bid of the designated winner,
 Known to be too high to be accepted, or
 That contain terms and conditions that are known to be
unacceptable to the buyer
• It is the most common form of bid rigging as it gives the
appearance of genuine competition. Often used in the 3 quotes
procurement process in collaboration with SCM practitioners.
BID / PRICE RIGGING
Other ways
• Bid Suppression
Companies agree to refrain
from bidding or withdraw a
submitted bid.
• Bid Rotation
Firms continue to bid, but
they agree to take turn
being the winning bidder
• Market Allocation
Competitors agree not to compete
for certain customers or in certain
geographic areas
BID / PRICE RIGGING
Consequences of bid rigging
• Section 4 (1) (b) (iii) of the Competition Act, Act 89 of 1998 prohibits
restrictive practices (including bid rigging)
• Treasury Regulation 16A9 prescribes that government institutions can
disregard the bid of a bidder or cancel a contract awarded to a supplier
if that bidder or supplier has abused the SCM system or committed
any corrupt or fraudulent act during the bidding process.
• National Treasury in consultation with the Competition Commission
has issued an instruction on 21 July 2010 intended to provide
preventative measures to counter bid rigging.
• Measures also intended to inform bidders about the illegality of bid
rigging, the penalties applicable and possible investigations and
imposition of administrative penalties by the Competition Commission.
• Together with bid documents, bidders are required to complete sign
and submit a Certificate of Independent Bid Determination. This would
be taken into consideration in the evaluation process.
BID / PRICE RIGGING
Role of Bidders / Contractors
PREVENT COLLUSION
• Build a culture of compliance
• Consumers and shareholders now demand ethical business practice
DETECT COLLUSION
• Encourage internal whistle blowing
• “I didn’t know” is no excuse / defence
REPORT COLLUSION
• Minimise reputational harm and penalty
• Apply for corporate leniency
END
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