14 Jul PROCUREMENT OF GOODS AND SERVICES IN THE PUBLIC SECTOR- AMENDMENTS
The Public Finance Management Act 1 of 1999 (PFMA), was enacted to regulate the management of finances in the public sector. There is no other piece of legislation that supersedes the PFMA in so far as regulating financial management as well as the governance of internal controls. It is therefore a key requirement for anyone who operates in the public sector to understand and apply the principles of the Act as well as the National Treasury Regulations.
On 8 June 2021 the Acting Chief Procurement Officer (ACPO) signed off the PFMA SCM Instruction NO. 02 OF 2021/22 – Public Finance Management Act (Act 1 of 1999). The effective date is 1 July 2021.
Treasury Regulation 16A.6, in particular 16A.6.1 states as follows ”Procurement of goods and services, either by way of quotations or through a bidding process must be within the threshold values as determined by the National Treasury.”
The recently issued Instruction is a significant step toward ensuring that entities to whom these amendments apply are given the agility to procure services in a manner that enables them to take decisions and implement these within set parameters. The last time the threshold was reviewed was in 2007. When one considers the effluxion of time as well as the changes in the economic landscape, this consideration was long overdue.
The Instruction is applicable to all Departments, Constitutional Institutions such as the Public Protector and the Independent Electoral Commission (IEC) as well as entities listed in Schedules 3A and 3C of the PFMA. Note however that the Schedule 2 – Major Public Entities are specifically excluded from this instruction note. The thresholds impacted are the procurement of “goods and services by means of petty cash up to an amount of R 2000 (inclusive of all applicable taxes) without inviting price quotations or following a bidding process.” This instruction does provide discretion for Accounting Authorities or Accounting Officers to not follow the petty cash option and opt for price quotes.
Red flags may start flashing due to concerns of manipulation of the bidding processes. We cannot be oblivious of the scourge of corruption that is plaguing our country mainly in the area of Supply Chain Management (SCM). However, there are checks and balances that will be regulated through the amendments of SCM policies as well as internal and external audits to ensure compliance and the use of proper internal controls. The most innovative and time saving introduction is the removal of the various categories of procurement thresholds.
In my personal view, it removed efficiencies in entities, and as a result created high incidences of irregular expenditure, are the following:
⇒ Above the Transaction Value of R 2 000 but not exceeding R 10 000 (Vat Included); ⇒ Above the Transaction Value of R10 000 but not exceeding R 500 000 (Vat Included; and ⇒ Above the Transaction Value of R 500 000 (Vat Included).
The thresholds above were accompanied by cumbersome processes and internal controls that meant the public sector had a myriad of hurdles to cross. Ultimately, for the public sector, this
ended up being much more costly due to currency fluctuations in some cases as well as competition in the markets that some of these entities operate in.
With regards to written price quotations, where the requirements are up to an estimated value of R1 000 000 (inclusive of all applicable taxes), Accounting Officers or Accounting Authorities would have to invite written quotes from prospective suppliers who are registered on the Central Supplier Database (CSD). These entities would also as a result hereof, have to review their SCM policies to ensure compliance.
In my experience as a governance practitioner, this increase comes as a relief and will greatly assist in reducing delays within the entities that this instruction applies to and the upside of this is the reduction of irregular expenditure.
The lower amount of R 500 000 was restrictive, given the nature of services required versus the amount some of these were restricted to, especially in cases where these services were required urgently. We will not be doing justice by trying to unpack this subject in an article, hence the focus on these pertinent issues in brief.
We as Machobane AM Attorneys Incorporated together with our sister company, Mashobane Advisory Services are geared and ready to advise and assist the entities to whom this Instruction applies, to review and prepare the necessary internal controls, processes and supporting documents.
Contact us via our website www.mashobaneadvisory.co.za or www.machobanelaw.co.za for further information on various other specialised legal services we offer.
Authored by Mrs Anastasia Machobane, Attorney at Law