Understanding and Managing the New Tendering Regulations
National Treasury’s new Preferential Procurement Policy Framework Act (PPPFA) Regulations came into effect on 1 April 2017 and it will make all tenders ‘unacceptable’ if they do not comply with these changed stipulations.
According to Gerrit Davids, Lead Advisor at tender advisory consultancy, TaranisCo Advisory CC, “the new Regulations from the outset grants an organ of state the authority to stipulate a ‘Preferred Minimum BBBEE Level’ in a tender, which will exclude certain companies with a lower BBBEE Level from submitting bids”.
The Regulations also allow the state to include another wide-ranging Sub-Contracting stipulation, which could force principle bidders to make use of up to 8 x different types of sub-contractors under the ‘Pre-Qualification Criteria’. A failure to do so will also have the bid being declared ‘unacceptable’.
The value of the 80:20 and the 90:10 Preference Point Systems has also been increased to below and above R50m respectively. However, it retains the current scoring of points for Price alongside that of BBBEE in tenders.
Additionally, the new Regulations also place a 25% maximum on Sub-Contracting, which is done in the ordinary course of business with companies that have a lower BBBEE level than that of the principle bidder. A failure to comply with this stipulation will also cause tenders to be disqualified from consideration.
Davids says, that the Regulations are also introducing a new approach to pricing where a bidder scores the ‘highest points’ in a tender but its price is not market related and refuses to adjust it to be in-line with market related prices, the organ of state will have the right not to award the tender to such a bidder and it may even decide to cancel it.
Davids also points out that the much debated stipulation of compulsory Sub-Contracting of 30% for all tenders above R30m in value will also be allowed ‘where feasible’ to advance any one or more of the ‘designated groups’ as defined by these new Regulations.
Another new stipulation to the Regulations makes it obligatory for an organ of state issuing tenders to ‘make available a list’ of potential sub-contractors that qualify under the definition of ‘designated groups’ and such a list must be subject to approval by National Treasury.
According to Davids, “the biggest challenge will be to find the right ‘designated’ sub-contractors and on the face of it, one can read, “an organ of state must make available the list of all suppliers (sub-contractors) registered on a database approved by the National Treasury”. If on the other hand, it is required from the organ of state to make such a list available for every single ‘sub-contracting’ tender, it will surely place a big administrative burden on them to manage the process in line with this stipulation bearing in mind that the Central Supplier Database (CSD), which at present, according to us is the only list approved by National Treasury”.
“If it indeed refers to the CSD to vet these ‘designated groups’, it will mean that your existing sub-contractors, even if they do qualify under the scope of these ‘designated groups’, will also have to be registered on it, even if they themselves do not tender for state contracts, otherwise you won’t be able to ‘select’ them in your tender. In this scenario, its also important to note that even if you do manage to get them to register on the CSD and if at the time of your tender, any of their details are not verified, it will also make your tender ‘unacceptable’ until they have updated their ‘un-verified details’.
However, we are also of the opinion that if any of your existing sub-contractors do not qualify under this ’designated groups’ status, it would mean that you won’t be able to ‘select’ them in a tender. It will then force bidders to facilitate joint ventures between ‘designated groups’ sub-contractors and that of their own.
Another key regulation stipulates that sub-contracting, which was not mentioned in the bidder’s tender could only be done with the permission of the organ of state ‘after a tender has been awarded’. A 10% penalty of the total value of the contract may be imposed where the correct sub-contracting procedures were not followed or where information was withheld, a ban on doing business with the state for 10 years could also be imposed by National Treasury under these new Regulations.
Davids says, “The meaning and understanding of the concept of ‘being proactive’ becomes a very relevant application with this new dispensation. Tenderers will be left behind if they do not make the required changes in the way they submit government tenders, especially in relation to sub-contracting”.
– Gerrit Davids | Lead Consultant | TaranisCo Advisory