Procurement reform: privatize or democratize!


By Nicholas Woode-Smith

In May, the City of Ekurhuleni issued a tender to purchase six Xbox Series X consoles, video games and peripherals to make public libraries “4IR compliant”. Apparently, these gaming consoles will be needed to help students as robotics is added to the school curriculum.

An entire article could be written about how unnecessary and useless these consoles will be to aid the study of robotics. A series of articles will have to be written to explain the senselessness and insanity behind the government’s “4th Industrial Revolution”, while its policies are driving the country towards deindustrialisation.

It is clear that this is just a vanity project. An attempt by the government to create the impression that it is doing something of value, while public money is being squandered. But it gets even worse when one realizes that the maximum transaction value of the tender is R200 000.

MyBroadband have already calculated that the six consoles, all the required peripherals and all the games are supposed to amount to just R118 272. Some cost-cutting measures that actually increase the range of games will put the price at R111 241.

Labor shouldn’t make up the rest of the R200 000, even if the tender calls for an overqualified technician, when anyone with hands and eyes can actually set up a console (that’s the point of consoles: they’re meant to be simpler than a computer).

Overvalued tenders are unfortunately nothing new for South Africa. The public procurement system is rotten with overpriced and poor goods and services.

Eskom’s procurement tenders are guilty of spending R80 000 for a pair of knee pads worth R300, R280 000 for a broom, R900 each for fluorescent lights worth R63, and the payment of R56 per liter of milk. Despite promises to investigate overcharging in the millions, the rot continues. And it is unlikely to ever end while tenders exist in their current form.

How tendering works

On paper, tenders in South Africa are intended to ensure transparency through open communication, and the best supplier at the best price through open competition. In practice, it rarely works out that way.

The public sector cannot just go to the local grocery store to buy something they need. Policies require them to go through a tender process to find the best possible supplier. This is intended to prevent arbitrary spending, as all acquisitions are questioned, placed under public scrutiny and exposed to various potential competitors. In theory, the best and cheapest are supposed to win.

But a tender has yet to be awarded by a government official, so they still have power over the winners and losers. Human nature will dictate that procurement officials – especially where the risk of detection and punishment is low – will choose their friends, accept bribes, or even award the tenders to shell companies that benefit them. As a result, the price for the tender rises, and an incompetent supplier wins.

Procurement guidelines are intended to protect taxpayers from the government arbitrarily spending public money. But all the bureaucracy ultimately allows officials to spend exorbitant amounts on goods that the private sector can buy for a fraction of the price on Takealot.

Failed measures

Our tender system is not working for several reasons. First, it is too bureaucratic and formalistic. Requiring a tender for goods that can and should be bought from a reliable shop or wholesaler is just ridiculous.

If milk is needed for a staff room, then go and buy milk from a local grocer. Keep the receipts as a record. In fact, a procurement officer buying milk from anyone other than a reputable retailer or wholesaler should be a red flag.

For outsourcing of services, or large purchases of specialized equipment, tenders do have a place. But even then, a lot has to change.

There is a pervasive culture of corruption throughout the government. Tenders are not seen as a way to meet the needs of the people, but as an opportunity to steal money from public coffers. Tender values ​​are so high because officials want to leave a lot of room for excessive expenses that can then disappear into their pockets.

BEE and racial quotas as a requirement for winning tenders also contribute to this corruption. Companies that want to win tenders must not only comply with the letter of these laws, but with government officials who will often demand that companies appoint their friends or cronies to leadership positions in exchange for contracts.

Even without corruption, there is another reason why tenders in South Africa are so expensive and result in so little being done. Simply put, government officials issuing these tenders do not really understand the value of the money they are spending (because it is not theirs), and they do not understand what the tender is actually for.

It is not just a problem of competence. Even governments in more sophisticated democracies suffer from an inability to really understand how much money should be spent on certain things. It is a symptom of spending other people’s money without much accountability or incentive to save.

Consumer choice the solution

The only real solution to tendering problems in South Africa is to take power away from the government in the issuing and selection of tenders and place it directly in the hands of consumers and voters.

State companies such as Eskom and Transnet should be privatized and be confronted with a deregulated free market that sorts out its own purchases.

Where possible, public services should be privatized, and consumers should be given the power to choose their own provider.

For public services where privatization and consumer choice cannot neatly apply, the tendering process must be democratised. Voters must be given control over the election of the winners of tenders; whether it is voters of a local ward choosing a company to repair the roads, or teachers voting on which textbook supplier to use for their curriculum.

Above all, racial legislation must be removed from the equation. The elimination of BEE alone will go a long way towards correcting errors in our tendering system and save South African taxpayers a lot of money.