Treasury lifts tender ban but new regulations have ‘unintended consequences’

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A tender ban imposed on all government departments and entities by the treasury in February caused by a court battle over bungled preferential procurement regulations has been lifted. 

But what has been put in place could result in increased irregular expenditure — rather than curbing it — because accounting officers have been given powers to grant variations or extensions, with decisions open to review by the auditor general at the end of the financial year.

The ban, along with a R30 000 cap on all procurement transactions, had effectively halted all new tenders across government departments, municipalities and state-owned entities since February. 

In the Western Cape alone, projects valued at R1.85-billion faced being put on hold by the end of February, when the provincial government appealed to the treasury to recall the adviser note banning tenders and putting all of those advertised after 16 February in abeyance.

The Western Cape government pushed ahead with procurement despite the treasury’s “contradictory” and “confusing” directives, which were issued as a precautionary measure while the department was awaiting a constitutional court directive confirming the date from which the court’s earlier order took effect.

From February, all existing procurement above R30 000 had to be cleared by the treasury, creating a bottleneck on top of the halt on new tenders, which was introduced because of a battle at the constitutional court over preferential procurement regulations introduced in 2017.

The 2017 regulations had been challenged at the high court by Afribusiness NPC and other parties, who argued that they were unfair because they allowed departments to set preconditions for tenders, and that the then-minister of finance, Tito Mboweni, had exceeded his powers in introducing them.

Afribusiness won, and current Finance Minister Enoch Godongwana took the matter on appeal, with the instruction halting tenders being issued while the constitutional court delivered its decision on the matter.

Now new treasury regulations have been issued, in the form of Supply Chain Management Instruction 3 of 2021-22, taking effect from 1 April, which now gives accounting officers the powers to issue deviations.

Although the regulations will help speed up the tender process, it may have the unintended consequences of increasing irregular expenditure by placing powers to vary tenders in the hands of the same officials who are issuing them.

According to the instruction deviations, up to R20-million on construction projects and R15-million in procurement by the accounting officers of state-owned entities and departments have to be reported to the treasury within 14 days. The horse will, in effect, have bolted by this time if such malfeasance has occurred.

Speaking to the Mail & Guardian this week, Deputy Finance Minister David Masondo said the new treasury instructions were aimed at empowering the accounting officers and chief executives of state departments and state-owned entities.

“For instance, in the past the deviations would have to be motivated and signed off by the treasury. Now this will be in the hands of the heads of departments and they will only need to report to the treasury,” he said. 

Masondo said there were built-in safeguards because the auditor general, when auditing, would determine whether the decision to allow the variation was logical. 

“If there is no sound logic they will make a finding and institute an investigation to look at the deviations,” he said.

The regulations gave increased powers to the accounting officers and was aimed at enabling departments and state-owned entities to procure goods and services more efficiently without waiting on the treasury to authorise the request, according to Masondo. 

“Work is not being done, service is not being provided, because the treasury is taking longer to approve or decline deviations. This is an attempt to prioritise service delivery. We will deal with any malfeasance after the fact. Whoever does the deviation needs to have good reasons. If the AG [auditor general] comes back and says it is not justified, there are huge consequences for those who would have undertaken that deviations.”

He said accounting officers would be under less pressure, and would be subject to sanction for unjustified deviations in terms of amendments to the Public Audit Act, which were being piloted.

But senior supply chain officials, who asked not to be named, said the regulations came with associated risks.

“There will be a high rate of deviations, which may not all be justified and will lead to increased irregular expenditure,” one official said. 

The regulations leave it to each department or entity to develop their own procurement policies, which meant there would be no uniformity across the public service, the officials said.

They added that the fact that deviations would not be subject to prior scrutiny by the treasury meant that planning might suffer, while supply chain officials were likely to be overstretched, which could compromise processes.

The instruction also seeks to strengthen accountability among political office-bearers, such as premiers and provincial members of executive councils, by placing responsibility on them for the “effective, efficient and transparent systems of financial management as well as a procurement and provisioning system”.

It places greater responsibility on the office-bearers, referred to in the instruction as “accounting authorities”, to record deviations, as well as “identify and manage all potential conflicts of interest and other disclosures made by a person participating in procurement process”. 

The state has charged former Free State premier Ace Magashule, who is also the suspended secretary general of the ANC, for contraventions of the Public Finance Management Act (PFMA) related to the R255-million contract to audit and eradicate asbestos roofs in the province from 2014 to 2019, according to the National Prosecuting Authority’s charge sheet. 

Magashule, the charge sheet reads, allegedly did not ensure a cost-effective use of public funds after only R20-million worth of work was done from the allocated funds by Blackhead Consulting, which received the contract. 

The charge sheet added that Magashule allegedly failed to disclose his close relationship with Blackhead Consulting director Phikolomzi Mpambani, who was assassinated. The state alleges he disbursed more than R800 000 of the R255-million to Magashule’s nominated persons, including to fund tuition fees for an acting judge’s daughter, as well as 200 electronic tablets for Free State students. 

Edwin Sodi, who was the only other director at Blackhead Consulting, is accused number three in the asbestos criminal case. 

“The state alleges that a legal duty existed on [Magashule] to comply with the stipulations in the PFMA as well as the treasury regulations. 

This is just one of the many cases where supply chain management has been flouted by senior officials that the treasury is now saying will be given more responsibility and more oversight. 

The M&G sent questions to the treasury, which acknowledged receipt and said it would answer, but it had not done so by the time of publication.

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