The challenges and opportunities of contracting in the public sector | by Andries Louw

Andries LouwThere is a strong business case for suppliers, and specifically original equipment manufacturers (OEMs), to directly respond to public sector opportunities. However, it is important to approach any public sector business opportunity with some caution and with a general understanding of the legislated processes.

There is a perception that the public sector is extremely complex to deal with. Not only that, but some argue that the public sector procurement systems are less than fair, equitable, transparent, competitive and cost-effective as stipulated by section 217 of the Constitution. The objective of this article is to assist existing and potential suppliers to the public sector in navigating these opportunities, validating opportunities, and managing potential.

Here are some of the most common complaints about public sector contracting, and my advice on how to overcome them (and when it might be best not to tender).

Uncertainty in specification

If the specification is not clear in terms of the product or service, it becomes virtually impossible to distinguish between a value-for-money offering and a low-cost offering. Something like 80% or 90% of the decision to differentiate between suppliers will be based on price.

In the event that specification is not clear ,the supplier has the option to point out the weakness to the public sector institution and even lodge a complaint if the institution fails to address the weaknesses. In cases where the specification is too specific (to the extent that it becomes biased to a specific service provider or OEM), it becomes even more important to speak up.

Verify the purchase against the institutions operational plan
It is very important to verify if the goods or service that a public sector institution is looking for are indeed covered by its mandate or operational plan. This could normally be found in the institution’s annual performance plans (APP) or integrated development plans (IDP) which are supposed to be a public document.

If the expenditure is not in line with the organisation’s mandate, it is highly likely the transaction could end up not materialising or may not be properly funded. The worst outcome would be that the transaction is indeed fruitless and wasteful, which in turn will make the administration very reluctant to settle the subsequent invoices.

What is the funding mechanism and when do they plan to award?
Every APP or IDP is supposed to be funded (which means cash-backed) and it must always be verified which funding mechanism is applied. There is the normal operating budget also referred to as the “equitable share”, which is budget funded via the National or Provincial Treasury. There is also outcome specific funding available called “conditional grants”, linked to specific rules of how the money may be used.

The significance of this is to understand if the awarded contract is indeed properly funded over the contract period (or extecontractingnded contract period if there are delays), or in the event the incorrect method of funding is applied, if the institution have appropriate permission to continue with the project.

Is there an incumbent, and what is the performance of the incumbent?
Any instance where the nature of the service relates to a service that is already performed by another incumbent service provider, the bidder must be extra vigilant. It is possible the incumbent service provider could influence the specification or that the timeframes are set in such a way that only the incumbent can indeed mobilise resources within the required time frames. It is recommended to lodge a complaint with the institution if a supplier feels the process is biased to an incumbent.

If the public sector institution is indeed satisfied with the incumbent, there is a real risk that the institution may be biased to the incumbent. If the relationship with the incumbent has broken down or is strained, it does create a real opportunity to unseat the incumbent.

Do you suspect irregular behaviour?
It is difficult for a supplier to detect irregular behaviour; however, there are some red flags that could be considered, including:
  • Being approached by another bidder to subcontract before the awarding of the contract.
  • Staff soliciting favours or bribes. If they approach one bidder it is likely they will approach others, in which case it is advised to lodge a complaint once the bid has been awarded.
  • The public sector institution being reluctant to disclose the bid outcome or explain why a bid was not considered for award.
  • The department not following the correct procedure when advertising, closing or awarding the bid, (such as that bids valued above R500,000 must be advertising in a tender bulletin and on the CSD (www.csd.gov.za) website, etc).
  • It must be noted since 2015 all government departments and entities are supposed to use the Public Sector eTender portal to advertise their bids (www.etenders.gov.za). Be cautious of tenders not advertised via this medium. Municipalities and state-owned companies (SOC) are not compelled to use the portal.

Why did I not win the last time?
Key to managing a public sector business development strategy is to source feedback in terms of the exact reasons why any previous bids were unsuccessful. It must be noted the process from closing a bid to awarding the contract is highly confidential, but after award it must be made transparent how the decision was derived. In terms of the Section 5 (1) of the Promotion of Administrative Justice Act 3 of 2000, an organ of state must furnish a person with written reason for an action (decision) within 90 days of such action.

It may be particularly revealing to find out at which stage of the evaluation process a bid was eliminated, but that is a matter that requires much more explanation (for a future article).

In conclusion, the key to being successful in doing business with public sector is applying a process of continuous improvement, making a point of understanding the legislation governing the processes and speaking up when your rights as the bidder are violated.

Andries Louw is the chief director of transversal audit and risk management at the Eastern Cape Provincial Treasury - www.ectreasury.gov.za

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Posted on July 18, 2019

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