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New regulations on BEE procurement, which have just been published by the government, further tighten the already controversial Public Procurement Act. Solidarity has confirmed that its court case against the constitutionality of this law will be heard in May this year.
“This case is of critical importance for every taxpayer and service user, as this legislation has direct consequences for prices, service delivery and the state of infrastructure in the country,” says Anton van der Bijl, deputy chief executive of Solidarity.
“Yet the government has decided to issue new regulations on the legislation shortly before the court has to decide on the constitutionality of this legislation.”
The case will be heard in the Constitutional Court on 18 and 19 May.
According to the regulations published by the national treasury, government institutions must reserve 30% of all purchases they make for black-owned enterprises. A company that wants to do business with the state must also be able to show that at least 40% of all its purchases were made from service providers with largely black ownership.”
Van der Bijl says that unlike in the past, non-compliance with this very high level of black empowerment according to the regulations is now also grounds for automatic exclusion from all government contracts.
“The audacity to do this so soon before deciding whether the law is fair or not is actually astonishing. These regulations will not only drastically increase the costs of purchases as they will further reduce the pool of available suppliers to the state.
“Those who do comply with these BEE regulations will have almost no limit on the prices they can charge for their products and services. It is then ultimately for the account of the taxpayer.”
Solidarity emphasizes that South Africans must take note of the harmful effects this legislation has on the country.
According to Theuns du Buisson, economic researcher of the Solidarity Research Institute (SNI), people must first understand how preferential procurement works in practice.
“Preferential procurement means that the state and state entities cannot purchase directly from the best and cheapest suppliers. It creates a system where middlemen and so-called ‘tenderpreneurs’ make profits without adding real value.”
Du Buisson explains how government institutions are supposed to act as a cost-effective service provider for the public and the economy.
“But when prices are artificially increased by adding intermediaries as additional links in the chain, this mandate is undermined. The end result is that ordinary South Africans pay more for poorer services.”
He says estimates by the national treasury itself show how up to 40% of government purchases are wasted through fraud, inflated prices and middleman structures. This figure is in line with earlier warnings by the National Treasury’s Chief Procurement Officer.
Yet the new regulations increase the preferential procurement requirements rather than addressing the problems with the legislation.
Du Buisson considers it one of the most racist pieces of legislation issued since 1994, in that it almost completely disqualifies white business people.
Therefore, the upcoming court case must be a turning point.
“This case is not just about policy. It is about the constitutional principles of fairness, efficiency and accountability. We want South Africans to understand that this racial system affects them on a daily basis – in their taxes, their service provision and their quality of life.”