Treasury’s new procurement rules add complexity, costs and new graft risks, say experts

National Treasury’s proposed public procurement regulations aim to give effect to the 2024 Public Procurement Act, but a coalition of policy and advocacy groups warns they will substantially increase complexity, raise costs and open new avenues for corruption.

What the rules change and what they don’t

The proposed regulations tighten controls over who may bid for public contracts while offering less detail on costs and delivery, according to a new critique by the Centre for Development and Enterprise (CDE) and commentary from public advocacy group Section27.

The rules promise increased transparency, including a procurement dashboard, and define “value for money” as more than the cheapest price a change Section27 welcomes.

New transformation measures

The proposals introduce stricter transformation requirements. One set-aside rule would require some procurement categories to be 100% owned by members of designated groups, rather than merely majority black-owned or BEE-compliant. The CDE warns this change will discourage cross-racial partnerships and could incentivise fronting, producing firms that are strong on paper but lack the capacity to deliver.

For large contracts, the rules also impose compulsory subcontracting: for contracts exceeding R100 million, the winning contractor may have to subcontract at least 25% of the work to designated businesses. The CDE says this will shift risk to subcontractors and drive up prices as suppliers charge a premium.

Prequalification tests and compliance burdens

The proposed prequalification rules could require bidders to demonstrate that 40% of their previous procurement spending went to majority black-owned businesses, a move the CDE says overturns established BEE practice and will add paperwork and compliance costs for already stretched procurement managers.

Overall, the CDE describes the new rules as “substantially more stringent and complex,” and warns they will add fresh compliance burdens that are bound to increase costs for procuring entities.

Corruption risks remain

Both the CDE and Section27 expressed concern that the regulations focus on which businesses can bid, but are less specific on deliverables and oversight at each stage of the procurement cycle. The CDE highlighted how complexity can create openings for corrupt actors.

“Simplicity is one of the most powerful instruments available for reducing corruption,” said CDE executive director Ann Bernstein. “It is often complexity – discretionary decision points, opaque processes and rules that are hard to interpret, administer and monitor – that creates the openings for corruption.”

The OECD’s 400-page study into South Africa’s procurement system, cited in the commentary, found “systemic signs of corruption and political interference” and recommended greater professionalism, transparency and oversight.

Transparency with caveats

Section27 welcomes improved disclosure measures but warned that procuring institutions may still use non-disclosure clauses to withhold vital information from the public, echoing past concerns about the Promotion of Access to Information Act (PAIA) being used to keep information confidential.

Where this leaves procurement

The critiques stress that public procurement determines core services from medical supplies to school textbooks and that the rules should minimise openings for corrupt extraction while ensuring goods and services are affordable and deliverable. The CDE and Section27 both argue that the draft regulations, as written, risk doing the opposite by introducing fresh compliance burdens and stringent transformation targets that may raise costs and create new opportunities for graft unless they are simplified or reworked.