The Municipal Finance Management Act: Procurement through non-competitive bidding

Procurement Law . 01 Mar 2016

Procurement through non-competitive bidding – MFMA

Section 217 of our Constitution provides:
“When an organ of state in the national, provincial or local sphere of government, or any other institution identified in national legislation, contracts for goods or services, it must do so in accordance with a system which is equitable, transparent, competitive and cost-effective.”

The procurement principles enunciated in the Constitution have been given further legislative impetus by, amongst others, section 112(1) of the MFMA which provides:

“The supply chain management policy of a municipality or municipal entity must be fair, equitable, transparent, competitive and cost-effective and comply with a prescribed regulatory framework for municipal supply chain management”

TThe same principles are repeated in the MFMA Regulations which require the accounting officer to develop an effective and efficient supply chain management system that is fair, equitable, transparent, competitive and cost effective.

Unlike in the national context where the PFMA and its Regulations do not stay silent on the matter, Treasury, through Practice Notes No 8 of 2007/2008: Threshold Values for the Procurement of Goods, Works And Services By Means Of Petty Cash, Verbal / Written Price Quotations Or Competitive Bids, (“Threshold Practice Note”) has developed thresholds determining instances where competitive bidding through a public tendering ought to be followed in the appointment of service providers.

Clause 3.4 of the Threshold Practice Note provides:
“3.4.1.Accounting officers / authorities should invite competitive bids for all procurement above R 500 000.

3.4.2 Competitive bids should be advertised in at least the Government Tender Bulletin and in other appropriate media should an accounting officer / authority deem it necessary to ensure greater exposure to potential bidders. The responsibility for advertisement costs will be that of the relevant accounting officer / authority.”

However in certain instances the demands of an effective and efficient administration do not always make it possible for accounting officers to follow the above directive to the letter. There are circumstances that would necessitate a deviation from complying with the requirement of competitive bidding.

Regulation 16A6.4 states:

“If in a specific case it is impractical to invite competitive bids, the accounting officer or accounting authority may procure the required goods and services by other means, provided that the reason from deviating from inviting competitive bids must be recorded and approved by the accounting officer or accounting authority.”

In such deviation cases, accounting officers are required to report, within 10 days, to the relevant treasury and Auditor General all procurements above R1 Million undertaken without competitive bidding.

As to whether a particular situation justifies a deviation as contemplated by the PFMA and its Regulations will depend on the circumstances of each case.

Though the law does not give carte blanche to organs of state to deviate from competitive bidding processes, it however recognises that there may be legitimate circumstances justifying such a deviation.

The supply chain management policy of a municipality or municipal entity must be fair, equitable, transparent, competitive and cost-effective and comply with a prescribed regulatory framework for municipal supply chain management.

Regulation 2(1)(b)
Clause 3.4.2 of Threshold Practice Note

The Public Finance Management Act: Procurement through non-competitive bidding
Procurement Through Non-Competitive Bidding – PFMA

Section 217 of our Constitution provides:

“When an organ of state in the national, provincial or local sphere of government, or any other institution identified in national legislation, contracts for goods or services, it must do so in accordance with a system which is equitable, transparent, competitive and cost-effective.”

The procurement principles enunciated in the Constitution have been given further legislative impetus by, amongst others, section 38 of the PFMA which provides:

“The accounting officer for a department, trading entity or constitutional institution must ensure that a department, trading entity or constitutional institution has and maintains an appropriate procurement and provisioning system which is fair, equitable, transparent, competitive and cost effective”.

The Public Finance Management Act: Procurement through non-competitive bidding
Procurement Through Non-Competitive Bidding – PFMA

Section 217 of our Constitution provides:

“When an organ of state in the national, provincial or local sphere of government, or any other institution identified in national legislation, contracts for goods or services, it must do so in accordance with a system which is equitable, transparent, competitive and cost-effective.”

The procurement principles enunciated in the Constitution have been given further legislative impetus by, amongst others, section 38 of the PFMA which provides:

“The accounting officer for a department, trading entity or constitutional institution must ensure that a department, trading entity or constitutional institution has and maintains an appropriate procurement and provisioning system which is fair, equitable, transparent, competitive and cost effective”.

The same principles are repeated in the Treasury Regulations promulgated under the PFMA which require the accounting officer to develop an effective and efficient supply chain management system that is fair, equitable, transparent, competitive and cost effective.

Treasury, through Practice Notes No 8 of 2007/2008: Threshold Values for the Procurement of Goods, Works And Services By Means Of Petty Cash, Verbal / Written Price Quotations Or Competitive Bids, (“Threshold Practice Note”) has developed thresholds determining instances where competitive bidding through a public tendering ought to be followed in the appointment of service providers.

Clause 3.4 of the Threshold Practice Note provides:

“3.4.1.Accounting officers / authorities should invite competitive bids for all procurement above R 500 000.

3.4.2 Competitive bids should be advertised in at least the Government Tender Bulletin and in other appropriate media should an accounting officer / authority deem it necessary to ensure greater exposure to potential bidders. The responsibility for advertisement costs will be that of the relevant accounting officer / authority.”

However in certain instances the demands of an effective and efficient administration do not always make it possible for accounting officers to follow the above directive to the letter. There are circumstances that would necessitate a deviation from complying with the requirement of competitive bidding. Regulation 16A6.4 states:

“If in a specific case it is impractical to invite competitive bids, the accounting officer or accounting authority may procure the required goods and services by other means, provided that the reason from deviating from inviting competitive bids must be recorded and approved by the accounting officer or accounting authority”

In such deviation cases, accounting officers are required to report, within 10 days, to the relevant treasury and Auditor General all procurements above R1 Million undertaken without competitive bidding.

As to whether a particular situation justifies a deviation as contemplated by the PFMA and its Regulations will depend on the circumstances of each case.

Though the law does not give carte blanche to organs of state to deviate from competitive bidding processes, it however recognises that there may be legitimate circumstances justifying such a deviation.

Regulation 16A3.2
Clause 3.4.2 of Threshold Practice Note