State entities may cease BEE in tenders immediately

7 November 2022

Sakeliga can today announce that owing to a five-year litigation battle against the Minister of Finance, BEE and local content requirements in public procurement have finally been scrapped. New regulations promulgated last week by the Minister of Finance in the wake of Sakeliga’s Constitutional Court victory against BEE in public procurement will enter into force on 16 January 2023 containing no BEE or local content requirements. Even the definition of “B-BBEE” has been removed from the regulations.

More importantly – as Sakeliga will show in a report later this week – organs of state, including municipalities, do not even have to wait until 16 January 2023 to strip all BEE and local content requirements from their tender procedures. They are immediately free to commit themselves to normal value-for-money procurement only and are not subject to mandatory BEE or local content requirements.

The path that led to the new regulations

After a five-year litigation battle against the Minister of Finance, the Constitutional Court confirmed in February 2022 in Sakeliga’s favour that the Minister’s 2017 preferential procurement regulations are illegal and unconstitutional. The regulations introduced, among other things, pre-disqualification of tenderers based on BEE-points and imposed on organs of state other BEE, sub-contracting, and local content tendering requirements. The Court suspended the invalidity of the 2017 regulations until 16 January 2023, to provide the Minister an opportunity to make new, legal regulations.

Remarkably, records obtained by Sakeliga from the Minister of Finance in terms of the Promotion of Access to Information Act (PAIA), reveals that since our court victory in February, the National Treasury has received more than 700 requests from various organs of state to be exempted from preferential procurement rules enforced by the national government. The records reveal that the National Treasury has granted these "Con Court Exemptions" without exception.

It seems that in the wake of the Constitutional Court’s judgment in February, organs of state have realized for the first time to some extent that they do not have to be bound by mandatory BEE and local content preferential procurement requirements in national regulations. The exemption requests that piled up since then from organs of state, and the administrative burden brought upon the Treasury, seems to have compelled the Minister of Finance to promulgate his new regulations last week without any BEE or local content requirements.

The path forward

The scrapping of BEE and local content requirements in the new preferential procurement regulations is important and attests to the effectiveness of litigation to roll back BEE and other harmful state policies. The Minister might however attempt to re-introduce BEE and local content requirements in future regulations, or such requirements may be introduced in other legislation.

For this reason, Sakeliga is publishing a report this week wherein we demonstrate with the input of senior legal experts that there is no constitutional or other valid statutory obligation on organs of state to include BEE or local content conditions in tenders.

This constitutional position holds, regardless of any preferential procurement regulations or legislation that may be introduced in the future.

Organs of state enjoy full competence in terms of section 217(1) of the Constitution to determine their own supply chain management policies. Preferential procurement in terms of section 217(2) and the Preferential Procurement Policy Framework Act (PPPFA) is optional. Organs of state may not be forced to implement preferential procurement – neither by the national executive nor parliament.

Apart from clearing the path of organs of state, including municipalities, towards independent and BEE-free procurement, the implications of the findings in the report are also that:

The Minister of Finance never had the power to interfere with the discretion of organs of state to determine their own, normal procurement policies in the first place. Compulsory BEE, local content and other preferential goals imposed on organs of state since 2011, were improper and unconstitutional.

It was thus never necessary for organs of state to ask for "exemptions" from preferential procurement regulations (even though the barrage of exemption requests demonstrate that organs of state did not want to be bound to the regulations).

Organs of state do not need to wait until 16 January 2023 when the new preferential procurement regulations enter into force, to strip all BEE and local content requirements from their tender procedures. They can proceed with normal procurement, and immediately exercise a constitutional discretion not to implement preferential policies.

A choice for government bodies and an opportunity for businesspeople and the public

Preferential procurement, in particular BEE and local content, are harmful policies resulting in misallocation of funds away from maximum value-for-money for the public. They have done immense harm since being promulgated in 2011 and bolstered in 2017. Owing to our litigation and subsequent new regulations, BEE and local content in procurement is fortunately no longer formally imposed on organs of state. Even more important is the fact that, regardless of any future regulations or changes to national legislation, organs of state have had and still have a constitutional discretion not to apply preferential procurement.

Organs of state, including municipalities, that now choose to recover their constitutional discretion when it comes to procurement are making a choice for responsible, value-driven, and effective solutions for the communities they serve. This also applies to state entities such as Eskom. They can free themselves from the enormous misallocation of resources required of them in terms of illegally imposed preferential procurement measures.

However, many organs of state and municipalities will not automatically take up their constitutional duty to recover their procurement independence. Many may continue to abdicate responsibility to the national executive. In such cases, it will be up to businesspeople and other members of the public to hold, in particular, their municipalities to account and demand that they secure their independence when it comes to procurement, in the interests of better critical state services and avoiding the economic catastrophe brought about by gross inefficiency and service failure.

Issued by Piet le Roux, CEO, Sakeliga, 7 November 2022