Public Procurement

Covid-19: Public Procurement in the time of Covid-19 - An exposition of emergency procurement procedures governing the facilitation of emergency procurement; and combatting the avoidance of supply chain management system abuse in dealing with the disaster.  

Written by Tebogo Malatji, Managing Director, and Bonang Lorato Masia, Director, at Malatji & Co. Attorneys, for LexisNexis South Africa.

[Durban, 17 April 2020]

On 18 March 2020, and pursuant to President Ramaphosa’s declaration of a national state of disaster on 15 March 2020, (“the Disaster”), Regulations were issued in terms of section 27(2) of the Disaster Management Act, 2002 (“the Regulations”). Given the Disaster, it is impractical and inappropriate to call for public procurement of goods and services in accordance with the normal public procurement prescripts, as to do so may contribute towards an escalation of the Disaster.  In this regard, Regulation 9 of the Regulations provides for emergency procurement procedures.  However, such emergency procurement is subject to the Public Finance Management Act, 1999, the Municipal Finance Management Act, 2003 and the relevant Treasury Regulations and Instructions issued under these Acts.

National Treasury issued an Instruction Note No 08 of 2019/2020 (“Note 8”) on 27 March 2020 relating to emergency procurement in response to the Disaster, with a number of annexures.¹ The purpose thereof is twofold. First, it is to facilitate emergency procurement; and second, to avoid the abuse of the supply chain management system to deal with the Disaster. Given the Disaster, organs of state have to put in place measures to address the prevention of the escalation of Covid-19.  Such measures require that a public procurement process must be followed. National Treasury has set out three categories of contracting for goods using the emergency procurement procedures.

The first category relates to centrally facilitated contracts arranged by National Treasury for goods which have been pre-negotiated with a number of suppliers. These are known as transversal contracts.   A list of those goods and the contracts in place are listed in Table 1 of Annexure A to the Instruction Note.  Institutions may procure those goods from these contracts without obtaining approval from National Treasury to do so.  The goods relate to items such as sanitisers, and surgical masks.  The second category relates to goods which do not fall under National Treasury’s transversal contracts.  However, National Treasury has made alternative arrangements with specific suppliers of such goods, listed in Table 2 of Annexure A. These items include disposable half masks; and respirators. Where organs of state already procured the goods listed in Annexure A prior to the issue of Instruction 08, such procurement must be reported within 10 days to the relevant treasury.

The third category relates to those instances were organs of state must procure goods not listed in either Table 1 or Table 2 of Annexure A to Note 8.  These are for instance goods and services relating to infrastructure development of sites to be used as isolation and quarantine facilities; erection of boreholes for the supply of water resources, legal advisory services related to such procurement, and other goods and services which are deemed to be a specific requirement for organs of state.  In such instances, then emergency procurement prescripts must be followed.  Emergency procurement is not a novel concept.  Treasury Regulation 16A6.4 provides for instances were organs of state may dispense with competitive procurement processes.² National Treasury has published a number of Practice and Instruction Notes which give effect to Treasury Regulation 16A6.4.  These include Practice Note 6 of 2007/2008; Practice Note 8 of 2007/2008, and most recently paragraph 8 of Instruction Note 3 of 2016/207 (“Note 3”), which amongst others provides that “An emergency procurement may occur when there is a serious and unexpected situation that poses an immediate risk to health, life, property or environment which calls an agency to action and there is insufficient time to invite competitive bids.” (own emphasis) Allied thereto, paragraph 9 of Note 3 deals with expansions and variations of contracts.  Where there are existing contracts in place, then organs of state can vary or expand such contracts by up to 15% or R15 million to ensure that they procure the necessary goods and services to address the Disaster.

The Disaster qualifies as the situation contemplated in Note 3. Organs of state who procure goods and services as contemplated in Note 3 are not required to seek National Treasury’s approval.  However, expansions in excess of the 15% or R15 million threshold must seek the approval of the relevant treasury.   All emergency procurement related to Covid-19 must then be reported to the relevant treasury within 30 days.  It is accordingly important that organs of state maintain an audit trail during these times to avoid a finding of irregular expenditure.  Institutions must record the need for the procurement, the motivation for deviation from normal public procurement prescripts; the description of the goods and services procured, detail the reasons for selecting a specific supplier; reasons for not selecting a supplier from table 1 or table 2 as may be applicable where relevant, the total price and the saving achieved, the approval by the Accounting Authority or Accounting Officer; and report to the relevant treasury.

1. Note 8 remains in effect until the Disaster lapses or terminates, or until it is withdrawn.
2. In the Local government sphere, similar provisions are provided in Regulation 36(1)(a) of the Municipal Supply Chain Management Regulations