This article was first published by Business Day on 23 June 2023 (hard copy attached below)
Procurement reform: If not privatise, then democratise
In May, the City of Ekurhuleni issued a tender to acquire six Xbox Series X consoles, videogames, and peripherals to make public libraries “4IR compliant”. Apparently, these gaming consoles will be necessary to help students, as robotics is being added to the school curriculum.
An additional article could be written about how unnecessary and useless these consoles will be for helping the study of robotics. A series of articles would need to be written to explain the vapid and delusional drive behind government’s “4th Industrial Revolution”, while its policies drive the country towards deindustrialisation.
It is clear that this is just a vanity project. An attempt by the government to create the impression that it is doing something of value, while squandering public money. But it becomes even worse when one realises that the maximum transaction value of the tender is R200 000.
MyBroadband already calculated that the six consoles, all the required peripherals, and all the games should only come to R118 272. Some cost-saving measures that actually increase the range of games would put the price at R111 241.
Labour should not make up the rest of the R200 000, even if the tender calls for an overqualified technician, when anyone with hands and eyes could actually set up a console (that is the point of consoles: they are meant to be simpler than desktop computers).
Overvalued tenders are nothing new to South Africa, unfortunately. The public procurement system is rotten with overpriced and shoddy goods and services.
Eskom’s procurement tenders are guilty of spending R80 000 for a pair of knee guards worth R300, R280 000 for a broom, R900 each for fluorescent lights worth R63, and paying R56 per litre of milk. Despite promises to investigate overcharging in the millions, the rot continues to fester. And it is unlikely to ever end while tendering exists in its current form.
How tendering works
On paper, tendering in South Africa is meant to ensure transparency through open communication, and the best provider at the best price through open competition. In practice, it rarely works out this way.
The public sector cannot just go to the local grocery store to buy something they need. Policies require them to go through a tendering process to find the best possible provider. This is meant to prevent arbitrary spending, as all procurements are interrogated, put under public scrutiny, and exposed to multiple possible competitors. In theory, the best and cheapest is supposed to win.
But a tender still needs to be awarded by a government official, so they still have power over the winners and losers. Human nature would dictate that procurement officials will – especially where the risk of detection and punishment is low – pick their friends, accept bribes, or even award the tenders to shell companies that they benefit from. As a result, the price for the tender rises, and an incompetent provider wins.
Procurement guidelines are meant to protect taxpayers from the government arbitrarily spending public money. But all the bureaucracy ends up allowing officials to spend exorbitant amounts on goods that the private sector could purchase on Takealot for a fraction of the price.
And why it doesn’t
Our tendering system doesn’t work, for multiple reasons. First, it is overly bureaucratic and formalist. Requiring a tender for goods that could and should be purchased at a reputable store or wholesaler is just ludicrous.
If milk is required for a staff room, then go and buy milk from a local grocer. Keep the receipts as a record. In fact, a procurement official purchasing milk from anyone other than a reputable retailer or wholesaler should be a red flag.
For outsourcing services, or large purchases of specialised equipment, tendering does have a place. But even then, much must change.
There is a pervasive culture of corruption throughout the government. Tenders aren’t seen as a way to fulfil the needs of the people, but as an opportunity to steal money from public coffers. Tender values are so high because officials want to leave a lot of leeway for exorbitant expenditure that can then disappear into their pockets.
BEE and racial quotas as a requirement for winning tenders also contributes to this corruption. Companies who wish to win tenders must not only comply with the letter of these laws, but with government officials who will often demand that companies appoint their friends or cronies to positions of leadership in exchange for contracts.
Even without corruption, there is another reason why tendering in South Africa is so expensive and results in so little being done. Simply put, government officials who issue these tenders don’t actually understand the value of the money they’re spending (because it isn’t theirs), and they don’t understand what the tender is actually for.
This is not just a problem of competence. Even governments in more sophisticated democracies suffer from an inability to truly understand how much money should be spent on certain things. It’s a symptom of spending other people’s money without much accountability or incentive to save.
Solution: Bring in consumer choice
The only real solution to tender problems in South Africa is to take away power from the government in issuing and selecting tenders and put it directly in the hands of consumers and voters.
State companies like Eskom and Transnet should be privatised and faced with a deregulated free market that sorts out its own procurement.
Where possible, government services should be privatised, and consumers should be given power to choose their own provider.
For government services where privatisation and consumer choice can’t neatly apply, then the tendering process should be democratised. Constituents should be given control over electing the winners of tenders, be it voters of a local ward selecting a company to repair the roads, or teachers voting on which textbook provider to use for their curriculum.
Most of all, racial legislation needs to be removed from the equation. Eliminating BEE alone would go a long way to correcting errors in our tendering system and save South Africans a lot of money.