Provincial and nation government is spending R1 billion annually on cellphones per year and R6.5 billion on cars.
In fact, 30% of all spending in South Africa is from the public purse, but government is not using that spending power to negotiate better value for money. It buys thousands of laptops, but pays a high price of on average R20 000 each. A school in Boksburg that should have cost R50 million costs R110 million.
That is going to change, Kenneth Brown – the country’s very first chief procurement officer – told Moneyweb.
“Government procurement makes 30% if the economy, but we don’t have shrewd negotiators,” said Brown. “You need a different kind of person.” He said private companies need government more than government needs them. Why is government being overcharged for leases …? If government works smartly, it can create a number of anchor tenants that drive feet to other businesses and capitalise on that ability, Brown said.
The procurement process
The focus on [rooting out] corruption in tenders is only one aspect of procurement, he says. The most important part is demand planning. This focuses on the services that are eventually going to be needed: do they make sense, how much of what is needed and who are the possible suppliers. This informs a procurement plan.
In education for example, demand planning will require an understanding of how many learners of what age will need schools when and where, as well as how many new classrooms, how many refurbishments, textbooks, desks, etc.
The procurement plan will determine how the building of schools will be sequenced.
After the bid process there has to be contract management of the building project and then a maintenance plan has to be followed.
“So you see, it is a whole process,” said Brown.
His office is looking at the whole procurement process in all 660 government entities countrywide. The mandate includes “all purchasing decisions taken in the public sector in South Africa.”
In provincial and local government alone, there are about 20 000 supply chain management practitioners. The system might be too decentralised and centralisation will decrease the number of people who have to be trained, Brown said.
The Eastern Cape health department for example has over 3 000 cost centres where purchase decisions are being taken. One can aggregate certain decisions at departmental level, but it can also be done at national level, Brown said. In fact, his office has already initiated the assessment of all assets in all health facilities in the province. That will inform a procurement strategy where government can use its buying power to get more bang for its buck.
However, this does not mean that government will become involved in logistics. The tender should be written in such a way that the product is delivered directly to the user. Only the bid process and negotiations with suppliers will be centralized, he explains.
About 2 700 common goods have already been identified that can be procured centrally and this will be expanded.
Certain activities like construction are difficult to centralise, because one needs to manage where the building takes place. As such, his office will work with existing institutions like the Council of the Built Environment and the Construction Industry Development Board (CIDB) and National Home Builder Registration Board and help strengthen them.
An infrastructure development management (IDM) system, designed by the CIDB and Treasury, that takes the whole supply chain management system into account, has so far been implemented on a voluntary basis. That will become compulsory when new regulations are published in the next six months.
Departments that don’t comply (ie have an efficient system to spend money) will see their funding from Treasury dry up.
The procurement office is in the process of appointing 20 experts in local government, people like civil engineers, architects and designers who will implement the IDM system in local government in conjunction with the CIDB.
Brown’s office has six working streams:
1. Capacity building endeavours to professionalise supply chain management and give hands-on operational support to departments or entities where needed. It will include accreditation for trained and qualified supply chain management practitioners and also for government entities that comply with proper supply chain management practices. The accreditation will be reviewed on a regular basis. Such certification should carry a lot of weight when the entity interacts with rating agencies, funders and suppliers.
2. Norms and standards, i.e. reviewing the legislative framework to simplify processes.
3. Contract management identifing common goods in government and managing the bid process and negotiations. They have for example negotiated with all vehicle suppliers in the country and set a price that government will buy at. The planned regulation will compel government entities to use this system.
4. ICT data management will create a single supplier database for the whole of government. Brown has taken lessons from the short-term insurance industry that is able have a burst geyser replaced anywhere in the country within two days and pays the supplier immediately. Existing supplier government databases will be vetted and incorporated. He believes this will lessen the burden on suppliers to register on multiple databases and to prove, for example, tax compliance repeatedly every time with each tender submission. Small suppliers will not be excluded. The database should be available to each buyer in government. A rural school principal should be able to get a broken windowpane replaced speedily by going onto the website, getting a local supplier and placing the order. Once the job is done, the invoice is uploaded onto the system and payment takes place immediately. “There is no 30 days,” Brown said. A further function would be to publish upcoming tenders as derived from the procurement plans, quarterly to give the private sector a forward view of which tenders will be coming to market and when. He hopes to appoint the leader of this work stream in May.
5. Strategic sourcing that deals with purchases that don’t need to go on tender, for example in the case of a single supplier. The office negotiates better prices on the basis of international benchmarks or an agreed-upon margin. The office also assesses the use of items in government to understand need. By buying only the capacity needed with regards to for example laptops, the cost can be driven down through appropriate specifications. The cost of buying as opposed to leasing is also being assessed.
6. Governance monitoring and compliance to combat corruption proactively. It will put measures in place, but also act on information from the public and suppliers. The unit will see that procurement plans are aligned with budgets and if there is budget available. Without a plan for spending it, the money will be taken away. One of the initiatives is to compel contractors to show the value of a project on the contractor information board on each building site. If a community then sees a school in one area costs double what a similar school in a neighbouring community costs, it can raise the red flag.
Brown is taking his time to fill the 145 available positions in his office, hand-picking staff with appropriate skills that are properly vetted. Currently the staff compliment stands at 70.
A lot of progress has been made to establish the same capabilities at all nine provincial treasuries, Brown said. Treasury will still oversee the 17 largest municipalities and the CIDB will oversee construction procurement.
On big infrastructure projects the accounting officer in each entity will still be responsible for the entities, but the Treasury procurement office will advise what is the appropriate procurement model, Brown said.
Brown, a former teacher has been with Treasury for 16 years. He started as a director in public financial planning and became a director in inter-governmental relations. He was promoted to chief director inter-governmental policy planning and later head of inter-governmental relations, where he led several interventions, including when the Limpopo government was placed under administration. At home his wife does the buying, but he does the demand planning and “when I want a CD, I buy it”.