Excluding corrupt suppliers from public procurement in South Africa

The South African government has taken steps to ensure its public procurement system for awarding contracts is free of corruption. Central to these efforts are anti-corruption laws that exclude firms guilty of corruption offences from the procurement process. However, it is unclear how effective this is, and the costs of these exclusions may prove too high.

Where there is little regulation or transparencyin the procurement process, the award of public contracts using public fundsmay involve corruption. The South African public procurement system isregulated by a constitutional framework and anti-corruption legislation.Suppliers can be excluded from public contracts for corruption offences. Anarticle in the Journal of African Law reviews the efficacy of relevantlegislation on public procurement.

With the end of apartheid in South Africa,public procurement was seen as a way to democratise the economy by giving opportunities to those previously neglected by the system. Thesubsequent reform process was reinforced by the Constitution’s call for a ‘fair, equitable, transparent,competitive and cost-effective procurement system’. Supporting legislationfollowed, most notably the Public Finance Management Act 1999 (PFMA), the PreferentialProcurement Policy Framework Act 2000 (PPPFA), and the Prevention and Combatingof Corrupt Activities Act 2004 (Corruption Act).

A corruption offence related to procurement canbe said to have taken place where, for instance, a person has given or receivedsomething to influence a contract or the awarding of a contract. Unfortunately, thedifferent exclusion mechanisms are overlapping and sometimes contradictory:

• The PFMA allows non-competitive methods for awarding contracts andexclusions may be made for breaches of procurement rules.
• PPPFA exclusions have to be applied by all state organs, even thoughthey may not involve court procedure and are determined by different procuringbodies with different criteria.
• Under the Corruption Act, a person found guiltyof procurement-relatedcorruption by a court may be excluded by an endorsement onthe Register for Tender Defaulters.
• The regulations can alsoexclude persons related to the primary offender, but determining this mayrequire extensive investigations by procurement officials.
• The National Treasury may acton a Register endorsement to terminate ongoing agreements with a supplier,which may be very costly and lead to legal challenges.

While the South African government should becommended for its initiative to use public procurement as an anti-corruptiontool, a number of problems are evident:

• Exclusion in itself cannottackle an issue as complex as corruption, as the potential for profits in a marketeconomy may mean breaking the law is worth the risk.
• Without lengthy and expensiveinvestigations, it is difficult to prevent excluded firms from taking ondifferent identities to participate in government contracts.
• Exclusion incurs heavyfinancial and time costs on procurement in relation to the investigation ofnon-judicial corruption offences under the PPPFA and the PFMA.
• There is a need to maintainprocedural standards among procuring bodies, particularly with regard tonon-judicial exclusions, to eliminate the risk of discrimination.
• The fairness of the 20-yearRegister endorsements (including information on unconvicted related persons)and non-judicial exclusions applied by all state bodies is questionable.