Flawed tender processes could be costing SA R400bn a year

The second day of the long-awaited state capture commission of inquiry, chaired by deputy chief justice Raymond Zondo, revealed what many South Africans have long-suspected: government’s procurement and tender spend is bedevilled by corruption and abuse.

But the extent of the wastage might come as a shock.

In his submission to the commission on Tuesday, National Treasury acting chief procurement officer Willie Mathebula said the state’s annual procurement spend – through all spheres – stands at a hefty R800 billion.

Mathebula suggests, however, that an estimated 50% of the annual procurement spend doesn’t follow proper regulatory processes – intentionally. In other words, as much as half of the total procurement spend, or as much as R400 billion in rand terms, is possibly lost to corruption and the flouting of regulations by government officials.

“The size of government procurement does give rise [to] abuse of the system,” Mathebula said when advocate Leah Gcabashe, who led his testimony, asked him about the extent of corruption and irregularities. “We can ascribe more than 50% of [procurement] infractions to intentions to abuse the system or the different interpretation of rules.”

To put it in context, R400 billion is nearly half of the R1.3 trillion that the South African Revenue Services has to raise in tax revenue for the 2017/18 financial year. It’s also substantially higher than the R100 billion that public enterprises minister Pravin Gordhan has estimated South Africa has lost through state-capture corruption.

Testimony at commission

Mathebula is a veteran treasury staffer, having spent more than 15 years at the institution in various roles related to managing government’s procurement and supply chain management processes.

He was the first witness to be called by the commission, which has been mandated to look at corruption and fraud at various state organs in which high-profile politicians, including former president Jacob Zuma, have been directly or indirectly implicated. The commission was established by Zuma in January 2018 and kicked off on Monday in Johannesburg.

Mathebula’s appearance at the commission was not intended to implicate anybody in state capture; his testimony was intended to give context to the legal and regulatory processes around government procurement. Former deputy finance minister Mcebisi Jonas and former ANC MP Vytjie Mentor have implicated the Gupta family in state capture. Both were allegedly offered ministerial posts by the Gupta family.

When rules are flouted

Although Mathebula didn’t give specific examples of compromised government departments or state-owned entities, he described how the state could have been captured through regulatory shortcomings.

The procurement and tender process is governed by section 217 of the Constitution, which deals with preferential procurement and proper financial management of public monies.

Mathebula said other pieces of legislation – such as the Public Finances Management Act, the Municipal Finance Management Act, and the Broad-Based Black Economic Empowerment Act – ensure, in theory, that government officials comply with principles of fairness, competitiveness, cost-effectiveness and transformation in assessing tender bids.

Every system has loopholes, and in South Africa’s case, said Mathebula, it’s the systems themselves that allow government departments to deviate from rules when awarding tenders. They allow for tender bid evaluation processes that aren’t open to the public, and they don’t allow for interrogation of decisions to accept or reject bids.

Zondo raised concerns about the latter. “My observation is that a lot of corruption is connected with tenders. It’s an important part of what we [the commission] must look at and deal with; weaknesses in the systems. The issue of transparency [in the bid evaluation process] is important,” he said.

Mathebula said that although treasury recommends sanctions for transgressors, the institution doesn’t have statistics on whether its recommendations are successfully implemented. He has proposed a special tribunal to deal with procurement transgressors and fast track their prosecution. Treasury is also weighing up the merits of a process to audit the work of bid evaluation committees before they make a final decision to award a tender.

The commission resumes on Friday, with Jonas expected to make submissions.