Department of Defence REPUBLIC OF SOUTH AFRICA 0

The Procurement Process Presentation to the Portfolio Committee on Defence 08 October 2009

Contents Introduction Procurement Process Procurement System Anti-corruption and Transparency 2

INTRODUCTION

Aim To orientate the Members of the PCD to the Procurement process within the Department of Defence 4

Definitions Authorising entity: A board or committee established to monitor compliance to procedures and to authorise bid submissions. Delegan: a person or entity who has powers delegated upon them. JIT: Just-in-time; concept of rapid deliveries and inventory reductions. Material Value Chain: the process, system and infrastructure pertaining to movement and handling of material from requisition to disposal 5

Definitions…Cont. Procurement entity: Do. D establishment whose primary function is to procure or sell goods / services SCM: supply chain management TQM: total quality management; concept of continuous improvement with emphasis on quality throughout the supply chain Transversal contracts: centrally-managed contracts applicable to more than one government department. 6

Scope The content of this presentation only applies to the GDA [or FMS folio 01] procurement transactions, i. e. two thirds of the DOD budget. 7

PROCUREMENT PROCESS

Procurement Objectives To support the Material Value Chain in accomplishing optimal materiel readiness To ensure delivery of cost-effective quality services to services / divisions through good procurement practices To align procurement systems and processes with Do. D Strategic Objectives To ensure compliance of the procurement execution process with the GRC framework To develop partnership arrangements with suppliers, and other procuring organisations and explore opportunities for SC collaboration To promote the principles of BBBEE, industry development and environmental sustainability 9

Procurement Prescripts RSA Constitution Sect. 217: n Execute Procurement Function through a system that is fair, competitive, transparent, equitable and costeffective. PFMA Sect 38(1)(a)(iii): n Have an appropriate procurement system which is fair, competitive, transparent, equitable and cost-effective. 10

Procurement Prescripts PPPF Act 5 of 2000 National Treasury SCM Practice Notes DODI No Acq/2/99/Edition 2 JDP No Acq/00003/04/Edition 1 Secretary for Defense Delegations BBBEE Act 11

Procurement Process Flow End User Proc Unit/Centre Initiate reqs Draw Specs Budget Verify Req & Specs Draw up PQ/Bid Doc’s & Advertise Receive PQ/Bids Technical Evaluation acceptance Capture PQ/Bids Proc Committees Evaluation Acceptance Approval PQ/Bid evaluation Recommendation Request FA Approve FA Depot/Unit Receive Goods Print Receipt Voucher (Quality check) Finance Verify Bid doc Invoices Receipt Voucher Make payment LOA/Order Process Pay’t Docs Suppliers 12

Procurement Execution Level 3 n 2 x Procurement Service Centres [PSC’s] n Thaba Tshwane and Simons Town n SAMHS: Procurement Unit [Medical specific] n Procure at a Corporate Level [central] n Requirements come from Formations and/or PSMs n Purchase through contracts, bids and / or price quotations 13

Procurement Execution Level 4 n Regional Procurement Sections n SA Army: 15 n SAAF: 10 n SA Navy: 2 n SAMHS: 1 n J Ops: 2 n DHQ Unit: 1 n Regional requirements [FSEs] n Purchase through contracts or price quotes 14

Procurement Categories Procurement transactions fall within the following categories: Petty Cash: n Price Quotes: n Bids: n Contract item: n R 5, 000 -00 <R 500, 000 -00 >R 500, 000 -00 Any Value 15

Sourcing Process Price quotations - fwd docs to selected suppliers. Suppliers chosen (rotation) from a database Bids - advertised in government tender bulletin, all suppliers have access to this All PQ’s and bids have closing dates and times. Received, evaluated administratively & technically, ranked for acceptance and recommended to the relevant committee for approval 16

Authorising Entities NAME Regional Commercial Procurement Committee ABB RCPC PROC FIN THRESHOLD R 1, 000 -00 Corporate Commercial Procurement Sub CCPSC -committee R 5, 000 -00 Corporate Commercial Procurement Committee CCPC R 10, 000 -00 Departmental Commercial Procurement Board DCPB Unlimited 17

Payment Procedure Proc process ends when supplier is paid in full Rule (National Treasury prescribed) - payment 30 days after receipt of invoice Advance payments to suppliers is not done unless agreed to as part of the contract conditions, and approved by CFO FASC – responsible for finalising supplier payments. PSC’s only deliver the payment packs 18

Payment Documents For FASC to process payment, ff documents are required: Delivery note n Invoice n Receipt voucher (accounting) n Order / contract n Completion certificate (services/repairs) n 19

Alternative Service Delivery A mix of flexible delivery programmes, activities and mechanisms that can be strategically used to achieve service delivery objectives by outsourcing or PPPs Legislated by - PFMA - Treasury Regulation 16 (PPP’s) - DOD Policy - DODI/00003/2000 DOD Defence Review, April 1998 stated that all non-core functions must be considered for outsourcing, the DOD must focus on its core business 20

Types of Procurement Transactions Transversal Contracts Common Products / Services Division-Specific Services Control and Management National Treasury / SITA / DPSA Central Procurement via mid-term contracts Central Procurement via tender process Co-ordination and Admin Corporate Procurement [Log Div] Execution Services / Divisions Monitoring Compliance Materiel GRC Material GRC 21

PROCUREMENT SYSTEM

System Design Principles Combining the principles of JIT, TQM and SCM Responsible Procurement Officials shall be of the rank of SO 1/Assist. Director/Lt Colonel/Cdr upwards Separate ‘oversight’ function from the ‘execution’ function. System must allow ‘pro-active’ monitoring Centralise control, and localise execution 23

Procurement Delegans SECDEF CSANDF : Authorising Entities Senior Proc Officials : by law by SECDEF : by SECDEF / CSANDF 24

Financial Delegans SECDEF CSANDF : Div / Serv. Chiefs Senior Personnel : by law by SECDEF : by SECDEF / CSANDF 25

Procurement Structures: Execution Procurement offices / sections at units Procurement Unit • Day-to-day procurement • Procurement officials coordinated • One for each service / division Procurement Centre • Supporting Procurement Units • Handling central procurement activities • Handling tender processes • 3 of them • Managed by senior procurement officials Corporate Procurement • Supporting procurement centres • A directorate within Log Division • Central control of procurement strategy • Issue directives and execution frameworks to the lower structures 26

Procurement Structures: Oversight Regional Proc Committee Corporate Commercial Proc Sub-Committee Corporate Commercial Proc Committee Departmental Commercial Proc Board 27

The New Procurement Framework Services / Divisions Financial Delegations Procurement Unit 1 SA Army CSAN DF Pro curem ent De Procurement Delegations Procurement Centre Central Procurement Unit 2 SAAF n - Pre rogativ Procurement Delegations Procurement Centre Simons Town Procurement Unit 4 J Ops Procurement Unit 5 SAMHS e Corporate Procurement SANDF Log Div Delivery of Goods/services Procurement Unit 3 SA Navy legatio Procurement Centre Waterkloof Procurement Unit 6 DHQ GRC Support Regional Procurement Committee GRC Support Corporate Commercial Procom Procurement Delegations DCPB Compliance To Gov. Framework Procurement Delegations 28

Exercising Procurement Delegation: CSANDF shall exercise his Procurement Delegation within the Authorising Entities However CSANDF may use his procurement delegation outside the normal procurement process in cases of emergency as defined in JDP: ACQ 0003/2004 Provided a condonment is prepared and submitted to the authorising entity within 14 days. 29

CORRUPTION PREVENTION / CONTROL

Prevention / Control Mechanisms ²Submission of needs by DOD end-users. All procurement requests are scrutinized by the DOD Corporate Procurement Centre’s prior to inviting tenders to ensure that specifications/contracts are not drawn up to favour particular suppliers. ²Segregation of duties. All persons involved in the procurement process/cycle perform a single procurement task only i. e. person inviting tender is thereafter not involved in either evaluating, recommending or serving on approval committee’s/board’s to award the tender. ²Invitation of suppliers to tender for DOD work. As prescribed by National Treasury, the DOD utilises an electronic database (Proquote) which chooses suppliers by a rotation system per commodity category. DOD also advertises in the Government Tender Bulletin. ²Recommendation to Award Tenders. Entire procurement process is electronic on E-Proqure. (Capturing of PPPFA points). 31

Prevention / Control Mechanisms ²Approval of Tenders. Not vested in any individual in the DOD. Only authorised constituted committees and boards approve awards. Members serving must also declare their interests regarding awards under consideration. ²Effective Procurement Governance. Achieved through proactive monitoring by GRC to ensure compliance of procurement policies and procedures. ²GRC also retains Chairmanship of the procurement Committees and Boards that award tenders. ²GRC provides specialist advice and guidance to all DOD entities executing procurement. ²Procurement Training and Corruption Awareness. DOD procurement officials are regularly exposed by attending workshops, seminars, formal DOD courses, etc. 32

Prevention / Control Mechanisms ²Interaction with National Treasury. DOD regularly engages NT for clarification of specific procurement issues. NT also promulgates SCM Practice Notes that regulate procurement and the DOD must implement same. ²Procurement Deviations. Are only approved by the Accounting Officer and must be reported to NT and AG. ²Procurement Delegations. Only issued by the Accounting Officer [or CSANDF sub-delegations] iaw PFMA. No DOD official is authorised to execute procurement without a delegation from either Sec. Def or CSANDF. ²Compliance to Legislation. DOD confirms strict compliance to all procurement prescripts as a measure to prevent corruption. 33

Challenges within Procurement ²Declaration of Interest. No legislation that prevents DOD officials from tendering for DOD work whilst in the employ of the DOD. Members need to only declare to higher authority that they own a business. ²Segregation of Duties. Enforcement is problematic due to personnel shortages. ²Electronic Procurement System Downtimes. Can result in specific suppliers being asked by procurement personnel to tender. 34

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