Public Procurement and Competition Tshepo Sayed Economist PPADB

Public Procurement and Competition Tshepo Sayed Economist PPADB 2018/03/15 1

Presentation Objectives By the end of this presentation, you will be able to: ◦ Explain the importance of public procurement as a strategic value-adding activity ◦ Appreciated the objectives of the Act and its application ◦ Understand competition and concerns in Public Procurement 2018/03/15 2

What is public procurement? Public procurement refers to acquisition of goods, services and works by a public sector entity to achieve certain identified objectives. Acquisition by any means e. g. purchase, rental, lease, hire-purchase, licences, tenancies, franchises etc It includes procurement planning, choice of procedure, soliciting offers, evaluation of offers, award of contract and contract management 2018/03/15 3

Why is it important? Public procurement has a direct impact on: ◦ the successful delivery of government projects and public services ◦ sound public financial management aimed at attaining value for money in government expenditure ◦ reducing corruption ◦ encouraging private sector growth and investment ◦ Citizen economic empowerment 2018/03/15 4

Why is it Important Public procurement is estimated to account, on average, for 15% of Gross Domestic Product (GDP) worldwide. Effective public procurement can therefore have a significant impact on: ◦ Sustainable development ◦ Good governance 2018/03/15 5

The Impact of Procurement 2018/03/15 6

Objectives of the Act To establish the Public Procurement and Asset Disposal Board and related committees: • Ministerial Tender Committees • District Administration Tender Committees • Special Procurement and Asset Disposal Committee • Independent Complaints Review Committee • Special Procurement and Asset Disposal Committee • Advisory Committees To provide a legal framework for the: ◦ Procurement of works, services and supplies ◦ Disposal of public assets 2018/03/15 7

Principles of Public Procurement An open, competitive economy Responding to external obligations relating to trade and procurement Standardisation for cost reduction, ease of maintenance and technological effectiveness Aggregation of common items to benefit from economies of scale 2018/03/15 8

PPADB’s Guiding Principles Efficient, competitive procurement to achieve value for money Fair and equitable treatment of contractors Accountability and transparency Integrity, fairness of and public confidence in the process 2018/03/15 9

Public Procurement and Competition Open domestic bidding is the default method of procurement Deviation from the default method of procurement requires authority from the Board or its Committees Advertising opportunities and awards Generic specifications i. e. no brand names Public bid openings Evaluation criteria disclosed in advance 2018/03/15 10

Public Procurement and Competition Procurement Methods available: ◦ Open Bidding (domestic or international) ◦ Restricted Bidding (domestic or international) ◦ Quotations Proposals Procurement ◦ Micro Procurement ◦ Direct Procurement All methods available for works, services (including consultancy) and supplies 2018/03/15 11

Open Domestic Bidding (Reg 55) Preferred method of procurement Maximum competition - open to all (including resident foreign) bidders subject to registration requirements Standard method for high value works, services and supplies Will always be used for contracts over P 150, 000 unless special circumstances apply 2018/03/15 12

Restricted Domestic Bidding May be used where: ◦ Works, services or supplies only available from a limited number of providers ◦ Insufficient time for open bidding in an emergency situation ◦ Other exceptional circumstances justify departure from open bidding 2018/03/15 13

Quotations Proposals Procurement (Reg 59) May be used where: ◦ Insufficient time for open or restricted bidding in an emergency situation ◦ Estimated value is less than P 100, 000 ◦ Other exceptional circumstances justify departure from open or restricted bidding 2018/03/15 14

Direct Procurement (Reg 61) For new contracts, may be used where: ◦ Insufficient time for any other method in an emergency situation ◦ Works, services or supplies only available from one provider ◦ It is justified in the circumstances 2018/03/15 15

Direct Procurement (Reg 61) For contract extensions, may be used for: ◦ Extension for additional, similar items – no advantage from further competition ◦ Additional items compatible with existing purchases – purchase from the same provider is advantageous or necessary ◦ Continuity from same provider – for continued liability or technical approach Subject to reasonable prices and value being less than the original contract 2018/03/15 16

Financial Thresholds Micro Procurement Under P 30, 000 Quotations Proposals Procurement Under P 150, 000 Open Bidding Over P 150, 000

Competition Concerns in Public Procurement Competition concerns arising from public procurement are largely the same as in any ordinary market such as collusive agreements between bidders, abuse of dominance, and creation of entry barriers. Competition concerns in public procurement can be seen from the two perspectives: a) supplier's side and b) procurer's side. 2018/03/15 18

Competition concerns on supplier's side Collusive bidding or bid rigging is a kind of fraud, where bidders agree to eliminate competition and fix prices in the procurement process. It is facilitated by faulty bidding procedures and tender designs. In addition, inefficient procurement has detrimental impact on the quality of key public infrastructure and services and hurt the interests of the poor largely relying on public provision. 2018/03/15 19

Competition concerns on the procurer's side Often, the number of suppliers may be limited by the public authority by its own rules, which may create entry barriers, limit its choice and bring in anti-competitive impact. Some examples are restrictive prequalification criteria, complex process of registration of suppliers, limited approved vendors, excessively tedious process for participation and not laying technical specification in generic terms. 2018/03/15 20

Competition concerns on the procurer's side Level playing field between public entities and private players may sometimes be lacking in public procurement markets, which may tend to be distorted due to preference policy for public suppliers in the procurement. Similarly, policy to protect small and medium enterprises and giving them preference in public procurement may create entry barriers for other suppliers. 2018/03/15 21

Competitive Public Procurement Policies In view of the high public expenditure on procurement, achievement of a meagre 5 per cent decline in procurement prices by infusing competition in public procurement has the potential of significant savings of public resources. This would help in avoiding wastage of public money and curbing fiscal deficit. 2018/03/15 22

Competitive Public Procurement Policies(cont) Ensuring effective functioning of public procurement markets is, therefore, part of good governance and requires the promotion of effective competition among suppliers, including preventing collusion among potential bidders. The tender process needs to be designed to maximise the potential participation of genuinely competing bidders 2018/03/15 23

Competitive Public Procurement Policies(cont) Risk of collusion can be reduced when procurement agency designs tenders with two objectives: a) reducing barriers to entry and increasing bidders' participation; b) reducing frequency of procurement opportunities. Procurement officials have a very important role to play both in designing tender documents to allow competition by removing entry barriers as well as in the detection of bid rigging, being best placed to monitor bidding behaviour 2018/03/15 24

What is PPADB doing to Prevent Anti- Competitive Behaviours Declaration of shareholding and Directorship by bidders to avoid multiple bidding Reviewing mandatory compliance requirements to avoid unnecessary barriers to competition Vetting tender documents to guard against locking out capable bidders Referring suspicious transactions to competent bodies for investigation Suspending and delisting bidders who engage in anti-competitive behaviours 2018/03/15 25

Synergies between work of PPADB and CA in promoting Competition CA is responsible for the prevention of, and redress for anti-competitive practices in the economy and the removal of constraints on the free play of competition in the market PPADB is responsible for ensuring that all public entities take into account principles of an open and competitive economy in making their procurement decisions MOU has been signed between PPADB, DCEC and the CA to join forces in combating anti-competitive practices in the procurement process 2018/03/15 26

Conclusion The primary objective of an effective procurement policy is the promotion of efficiency, i. e. The selection of the supplier with the lowest price or, more generally, the achievement of value for money. It is therefore important that the procurement process is not affected by practices such as collusion, bid rigging, fraud and corruption as they have a direct and immediate impact on public expenditures and therefore on taxpayers resources 2018/03/15 27

Questions and Discussion 2018/03/15 28