## Public Procurement in South Africa: Issues and Reform Options — sipea2023041

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---

### A. Introduction
- Sound public procurement practices determine the growth impact of public spending and expenditure efficiency by affecting: how much the government pays for inputs; the quality-of-service delivery (the extent to which goods and services are delivered in the right quantities, with the right quality, at the right time, and in the right place); and the cost of doing business.
- Public procurement is also used to pursue secondary objectives (including preferential objectives such as promoting SMEs) but usually at a cost in terms of expenditure efficiency and other unintended consequences that require careful monitoring.
- Given South Africa’s need to consolidate, strengthening public procurement is essential to make spending more efficient and achieve savings.
- The 2015 Supply Chain Management Review (SCMR) suggested potential savings of up to 20 percent of the cost of goods and services procured (3 percent of GDP or 12.7 billion US dollars) if use of strategic sourcing is increased.
- This paper aims to:
  - take stock of main procurement issues and reform progress since the SCMR;
  - identify areas to prioritize reforms;
  - draw on international procurement best practices; and
  - assess the extent to which the new procurement bill addresses challenges.

### B. The South African Procurement System: Key Characteristics
- Key statistics and structure
  - Public procurement spending was 15 percent of GDP in FY21/22.
  - Local and provincial governments and public entities, including large SOEs such as Eskom and Transnet, carried out about 76 percent of public procurement expenditure; the national government accounted for the remaining 24 per cent.
  - Fragmented legislation: 80 different legal instruments govern public procurement across the public sector with their accompanying regulations.
  - Multiple IT systems: national government and a fraction of provincial governments use Logis; local governments use a variety of different IT systems.
  - The SCMR estimated about 45 percent of procurement activities were still conducted through manual processes.
- Preferential and constitutional objectives
  - Secondary objectives included in preferential procurement legislation: favoring SMEs, historically disadvantaged groups, and local enterprise development (including local content requirements).
  - Section 217(2) of the Constitution of South Africa (CSA) provides for "categories of preference in the allocation of contracts" and "the protection or advancement of persons, or categories of persons, disadvantaged by unfair discrimination".
  - Section 217(1) of the CSA states procurement should be "in accordance with a system which is fair, equitable, transparent, competitive, and cost-effective".
- Capacity and governance
  - Capacity to execute procurement generally declines with the level of government; municipalities have the weakest capacity, especially those in poor financial conditions.
  - Governance issues in SOEs identified by the Zondo Commission Reports undermine procurement efficiency.
- Institutional roles
  - The Office of the Chief Procurement Officer (OCPO), created in 2013 within the National Treasury, is responsible for managing procurement reforms, enhancing and maintaining the procurement system, and overseeing how government conducts business with the private sector.
  - Execution of procurement remains the responsibility of accounting officers and public entity authorities.

### B. Procurement System Challenges (identified by SCMR and audits)
- Fragmentation and compliance burden
  - Fragmentation of legislation and regulation results in different procurement practices for the same goods and services, leading to different prices across the public sector and burdensome compliance for suppliers, especially SMEs.
  - Multiplicity of procurement processes complicates court enforcement and training of procurement personnel.
- Weak enforcement and integrity concerns
  - Weak enforcement leads to repeated violations: bribery and nepotism, fraud and theft of resources, conflict of interest, collusion and bid rigging, abuse and manipulation of information and processes, discriminatory treatment, and waste and abuse of public resources.
  - The 2020–21 Auditor General report indicates the most frequent procurement concern is an uncompetitive or unfair procurement process, even in institutions with clean audits.
- Data fragmentation and quality
  - Lack of integration and multiple IT systems lead to fragmented procurement data of insufficient quality, limiting monitoring across government levels and at contract and delivery management stages.
  - Significant manual processing and weak compliance increase errors and inaccuracies and limit the ability to enforce compliance.
- Insufficient transparency
  - Bid documents are not sufficiently published; bid committee evaluation minutes and standard contracts are not made publicly available; bids are not always opened in public and published; evaluation processes are not open to scrutiny; progress and contract implementation reports are not made publicly available.
  - Until 1 November 2022, Government institutions were only required to use the e-Tender Portal to advertise bids but not the value of tenders. For FY22/23, a total number of 30,062 were advertised on the portal, of which 11 percent was by National Departments and entities, 68 percent by provincial governments and the rest from local governments. Since November 2022, only the bid values of 796 contracts were reported, indicating low compliance.
- Limited strategic procurement
  - Procurement is carried out with limited strategic focus, reducing the ability to optimize procurement for value for money and to aggregate demand across public institutions to exploit buyer power.
  - This contributes to high procurement costs and quality concerns.
- Preferential procurement design and outcomes
  - The preferential procurement system is costly and ineffective. Zondo commission reports show the system has been used for corruption, state capture, and rent seeking.
  - Perception (given data limitations) that desired local and enterprise development has not been achieved and that the system favors established businesses, erecting barriers to entry.
- Human resources and capacity
  - Many procurement practitioners lack skills, knowledge, experience, and motivation, contributing to significant turnover; multiple procurement processes exacerbate training difficulties.

### B. Progress in Addressing Procurement System Challenges
- SCMR reform proposals included:
  - Standardization and simplification of procurement forms, rules, and processes across the public sector.
  - Strengthening OCPO enforcement powers to improve compliance.
  - Transitioning to an integrated financial management information system (IFMIS) to increase transparency, oversight, and data accuracy.
  - Creation of a central supplier database to reduce compliance burden and address data weaknesses.
  - Standardization of procurement information dissemination via an e-tenders portal and OCPO website publication.
  - Making procurement more strategic by expanding use of framework agreements.
  - Better alignment of preferential procurement with primary procurement goals by reviewing preferential procurement legislation, limiting cost premiums, and improving monitoring of policy outcomes.
  - Implementation of a procurement capacity development strategy to build a corps of competent procurement professionals.
- Implementation status
  - Improvements: creation of an e-tenders portal and expanded publication in the OCPO website; creation of a central supplier database (information on over a million suppliers).
  - Data quality issues persist due to weak compliance (e.g., some supplier data not entered as required).
  - Some optimization via increased use of framework agreements and an “Amazon like” IT platform (G-commerce), but the share of goods and services procured through this route remains limited.
  - Remaining SCMR reforms are in progress, including preparation of a new procurement bill and corresponding regulations, and a revision of the preferential procurement framework.
  - Additional OCPO publications: demand and procurement plans for all purchases above R500 000 and quarterly reporting against such plans, deviations from competitive procurement processes, and variations or extensions of existing contracts. Organs of State were required to submit information on awards above R100 000 to the OCPO to populate a contract register.

### C. International Experience with Procurement Reforms (summary of lessons)
- Common procurement weaknesses identified in OECD countries (OECD 2016a)
  - Lack of capacity in procurement (numbers, knowledge, skills).
  - Deficiencies in the legislative framework to guarantee fair and transparent procurement.
  - Limitations in the remedy and review system of procurement decisions.
  - Lack of effective mechanisms to monitor procurement and identify irregularities and potential corruption.
  - Abuse of exceptions to competitive tendering.
  - Lack of consistent information provided to potential suppliers and other stakeholders.
  - Internal control and audit problems (e.g., segregation of duties, obligations for internal reporting).
  - Overly complicated or burdensome procurement legislation/framework.
- Reforms used internationally
  - Legal and regulatory reforms to standardize procurement procedures and documentation, reduce transaction costs, promote good procurement and transparency, and create a legal basis for automation with e-procurement systems (examples: Mexico and Chile).
  - E-procurement reforms to automate procurement processes and transparency arrangements with IT systems to:
    - reduce corruption by minimizing direct contact between officials and bidders, establishing electronic records of procurement operations for audit and oversight, and facilitating compliance with procedures (examples: Mexico, India, Indonesia, Brazil, Ukraine);
    - inform efforts to optimize procurement by covering all stages (planning, tendering, awarding, contracting, implementation) and communicating with other systems (e.g., budget systems) to produce reliable procurement data (examples: Korea, Mexico);
    - identify risky procurement transactions for close monitoring in real time using accurate data on risk indicators (e.g., Korea’s bid rigging detection system and Brazil’s Public Spending Observatory where procurement expenditure data are cross-checked with other government databases).
  - Centralization of purchasing (discussion continues in subsequent sections).

### Central Purchasing Bodies (CPBs) and Aggregate Purchasing
- 90 percent of countries that have CPBs have them at the central level and 52 percent also have them at the regional level (OECD (2016b)).
- Advantages of CPBs:
  - help create savings/better value for money by aggregating the demand by multiple public institutions for the same goods and services/public works;
  - yield greater transparency and accountability at a lower cost by helping enforce procurement rules and transparency standards over a large number of procurement transactions;
  - help leverage scarce procurement resources and facilitate the development of central sources of expertise, e-procurement solutions, and training programs.

### Targeted Reforms to Address Procurement Weaknesses
- Improving Transparency
  - Adoption of Open Contracting Data Standards (OCDS) to facilitate the structured publication of shareable, reusable, and machine-readable data from all phases of the public procurement process, mindful of confidentiality constraints.
  - Publishing state procurement contracts, names of beneficial owners of firms receiving such contracts, and conducting and publishing audits of spending.
  - Case evidence: Ukraine introduced a real-time e-procurement platform (ProZorro) which helped save around 12% during its first year of operations. In absolute terms, the amount of savings reached US$6 billion between 2017 and 2020, and fraud in public procurement decreased twofold.
- Addressing Corruption and Unethical Behavior
  - Introduce a clear national definition of conflict of interest, a specific conflict of interest policy and code of conduct for procurement officials, and asset disclosure requirements including beneficial ownership disclosure.
  - Examples: integrity pacts added to contracts (Indonesia); system of social witnesses (Philippines).
- Improving Effectiveness and Efficiency
  - Use of framework agreements (Chile and many other countries) to streamline procurement, reduce administrative costs, increase purchasing power, and use procurement strategically; often managed by CPBs.
  - Support tool for effective procurement strategy (STEPS) for large infrastructure projects (Norway) to design optimal procurement processes (make vs buy, bundling lifecycle phases).
- Addressing Limited Procurement Staff Capacity
  - Professionalization approaches: enhanced qualification criteria for contracting authorities (Italy), specialized training (France, Italy, Korea), dedicated competence centers (Germany), certification systems and e-learning (Peru, Norway).
- Improve Dispute Resolution
  - Pre-award opportunities, expanded pre-trial complaint resolution, creation of specialized public procurement tribunals for pre-award and contractual disputes (Colombia, Peru, Germany).

### Preferential Procurement Objectives (international guidance)
- Common OECD preferential objectives: promotion of SMEs, green procurement, and firms producing innovative goods and services.
- Risk of “objective overload” when meeting multiple preferential objectives in procurement.
- OECD 2015 recommendation actions to balance preferential objectives with value for money:
  - evaluate the use of public procurement as one method of pursuing preferential policy objectives in accordance with clear national priorities, balancing potential benefits against the need to achieve value for money;
  - develop an appropriate strategy for integration of preferential policy objectives in public procurement systems;
  - employ an appropriate impact assessment methodology to measure the effectiveness of procurement in achieving the preferential policy objectives.

### Assessment of the Draft New Procurement Bill
- Stated objectives of the draft bill:
  - standardize the framework for procurement and preferential procurement across public entities;
  - strengthen integrity by limiting conflicts of interest and increasing sanctions including supplier debarment;
  - establish an independent administrative tribunal to speed up procurement disputes.
- Areas for improvement
  - Standardization of procurement processes: bill provides significant discretion to public entities, limiting standardization opportunities. The Online Bid Submission functionality (eSubmission) combined with the Transparency Dashboard implemented in December 2022 on the eTenders Portal presents an opportunity to standardize procedures and improve transparency.
  - Leveraging scarce procurement resources: bill replicates resource intensive institutional structures across public entities (procurement units, bid specification, bid evaluation, and bid adjudication committees). Recommendation to optimize scarce resources by reducing number of contracting authorities, using CPBs, and/or expanding framework agreements (which account for less than 2 percent of current procurement in South Africa).
  - Improving incentives to promote integrity: insufficient focus on standardizing transparency measures across public entities; bill does not adopt OCDS nor cover publication of information on beneficial ownership, awardees, or independent audits.
  - Establishing procurement approaches and guiding principles: bill does not define procurement approaches and circumstances for use, unlike UNCITRAL model procurement law; does not establish open tendering as the default approach.
  - Limiting policy discretion: bill leaves many important procurement areas to be specified by regulation (e.g., definition of procurement methods, conditions for use, standardization of transparency standards), risking excessive regulatory discretion and insufficient public scrutiny.
  - Ensuring independence and impartiality of the administrative tribunal: funding comes from fees and funds allocated by Parliament, but Minister of Finance’s ability to appoint and dismiss tribunal members raises questions on independence and impartiality.

### Procurement Reform Priorities Going Forward
- Simplification/Standardization of Procurement Procedures
  - Continue updating and harmonization at all government levels, align central and municipal procurement legislation, and incorporate all public entities including majority owned SOEs.
  - Wide stakeholder consultation to minimize loopholes and reduce reform pushback by vested interests.
  - Benefits: reduce compliance costs, facilitate integrated E-Procurement tools, gather consistent procurement transaction data, improve use of procurement methods, and align practices with international good practice.
  - Conduct an assessment using the Method of Assessing Procurement Systems Initiative (MAPS) tool to identify recommendations.
- Standardization of Transparency Requirements
  - Make OCDS the official standard and transition to them to facilitate structured publication across all phases of procurement, increase competition, lower prices, and provide detailed data for stakeholders and audit institutions.
- Transition to a New E-Procurement System Linked to IFMIS and Other Systems
  - A system covering all procurement stages would allow real-time bidding, monitoring, and contract awarding, reduce transactions costs, increase competition, and enable electronic cross-checking with IFMIS, tax administration systems, business registry, and banking systems.
  - Benefits: minimize direct contact between procurement officials and bidders, establish electronic records, improve data quality, and provide transaction information for monitoring and strategy.
  - Staged introduction recommended to ease implementation and generate visible results.
- Make Preferential Procurement More Cost Effective and Goal Oriented
  - Conduct an impact assessment by quantifying preferences offered to targeted groups, and benefits to the economy; review framework to link to measurable results.
  - Design eligibility for preferential programs to be performance-based and temporary so firms can graduate once no longer disadvantaged.
  - Compare procurement cost under preferential procurement with best value-for-money options, regularly monitor and quantify preferential objectives, and consolidate/streamline the list of preferential objectives.
- Strengthen Staff Capacity
  - Adopt approaches such as specialized training, dedicated competence centers, and professionalization of the procurement workforce.
- Further Explore Centralization Opportunities
  - Expand use of framework agreements and consider reducing number of contracting authorities by creating CPBs or requiring entities meet minimum standards to execute procurement as a second-best option.

*Prepared by Alejandro Simone and Vybhavi Balasundharam; SIP/2023/041 — Section 1; Source: sipea2023041 - Section 2*

### Section 1

### Public Procurement in South Africa: Issues and Reform Options — Section 1

### A. Introduction
- Sound public procurement practices determine the growth impact of public spending and expenditure efficiency by affecting: how much the government pays for inputs; the quality-of-service delivery (the extent to which goods and services are delivered in the right quantities, with the right quality, at the right time, and in the right place); and the cost of doing business.
- Public procurement is also used to pursue secondary objectives (including preferential objectives such as promoting SMEs) but usually at a cost in terms of expenditure efficiency and other unintended consequences that require careful monitoring.
- Given South Africa’s need to consolidate, strengthening public procurement is essential to make spending more efficient and achieve savings.
- The 2015 Supply Chain Management Review (SCMR) suggested potential savings of up to 20 percent of the cost of goods and services procured (3 percent of GDP or 12.7 billion US dollars) if use of strategic sourcing is increased.
- This paper aims to: take stock of main procurement issues and reform progress since the SCMR; identify areas to prioritize reforms; draw on international procurement best practices; and assess the extent to which the new procurement bill addresses challenges.

### B. The South African Procurement System: Key Characteristics
- Key statistics and structure
  - Public procurement spending was 15 percent of GDP in FY21/22.
  - Local and provincial governments and public entities, including large SOEs such as Eskom and Transnet, carried out about 76 percent of public procurement expenditure; the national government accounted for the remaining 24 per cent.
  - Fragmented legislation: 80 different legal instruments govern public procurement across the public sector with their accompanying regulations.
  - Multiple IT systems: national government and a fraction of provincial governments use Logis; local governments use a variety of different IT systems.
  - The SCMR estimated about 45 percent of procurement activities were still conducted through manual processes.
- Preferential and constitutional objectives
  - Secondary objectives included in preferential procurement legislation: favoring SMEs, historically disadvantaged groups, and local enterprise development (including local content requirements).
  - Section 217(2) of the Constitution of South Africa (CSA) provides for "categories of preference in the allocation of contracts" and "the protection or advancement of persons, or categories of persons, disadvantaged by unfair discrimination".
  - Section 217(1) of the CSA states procurement should be "in accordance with a system which is fair, equitable, transparent, competitive, and cost-effective".
- Capacity and governance
  - Capacity to execute procurement generally declines with the level of government; municipalities have the weakest capacity, especially those in poor financial conditions.
  - Governance issues in SOEs identified by the Zondo Commission Reports undermine procurement efficiency.
- Institutional roles
  - The Office of the Chief Procurement Officer (OCPO), created in 2013 within the National Treasury, is responsible for managing procurement reforms, enhancing and maintaining the procurement system, and overseeing how government conducts business with the private sector.
  - Execution of procurement remains the responsibility of accounting officers and public entity authorities.

### B. Procurement System Challenges (identified by SCMR and audits)
- Fragmentation and compliance burden
  - Fragmentation of legislation and regulation results in different procurement practices for the same goods and services, leading to different prices across the public sector and burdensome compliance for suppliers, especially SMEs.
  - Multiplicity of procurement processes complicates court enforcement and training of procurement personnel.
- Weak enforcement and integrity concerns
  - Weak enforcement leads to repeated violations: bribery and nepotism, fraud and theft of resources, conflict of interest, collusion and bid rigging, abuse and manipulation of information and processes, discriminatory treatment, and waste and abuse of public resources.
  - The 2020–21 Auditor General report indicates the most frequent procurement concern is an uncompetitive or unfair procurement process, even in institutions with clean audits.
- Data fragmentation and quality
  - Lack of integration and multiple IT systems lead to fragmented procurement data of insufficient quality, limiting monitoring across government levels and at contract and delivery management stages.
  - Significant manual processing and weak compliance increase errors and inaccuracies and limit the ability to enforce compliance.
- Insufficient transparency
  - Bid documents are not sufficiently published; bid committee evaluation minutes and standard contracts are not made publicly available; bids are not always opened in public and published; evaluation processes are not open to scrutiny; progress and contract implementation reports are not made publicly available.
  - Note: Until 1 November 2022, Government institutions were only required to use the e-Tender Portal to advertise bids but not the value of tenders. For FY22/23, a total number of 30,062 were advertised on the portal, of which 11 percent was by National Departments and entities, 68 percent by provincial governments and the rest from local governments. Since November 2022, only the bid values of 796 contracts were reported, indicating low compliance.
- Limited strategic procurement
  - Procurement is carried out with limited strategic focus, reducing the ability to optimize procurement for value for money and to aggregate demand across public institutions to exploit buyer power.
  - This contributes to high procurement costs and quality concerns.
- Preferential procurement design and outcomes
  - The preferential procurement system is costly and ineffective. Zondo commission reports show the system has been used for corruption, state capture, and rent seeking.
  - Perception (given data limitations) that desired local and enterprise development has not been achieved and that the system favors established businesses, erecting barriers to entry.
- Human resources and capacity
  - Many procurement practitioners lack skills, knowledge, experience, and motivation, contributing to significant turnover; multiple procurement processes exacerbate training difficulties.

### B. Progress in Addressing Procurement System Challenges
- SCMR reform proposals included:
  - Standardization and simplification of procurement forms, rules, and processes across the public sector.
  - Strengthening OCPO enforcement powers to improve compliance.
  - Transitioning to an integrated financial management information system (IFMIS) to increase transparency, oversight, and data accuracy.
  - Creation of a central supplier database to reduce compliance burden and address data weaknesses.
  - Standardization of procurement information dissemination via an e-tenders portal and OCPO website publication.
  - Making procurement more strategic by expanding use of framework agreements.
  - Better alignment of preferential procurement with primary procurement goals by reviewing preferential procurement legislation, limiting cost premiums, and improving monitoring of policy outcomes.
  - Implementation of a procurement capacity development strategy to build a corps of competent procurement professionals.
- Implementation status
  - Improvements: creation of an e-tenders portal and expanded publication in the OCPO website; creation of a central supplier database (information on over a million suppliers).
  - Data quality issues persist due to weak compliance (e.g., some supplier data not entered as required).
  - Some optimization via increased use of framework agreements and an “Amazon like” IT platform (G-commerce), but the share of goods and services procured through this route remains limited.
  - Remaining SCMR reforms are in progress, including preparation of a new procurement bill and corresponding regulations, and a revision of the preferential procurement framework.
  - Additional OCPO publications: demand and procurement plans for all purchases above R500 000 and quarterly reporting against such plans, deviations from competitive procurement processes, and variations or extensions of existing contracts. Organs of State were required to submit information on awards above R100 000 to the OCPO to populate a contract register.

### C. International Experience with Procurement Reforms (summary of lessons)
- Common procurement weaknesses in OECD countries (OECD 2016a) include:
  - Lack of capacity in procurement (numbers, knowledge, skills).
  - Deficiencies in the legislative framework to guarantee fair and transparent procurement.
  - Limitations in the remedy and review system of procurement decisions.
  - Lack of effective mechanisms to monitor procurement and identify irregularities and potential corruption.
  - Abuse of exceptions to competitive tendering.
  - Lack of consistent information provided to potential suppliers and other stakeholders.
  - Internal control and audit problems (e.g., segregation of duties, obligations for internal reporting).
  - Overly complicated or burdensome procurement legislation/framework.
- Reforms used internationally to address multiple weaknesses simultaneously:
  - Legal and regulatory reforms to standardize procurement procedures and documentation, reduce transaction costs, promote good procurement and transparency, and create a legal basis for automation with e-procurement systems (examples: Mexico and Chile).
  - E-procurement reforms to automate procurement processes and transparency arrangements with IT systems to:
    - Reduce corruption by minimizing direct contact between officials and bidders, establishing electronic records of procurement operations for audit and oversight, and facilitating compliance with procedures (examples: Mexico, India, Indonesia, Brazil, Ukraine).
    - Inform efforts to optimize procurement by covering all stages (planning, tendering, awarding, contracting, implementation) and communicating with other systems (e.g., budget systems) to produce reliable procurement data (examples: Korea, Mexico).
    - Identify risky procurement transactions for close monitoring in real time using accurate data on risk indicators (e.g., Korea’s bid rigging detection system and Brazil’s Public Spending Observatory where procurement expenditure data are cross-checked with other government databases).
  - Centralization of purchasing (discussion continues in subsequent sections).

*Prepared by Alejandro Simone and Vybhavi Balasundharam; SIP/2023/041 — Section 1*

### Section 2

### sipea2023041 - Section 2

### Central Purchasing Bodies (CPBs) and Aggregate Purchasing
- 90 percent of countries that have CPBs have them at the central level and 52 percent also have them at the regional level (OECD (2016b)).
- Advantages of CPBs:
  - they help create savings/better value for money by aggregating the demand by multiple public institutions for the same goods and services/public works;
  - they can yield greater transparency and accountability at a lower cost by helping enforce procurement rules and transparency standards over a large number of procurement transactions;
  - they can help leverage scarce procurement resources and facilitate the development of central sources of expertise, e-procurement solutions, and training programs.

### Targeted Reforms to Address Procurement Weaknesses
- Improving Transparency:
  - Adoption of Open Contracting Data Standards (OCDS) to facilitate the structured publication of shareable, reusable, and machine-readable data from all phases of the public procurement process, mindful of confidentiality constraints.
  - Publishing state procurement contracts, names of beneficial owners of firms receiving such contracts, and conducting and publishing audits of spending.
  - Examples: Slovakia and Georgia publish procurement documents with specific exemptions; Georgia publishes lists to highlight non-performing and performing companies; Colombia publishes contracts above a certain size.
  - Case evidence: Ukraine introduced a real-time e-procurement platform (ProZorro) which helped save around 12% during its first year of operations. In absolute terms, the amount of savings reached US$6 billion between 2017 and 2020, and fraud in public procurement decreased twofold.
- Addressing Corruption and Unethical Behavior:
  - Introduce a clear national definition of conflict of interest, a specific conflict of interest policy and code of conduct for procurement officials, and asset disclosure requirements including beneficial ownership disclosure.
  - Examples: integrity pacts added to contracts (Indonesia); system of social witnesses (Philippines).
- Improving Effectiveness and Efficiency:
  - Use of framework agreements (Chile and many other countries) to streamline procurement, reduce administrative costs, increase purchasing power, and use procurement strategically; often managed by CPBs.
  - Support tool for effective procurement strategy (STEPS) for large infrastructure projects (Norway) to design optimal procurement processes (make vs buy, bundling lifecycle phases).
- Addressing Limited Procurement Staff Capacity:
  - Professionalization approaches: enhanced qualification criteria for contracting authorities (Italy), specialized training (France, Italy, Korea), dedicated competence centers (Germany), certification systems and e-learning (Peru, Norway).
- Improve Dispute Resolution:
  - Pre-award opportunities, expanded pre-trial complaint resolution, creation of specialized public procurement tribunals for pre-award and contractual disputes (Colombia, Peru, Germany).

### Preferential Procurement Objectives
- Common OECD preferential objectives: promotion of SMEs, green procurement, and firms producing innovative goods and services.
- Risk of “objective overload” when meeting multiple preferential objectives in procurement.
- OECD 2015 recommendation actions to balance preferential objectives with value for money:
  - evaluating the use of public procurement as one method of pursuing preferential policy objectives in accordance with clear national priorities, balancing potential benefits against the need to achieve value for money;
  - developing an appropriate strategy for integration of preferential policy objectives in public procurement systems;
  - employing an appropriate impact assessment methodology to measure the effectiveness of procurement in achieving the preferential policy objectives.

### Assessment of the Draft New Procurement Bill
- Stated objectives of the draft bill:
  - standardize the framework for procurement and preferential procurement across public entities;
  - strengthen integrity by limiting conflicts of interest and increasing sanctions including supplier debarment;
  - establish an independent administrative tribunal to speed up procurement disputes.
- Areas for improvement:
  - Standardization of procurement processes: bill provides significant discretion to public entities, limiting standardization opportunities. The Online Bid Submission functionality (eSubmission) combined with the Transparency Dashboard implemented in December 2022 on the eTenders Portal presents an opportunity to standardize procedures and improve transparency.
  - Leveraging scarce procurement resources: bill replicates resource intensive institutional structures across public entities (procurement units, bid specification, bid evaluation, and bid adjudication committees). Recommendation to optimize scarce resources by reducing number of contracting authorities, using CPBs, and/or expanding framework agreements (which account for less than 2 percent of current procurement in South Africa).
  - Improving incentives to promote integrity: insufficient focus on standardizing transparency measures across public entities; bill does not adopt OCDS nor cover publication of information on beneficial ownership, awardees, or independent audits.
  - Establishing procurement approaches and guiding principles: bill does not define procurement approaches and circumstances for use, unlike UNCITRAL model procurement law; does not establish open tendering as the default approach.
  - Limiting policy discretion: bill leaves many important procurement areas to be specified by regulation (e.g., definition of procurement methods, conditions for use, standardization of transparency standards), risking excessive regulatory discretion and insufficient public scrutiny.
  - Ensuring independence and impartiality of the administrative tribunal: funding comes from fees and funds allocated by Parliament, but Minister of Finance’s ability to appoint and dismiss tribunal members raises questions on independence and impartiality.

### Procurement Reform Priorities Going Forward
- Simplification/Standardization of Procurement Procedures:
  - Continue updating and harmonization at all government levels, align central and municipal procurement legislation, and incorporate all public entities including majority owned SOEs.
  - Wide stakeholder consultation to minimize loopholes and reduce reform pushback by vested interests.
  - Benefits: reduce compliance costs, facilitate integrated E-Procurement tools, gather consistent procurement transaction data, improve use of procurement methods, and align practices with international good practice.
  - Conduct an assessment using the Method of Assessing Procurement Systems Initiative (MAPS) tool to identify recommendations.
- Standardization of Transparency Requirements:
  - Make OCDS the official standard and transition to them to facilitate structured publication across all phases of procurement, increase competition, lower prices, and provide detailed data for stakeholders and audit institutions.
- Transition to a New E-Procurement System Linked to IFMIS and Other Systems:
  - A system covering all procurement stages would allow real-time bidding, monitoring, and contract awarding, reduce transactions costs, increase competition, and enable electronic cross-checking with IFMIS, tax administration systems, business registry, and banking systems.
  - Benefits: minimize direct contact between procurement officials and bidders, establish electronic records, improve data quality, and provide transaction information for monitoring and strategy.
  - Staged introduction recommended to ease implementation and generate visible results.
- Make Preferential Procurement More Cost Effective and Goal Oriented:
  - Conduct an impact assessment by quantifying preferences offered to targeted groups, and benefits to the economy; review framework to link to measurable results.
  - Design eligibility for preferential programs to be performance-based and temporary so firms can graduate once no longer disadvantaged.
  - Compare procurement cost under preferential procurement with best value-for-money options, regularly monitor and quantify preferential objectives, and consolidate/streamline the list of preferential objectives.
- Strengthen Staff Capacity:
  - Adopt approaches such as specialized training, dedicated competence centers, and professionalization of the procurement workforce.
- Further Explore Centralization Opportunities:
  - Expand use of framework agreements and consider reducing number of contracting authorities by creating CPBs or requiring entities meet minimum standards to execute procurement as a second-best option.

*Source: sipea2023041 - Section 2*

### Section 3

### sipea2023041 - Section 3

### Referenced Publications on Public Procurement (selected from section)

- Towards Efficient Public Procurement in Colombia: Making the Difference, OECD Public Governance Reviews, OECD Publishing, Paris. http://dx.doi.org/10.1787/9789264252103-en
- _______________. 2016b. The Korean Public Procurement Service: Innovating for Effectiveness, OECD Public Governance Reviews, OECD Publishing, Paris. http://dx.doi.org/10.1787/9789264249431-en
- _______________. 2017a. Public Procurement in Peru: Reinforcing Capacity and Co-ordination, OECD Public Governance Reviews, OECD Publishing, Paris. http://dx.doi.org/10.1787/9789264278905-en
- Organization for Economic Co-operation and Development. 2017b. Public Procurement in Chile: Policy Options for Efficient and Inclusive Framework Agreements, OECD Public Governance Reviews, OECD Publishing, Paris. http://dx.doi.org/10.1787/9789264275188-en
- _______________. 2018. Mexico’s e-Procurement System: Redesigning CompraNet through Stakeholder Engagement, OECD Public Governance Reviews, OECD Publishing, Paris. http://dx.doi.org/10.1787/9789264287426-en
- _______________. 2019. “Follow up Report on Mexico’s CompraNet Reform. Improving e-procurement through stakeholder engagement.”
- _______________. 2019. “Productivity in Public Procurement A Case Study of Finland: Measuring the Efficiency and Effectiveness of Public Procurement.”
- _____________________________________. 2021. “Procurement strategy in major infrastructure projects. Piloting a new approach in Norway.” OECD Public Governance Policy Papers, Number 6.

### Other referenced organizations and resources

- Open Contracting Partnership: https://www.open-contracting.org/impact-stories/impact-ukraine/
- Transparency International: https://www.one.org/international/follow-the-money/public-procurement-transparency-generates-12-savings-of-public-funds/
- United Nations. 2011. “UNCITRAL Model Law on Public Procurement”.

*Source: sipea2023041 - Section 3*

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_Source: https://www.imf.org/-/media/files/publications/selected-issues-papers/2023/english/sipea2023041.pdf_