Solidarity is heading for court: New BEE procurement regulations are even worse

Solidarity has confirmed its court case to challenge the constitutionality of South Africa’s Public Procurement Act, which is set to be heard in May this year.

This case is of critical importance to every taxpayer and service user, as the legislation holds direct consequences for prices, service delivery, and the state of the country’s infrastructure.

Despite this, the government has decided to issue new regulations under the legislation shortly before the court rules on its constitutionality.

The matter will be heard in the Constitutional Court on 18 and 19 May.

According to the regulations published by the National Treasury, state institutions must reserve 30% of all procurement for black-owned enterprises. In addition, any business wishing to trade with the state must demonstrate that at least 40% of its own procurement is from suppliers with predominantly black ownership.

Unlike in the past, non-compliance with this very high level of black economic empowerment will now, under the regulations, also constitute grounds for automatic exclusion from all state contracts.

“The audacity of doing this shortly before a ruling on whether the Act is fair or not is quite astonishing. These regulations will significantly increase procurement costs by narrowing the pool of suppliers available to the state.

“Those who do comply with these BEE requirements will face virtually no limit on the prices they can charge for their goods and services. Ultimately, the taxpayer will bear the cost,” says Anton van der Bijl, Deputy Chief Executive of Solidarity.

Solidarity emphasises that South Africans should take note of the harmful consequences this legislation holds for the country.

According to Theuns du Buisson, economic researcher at the Solidarity Research Institute (SRI), people must first understand how preferential procurement works in practice.

“Preferential procurement prevents the state and state entities from purchasing directly from the best and most affordable suppliers.

“It creates a system where middlemen and so-called ‘tenderpreneurs’ make profits without adding real value,” says Du Buisson.

Du Buisson explains how state institutions are meant to function as cost-effective service providers for the public and the economy.

“But when prices are artificially inflated by adding intermediaries as additional links in the chain, this mandate is undermined. The result is that ordinary South Africans pay more for poorer service delivery.”

He adds that estimates by the National Treasury itself indicate that up to 40% of public procurement is wasted through fraud, inflated pricing and intermediary structures. This figure is in line with earlier warnings by the Treasury’s Chief Procurement Officer.

Yet, the new regulations increase preferential procurement requirements rather than addressing the problems within the legislation.

Du Buisson regards this as one of the most racially discriminatory pieces of legislation introduced since 1994, as it effectively disqualifies white businesspeople almost entirely.

Therefore, the upcoming court case must be a turning point.

“This case is not only about policy. It is about the constitutional principles of fairness, efficiency and accountability. We want South Africans to understand that this race-based system affects them daily – in their taxes, their service delivery and their quality of life,” Du Buisson concludes.