Minister of Public Works and Infrastructure Dean Macpherson has revealed that the government has recently blacklisted 59 companies that were supplying services to the government, in recent crackdowns. Several business organiisations believe draft government procurement regulations will make the state more vulnerable to corruption.
Image: Timothy Bernard / Independent Newspapers
Centre for Development and Enterprise executive director Ann Bernstein
Image: Matthews Baloyi
Development think-tank Centre for Development and Enterprise (CDE) on Thursday said National Treasury should withdraw preferential procurement provisions in its draft public procurement regulations, warning that they will increase the cost of everything the state buys, delay delivery and create new opportunities for corruption.
This was contained in the CDE’s formal submission on the draft General Public Procurement Regulations. There is no authoritative estimate of the value of goods and services procured by government agencies and state-owned entities from the private sector each year, but it is considerably more than R500 billion.
President Cyril Ramaphosa signed the Public Procurement Act into law on July 18, 2024. Nearly two years later, on April 16, 2026, National Treasury published the Act’s draft General Public Procurement Regulations and invited public comment until July 15 this year.
The CDE joins a number of organisations that have found serious flaws not only with the draft regulations but also the Act itself. For instance, the National Employers Association of South Africa (Neasa) said: “These proposed regulations are exclusionary and baffling to say the least, especially as there is serious pending litigation that challenges the constitutionality of the very Act upon which the regulations are created.”
“It is also apt to mention the Courts have previously ruled that the government cannot reject tender applications purely on the basis of a pre-qualification racial criterion and categorisation,” Neasa said.
Business Leadership South Africa CEO Busi Mavusa wrote in a newsletter that she is concerned about the cumulative effect of a tiered, mandatory, percentage-based system on procurement efficiency, project costs and a limited supplier pool applied bluntly across the economy. She said the regulations also assume administrative capacity that does not exist in many small companies.
“While public comment on these provisions has been marked by some significant misunderstandings that exaggerate the regulations’ defects, even an accurate reading of the proposals reveals significant problems that are going to greatly complicate the process of procurement and which are also bound to raise costs for procuring entities,” said CDE’s director Ann Bernstein in a statement.
She said that greater transparency and better central reporting were welcome steps in the right direction. “But the core preferential procurement mechanisms in the regulations – set-asides, prequalification and compulsory subcontracting – are likely to make procurement more expensive, less efficient and more vulnerable to abuse,” she added.
The regulations do not require that all tenders under R20 million be set aside for designated groups - but the rules remain deeply flawed, she said.
When set-aside procedures are used, qualifying firms will have to be 100 percent owned by members of a designated group, meaning a company that is 90 percent black-owned will not qualify, and companies fully compliant with B-BBEE rules and codes for the past two decades will be excluded. This penalises partnerships between black and white businesspeople and incentivises fronting, she said.
“A set-aside procurement process is guaranteed to ensure that procuring entities will generally pay more than they need to because that is the natural consequence of reducing the pool of eligible bidders,” said Bernstein.
“To the extent that set-aside policies are to be implemented, however, it is essential that the '100% ownership' requirement be dropped in favour of a standard of 'majority owned’,” she said.
Bidders for contracts expected to cost between R20 million and R100 million may be subjected to prequalification processes that would require them to demonstrate that at least 40 percent of their prior procurement was spent on majority-black-owned firms.
Bernstein said this test ignores the structure of the B-BBEE Codes, under which companies need to know their suppliers' empowerment contributor levels but not necessarily their ownership.
The regulations also leave "prior procurement spend" undefined. These requirements mean companies might have to prove they pursued a goal that did not even exist when the spending occurred.
“This is the worst kind of arbitrary, unilateral change in policy. Effectively, the requirement asks whether companies were pursuing an empowerment goal that government itself had not deemed necessary until these regulations were passed, and which is not currently embodied in the B-BBEE Codes,”
"CDE believes that prequalification should not be allowed as a procurement method: it will be expensive, messy and, as currently drafted, impossible to apply rationally,” said Bernstein.
For contracts over R100m, winning bidders will have to subcontract at least 25 percent of contract value to firms wholly owned by members of designated groups. Before issuing such tenders, procuring institutions will have to complete and publish a feasibility study – something that will be costly, slow and open to gaming by interested parties, she said.
Compulsory subcontracting will also create a new class of gatekeepers. If there are only a few qualifying subcontractors, those firms will have enormous bargaining power. Main contractors will have to partner with them not because they are the best subcontractors, but because they are necessary for compliance, she said.
“The result will be higher prices, weaker accountability and greater opportunities for politically connected intermediaries to extract rents,” said Bernstein.
“Of the three forms of preferential procurement, compulsory subcontracting is likely to be the most costly. Because only a small pool of firms is wholly owned by members of designated groups, qualifying subcontractors will hold substantial bargaining power over main bidders, and the premiums they extract will flow into the total contract price,” said Bernstein.
“The country’s procurement system is already vulnerable to manipulation, fronting, inflated prices, and politically connected intermediaries. The proposed regulations would add many new discretionary decision points… where insiders can shape outcomes,” she said.
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