THE
BEECHAMBER

The Preferential Procurement Policy Framework Act vs The B-BBEE Act
2021
General
Enterprise & Supplier Development
The Preferential Procurement Policy Framework Act vs The B-BBEE Act
The Preferential Procurement Policy Framework Act of 2000 (PPPFA) is
a system of preference in the context of procurement, whereby one bid
is preferred over others because it meets or exceeds specific criteria or
conditions. Section 217(2) of our Constitution recognises “categories
of preference in the allocation of contracts” based on the “protection or
advancement of persons, or categories of persons, disadvantaged by
unfair discrimination”. The PPPFA constitutes just that.
Regulations are supplementary to Acts. By design, the Regulations
link to existing Acts and aid in applying the principles of a primary
Act. The 2017 Regulations allow an organ of state or public entity to
determine whether a pre-qualification criterion applies to a tender. The
discretionary pre-qualification tender criterion aims to advance specific
Designated Groups like tenderers with a stipulated minimum B-BBEE
Status Level, Exempt Micro Enterprises (EMEs) and Qualifying Small
Enterprises (QSEs), as determined under the B-BBEE Act. Herein it
states that tenders must subcontract a minimum of 30% of the bid
to, inter alia, EMEs or QSEs that are at least 51% Black-owned. The
challenge to the discretionary pre-qualification tender criteria was on the
basis that:
> the PPPFA does not allow for qualifying criteria, which may
disqualify a potential tenderer based on race, gender or disability,
without or before applying the preference points system under
the Act; and
> pre-qualification criteria are contrary to the objective of competitive
bidding, inconsistent with the Constitution. The absence of a
legislative framework for implementing such criteria lends itself to
abuse and the manipulation of tenders
The Minister, however, was of the view that:
> the 2017 Regulations gave him broad discretionary powers
to legislate on what he considered to be necessary or expedient to
prescribe to achieve the objects of the PPPFA; and
> the framework for the procurement process was a two-stage
process, the first of which, the pre-qualification stage, required an
organ of state or public entity to evaluate any tender against the
requirements for an ‘acceptable tender’, where the requirements
for an ‘acceptable tender’, in the circumstances of a given tender
process, are to the discretion of the organ of state and not
prescribed in any way. The Minister, in essence, contended that the
discretionary pre-qualification tender criteria were in line with
the PPPFA.
On appeal from a judgement by the High Court, the Supreme Court
of Appeal (SCA) ruled that the 2017 Regulations were invalid and
suspended the invalidity for a period of 12 months to allow the Minister
to remedy the defects. The SCA found that:
> the discretionary pre-qualification criteria stipulated in regulation 4
of the 2017 Regulations is not authorised by either the Constitution
or PPPFA;
> The discretion which is conferred on organs of state to apply pre-
qualification criteria in tenders, without a legislative framework for
the application of the criteria, may lend itself to abuse and is
contrary to the PPPFA;
> The pre-qualification criteria do not meet the advancement of the
requirements of the Constitution;
> the pre-qualification criteria further do not meet the requirements of
the PPPFA, providing for points to be allocated to bidders based
on the goals set out in the Act;
> the Minister may not, in terms of the PPPFA, make regulations that
permit organs of state or public entities to incorporate in their
tender documents conditions which are inconsistent with the
Constitution and the PPPFA;
> the Minister had to comply with the Constitution and the PPPFA,
which provides firstly for the determination of the highest points
scorer and thereafter consideration of objective criteria which may
justify the awarding of a tender to a lower scorer;
> the PPPFA does not allow for preliminary disqualification of
tenderers without any consideration of the tender;
> the Minister may not, through Regulations, create a framework that
contradicts the PPPFA. The discretionary pre-qualification criteria
may well disqualify certain tenderers who do not otherwise qualify
from being disqualified by the Act
> in short, the Minister has exercised a power that is reserved for
the legislature.
The 2017 Regulations remain valid until the Minister remedies the
defects unless the 12-month suspension of the order expires prior to
remedying its defects. It remains to be seen whether the Minister will
appeal against the judgment to the Constitutional Court.
Based on the SCA’s judgment, do the 2017
Regulations to the PPPFA invalidate the B-BBEE
Act and its Regulations?
Section 9(6) of the B-BBEE Act states. “If requested to do so, the
Minister may, by notice in the Gazette, permit organs of state or public
entities to specify qualification criteria for procurement and other
economic activities which exceed those set by the Minister in terms
of subsection (1)”. In other words, the B-BBEE Act provides for the
issuing of the Codes of Good Practice (The Codes) for specific sectors
or industries; however, the 2017 Regulations to the PPPFA are not
provided for in the B-BBEE Act. Therefore, this invalidity does not have
any impact on the B-BBEE Act and its Regulations.
The B-BBEE Commission issued a media release on 4th November
2020, stating: “The declaration of the PPPFA Regulations of 2017
as invalid is not a blow to the B-BBEE requirements for tenders. The
invalidity of the 2017 Regulations does not invalidate the B-BBEE Act,
and the PPPFA Regulations were not issued under the ambit of the
B-BBEE Act. The B-BBEE Act framework and how it is applied is clear
and thus not affected by the ruling of the SCA.”
Furthermore, The B-BBEE Act’s section 10(1) makes provision for
organs of state and public entities to apply relevant Codes when, for
example, developing and implementing a Preferential Procurement
Policy. Therefore, such organs of state and public entities are legally
allowed, through the B-BBEE Act, to stipulate qualification criteria, such
as ‘Black’ Ownership of at least 51% or at least 30% ‘Black’ Woman
Ownership, with the approval from the Minister of Trade, Industry and
Competition published in the Government Gazette. Such criteria must
be met by those taking part in tenders hoping to become suppliers to
these organs of state and public entities. Section 10(1)(2) of the B-BBEE
Act refers to:
Section 10(1):
Every organ of state and public entity must
apply any relevant code of good practie issued
in terms of this Act in:
1 Determining qualification criteria for the
issuing of licences, concessions or other
authorisations in respect of economic
activity in terms of any law;
2 Developing and implementing a
preferential procurement policy;
3 Determining qualification criteria for the
sale of state-owned enterprises;
4 Developing criteria for entering into
partnerships with the private sector; and
5 Defining criteria for awarding incentives,
grants and investment schemes in
support of B-BBEE.
Section 10(2):
a The Minister may, after consultation with
the relevant organ of state or public entity,
exempt the organ of state or public entity
from a requirement contained in
subsection (1) or allow for deviation
if particular objective verifiable facts or
circumstances applicable to the organ of
state or public entity necessitate an
exemption or deviation.
b The Minister must publish the notice of
exemption or deviation in the Gazette.
To conclude, indeed, the Supreme Court
of Appeal’s judgment does not impact the
B-BBEE Act and its Regulations in any way.
However, this judgment proves that organs of
state and public entities may only introduce
qualifying criteria for potential suppliers
through the tendering process provided by the
B-BBEE Act and not the PPPFA.