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Preferential Procurement Is Unconstitutional

A recent Supreme Court of Appeal ruling has important implications for state suppliers.

Preferential Procurement Is Unconstitutional

The Supreme Court of Appeal recently ruled that the Preferential Procurement Regulations are unconstitutional because they allow state entities to enforce tender pre-qualification criteria at their discretion without any objective framework or guidelines.

This has been problematic ever since the regulations were introduced in 2017 because government officials can pick and choose different rules for different tenders at their whim. This has enabled wholesale corruption since pre-qualification criteria can be chosen to rig tenders for specific suppliers.

National Treasury now has 12 months to revise the Preferential Procurement Regulations. However, there have been calls for the entire framework to be scrapped and replaced by the Public Procurement Bill, which was drawn up in 2014 to consolidate the confusing mishmash of public procurement legislation that has snowballed over the years.

This has two enormous business implications:

First, many suppliers have been barred from submitting tender proposals, regardless of their competence or pricing, because they didn't satisfy pre-qualification criteria. Reversing this could pave the way to a fairer and more transparent tendering environment which, in turn, would reduce the cost of economic transformation.

Secondly, the court ruling abolishes the preferential advantages that some black-owned suppliers have exploited. While this will inevitably be labeled as an attack on transformation, the reality is that black economic empowerment has stifled entrepreneurship by fostering entitlement and bestowing artificial competitiveness instead of stimulating innovation, economic merit, and new wealth creation.