Procurement Law in South Africa: Understanding the Basics

The Public Procurement Act, 2024 (Act No. 28 of 2024) (“the Public Procurement Act”) was signed into law on 23 July 2024. This Act has not yet come into effect due to the pending Regulations that are being finalised. The purpose of this article is to understand the importance and need of this critical legislation. Once the Regulations have been finalised, the impact on the construction industry will be explored in a future article.

In the book “The Law of Government Procurement in South Africa”, Phoebe Bolton estimates that public sector procurement accounts for approximately 14% of South Africa’s gross domestic product (GDP). This translates to a large monetary value and public procurement is expanding. Due to the magnitude of public procurement, taxpayers have an interest in the way the money is spent. Furthermore, public procurement is of major significance for the economic development of the country. Public procurement can be used to drive social and policy objectives by promoting the development of previously disadvantaged persons or groups. Therefore, public procurement differs from private procurement in so far as the policies they aim to achieve, the importance from a public interest perspective and the large amounts of public money involved.

Public Procurement in South Africa is afforded constitutional status. The Constitution, Act 108 of 1996 (“the Constitution”), is the supreme law of the land and any law of conduct inconsistent with the Constitution, is invalid. Section 217 (1) of the Constitution provides that when the government contracts for goods or services, it must do so in accordance with a system that is “fair, equitable, transparent, competitive and cost-effective”. Section 217(2) of the Constitution goes on to provide grounds for differential treatment of contractors or service providers in achieving policy objectives. The Public Procurement Act and Regulations give effect to section 217(3) of the Constitution which requires that National legislation prescribes a framework within which the policy referred to in Section 217(2) must be implemented.

The question that sometimes arises is, what is the scope of application of Section 217 of the Constitution? Section 217(1) refers to “an organ of state in the national, provincial or local sphere of government, or any other institution identified in national legislation, contracts for goods or services”.  An organ of state is defined in section 239 of the Constitution as:

“(a) any department of state or administration in the national, provincial or local sphere of government; or

(b) any other functionary or institution –

(i) exercising a power or performing a function in terms of the Constitution or provincial constitution; or

(ii) exercising a public power or performing a public function in terms of any legislation, but does not include a court or a judicial officer.”

Three tests or approaches have been developed in this regard, viz, the control test, the government function test and the government entity test. The control test entails whether the entity is under the control of the state. The government function test focuses on the nature of the function performed (see Claase v Transnet Bp ken ‘n Ander 1999 (3) SA 1012 (T)).  The government entity test is the broadest and entails the establishment of two questions which are “Does the entity perform tasks pursuant to some form of statutory authority?” and “Is the task performed pursuant in furtherance of some government objective?” (Woolman, 1999).

When interpreting the phrase “any other institution identified in national legislation” as contained in section 217(1) of the Constitution, care must be exercised not to interpret this as any institution named in any legislation. According to Bolton, this phrase should be interpreted as referring to those institutions that are specifically identified in legislation as those to which section 217(1) applies. This would lead to the interpretation of the inclusion of all those institutions in the PFMA because this Act, in sections 38(1)(a)(iii) and 51(1)(a)(iii), reflects the procurement principles laid down in section 217 of the Constitution.

Procurement law, as it may be called, can be seen as a complex web of systems. However, the basics stem from section 217 of the Constitution.

Should you have any queries, please do not hesitate to contact the Association.

B. Dawood | Head: Membership Services