SENIOR MANAGEMENT VELOPMENT PROGRAMME MO LE: S … · SMDP – Public Sector Supply Chain...

SMDP – Public Sector Supply Chain Management

SENIOR MANAGEMENT

SUPPLY CHAIN M

Supply Chain Management

MANAGEMENT DEVELOPMENT

PROGRAMME

MODULE:

MANAGEMENT IN THE PUBLIC

Page 1

DEVELOPMENT

UBLIC SECTOR

SMDP – Public Sector Supply Chain Management Page 2

1. INTRODUCTION .............................................................................................................................................. 4

2. SUPPLY CHAIN MANAGEMENT - THE ORIGINS........................................................................................... 5

2.1 A BRIEF HISTORY ................................................................................................................................................. 5

2.2 SCM IN THE PRIVATE SECTOR ................................................................................................................................ 5

2.2.1 Lean Production ......................................................................................................................................... 5

2.2.2 Kaizen ......................................................................................................................................................... 6

2.2.3 A Model used to identify 'wastage' in the SCM process ............................................................................. 7

2.2.4 Just In-Time (JIT)......................................................................................................................................... 8

2.2.5 Total Quality Management ........................................................................................................................ 9

3. GOVERNMENT AND PROCUREMENT ......................................................................................................... 11

3.1 PUBLIC PROCUREMENT AS A TOOL FOR DEVELOPMENT AND TRANSFORMATION ............................................................. 13

3.2 KING III REPORT ON GOVERNANCE ....................................................................................................................... 14

4. POLICY FRAMEWORK .................................................................................................................................. 15

4.1 THE PUBLIC SECTOR PROCUREMENT REGULATORY ENVIRONMENT.............................................................................. 15

4.2 THE CONSTITUTION ........................................................................................................................................... 16

4.3 THE PUBLIC FINANCE MANAGEMENT ACT .............................................................................................................. 16

4.4 PREFERENTIAL PROCUREMENT POLICY FRAMEWORK ACT (NO. 5 OF 2000) AND ITS REGULATIONS, 2011. ........................ 18

4.5 BROAD-BASED BLACK ECONOMIC EMPOWERMENT ACT (BBBEE) (ACT NO. 53 OF 2003) ............................................ 19

4.6 PROMOTION OF ADMINISTRATIVE JUSTICE ACT, 2000 (PAJA) .................................................................................. 19

5. THE SCM SYSTEM ......................................................................................................................................... 20

5.1 THE PUBLIC SECTOR SCM CYCLE ........................................................................................................................... 20

5.2 THE PRE-BID (DEMAND MANAGEMENT) ................................................................................................................ 20

5.3 THE BIDDING STAGE (ACQUISITIONS MANAGEMENT) ............................................................................................... 22

5.4 THE POST-BID STAGE (LOGISTICS MANAGEMENT) .................................................................................................... 23

5.5 PRICE VS. QUALITY IN EVALUATION ....................................................................................................................... 24

6. FUNCTIONING OF BID COMMITEES ........................................................................................................... 26

6.1 APPOINTMENT OF BID COMMITTEE MEMBERS ........................................................................................................ 26

6.1.1 Bid Specification Committee .................................................................................................................... 26

6.1.2 Bid Evaluation committee ........................................................................................................................ 27

6.1.3 Bid Adjudication Committee .................................................................................................................... 27

6.1.4 Co-opted members ................................................................................................................................... 28

6.1.5 Drawing up Specifications ........................................................................................................................ 28

6.2 EVALUATING THE BIDS ........................................................................................................................................ 30

6.2.1 Functionality ............................................................................................................................................ 30

- Some key things to note ............................................................................................................................... 32

6.2.2 Summary: Procedure for scoring functionality ......................................................................................... 32

6.3 ADJUDICATING THE BIDS ..................................................................................................................................... 33

6.3.1 Duties of the Bid Adjudication Committee ............................................................................................... 33

7. BASIC PRINCIPLES OF CONTRACTS MANAGEMENT ................................................................................. 34

7.1 MANAGING SERVICE DELIVERY ............................................................................................................................. 34

7.2 MANAGING THE RELATIONSHIP ............................................................................................................................ 35

7.3 CONTRACT ADMINISTRATION ............................................................................................................................... 35


7.4 SEEKING IMPROVEMENTS .................................................................................................................................... 36

7.5 MANAGING CHANGES ........................................................................................................................................ 36

7.6 CONSTRUCTION CONTRACTS ................................................................................................................................ 37

8. MANAGING PERFORMANCE IN SCM ......................................................................................................... 38

8.1 WHAT IS PERFORMANCE MANAGEMENT IN SCM? .................................................................................................. 38

8.2 THE MONITORING OF SUPPLIERS .......................................................................................................................... 38

8.3 MONITORING OF THE SCM UNIT ......................................................................................................................... 39

8.4 SERVICE DELIVERY REALISATION AND OR VALUE FOR MONEY ..................................................................................... 39


1. INTRODUCTION

This Supply Chain Management (SCM) training manual serves as a summary guide for public

service employees who are involved in the SCM process. The manual is aimed at facilitating and

ensuring the implementation of SCM regulations as an integral part of financial management

systems.

SCM Regulations devolve and empower public officials with authority, commensurate

responsibility and accountability with respect to effective and efficient service delivery and

transformation. The SCM regulations further places an onus of the realization of National and

Provincial Government’s transformation imperatives on public service management. Public

Service Management and SCM Practitioners are to achieve transformation by leveraging

empowerment opportunities for local economic development, SME development and Broad

Based Black Economic Empowerment through targeted procurement spending.

The Provincial SCM Policy Framework aims at optimising service delivery through good

governance and international best practices as well as bringing about national uniformity.

Institutional Preferential Procurement Objectives with distinct spending targets are to form the

cornerstone of each organisation's procurement policy for change, and thus become the crucial

drivers for socio-economic re-engineering in the country.

In terms of section 217 of the Constitution of the Republic of South Africa, when government

contracts for goods and services it must do so in a way which is fair, equitable, transparent,

competitive and cost-effective. In addition, the SCM system must provide for the advancement

of persons or categories of persons disadvantaged by unfair discrimination. These are the

cornerstones of South Africa’s public sector procurement system.

In line with the Public Finance Management Act (PFMA) the public sector SCM system is highly

decentralised to allow managers to manage. SCM across South Africa is currently highly

fragmented. This makes it difficult for government to obtain maximum value when buying, and

making use of, goods and services.

Improving skills, processes and systems is critical for a well-functioning SCM system. The newly

established Office of the Chief Procurement Officer (OCPO) within the National Treasury, working

with all government institutions, aims to modernise and oversee the South African public sector

SCM system to ensure that the procurement of goods, services and construction works is fair,

equitable, transparent, competitive and cost effective in line with the Constitution and all

relevant legislation.


2. SUPPLY CHAIN MANAGEMENT - THE ORIGINS

2.1 A brief history

Supply chain management (SCM) is a relatively new concept. One of first instance of the term

supply chain management appeared in the early 1980s, in an article of The Financial Times,

although it wasn’t until the mid-1990s that the concept gained mainstream recognition. Though

supply chain management cannot yet be considered a “mature” practice, there exists a colourful

supply chain history, full of milestones, which contributed to its formation.

2.2 SCM in the Private Sector

In the private sector, Supply Chain Management can be defined as “a set of synchronized

decisions and activities that are used to efficiently integrate suppliers, manufacturers,

warehouses, transporters, retailers, and customers so that the right product or service is

distributed at the right quantities, to the right locations, and at the right time, in order to

minimize system-wide costs while satisfying customer service level requirements.”

The primary objective of SCM is to achieve sustainable competitive advantage, and thus

ultimately maximise profitability. SCM does this by recognising the interdependency in the

supply chain, and thereby improve its configuration and control based on such factors as

integration of business processes.

SCM is a concept that has flourished in manufacturing, characterised by the institutionalisation

of 'Lean Production' in the production and logistics environments. Today, SCM represents an

autonomous managerial concept, although still largely dominated by logistics. SCM endeavours

to observe the entire scope of the supply chain. All issues are viewed and resolved in a supply

chain perspective, taking into account the interdependency in the supply chain. SCM offers a

methodology to relieve the myopic control in the supply chain that has been reinforcing waste

and problems.

2.2.1 Lean Production

A 'Lean Business' is a system for organising and managing product development, operations,

suppliers, and customer relations. Business and other organisations use lean principles, practices,

and tools to create precise customer value—goods and services with higher quality and fewer


defects—with less human effort, less space, less capital, and less time than the traditional system

of mass production.

DEFINITION: LEAN PRODUCTION

"A team-based approach to continuous improvement focused on

eliminating non-value added activities or “waste” from the viewpoint of the

customer.

Many of the key principles were pioneered by Henry Ford, who was the first person to integrate

an entire production system, under what he termed “flow production." Following World War II,

the Toyota Motor Company adapted Ford’s principles as a means of compensating for its

challenge of limited human, financial, and material resources. The Toyota Production System (or

TPS), which evolved from this need, was one of the first managerial systems using lean principles

throughout the enterprise to produce a wide variety of products at lower volumes and many

fewer defects than competitors.

Leaders today in a wide range of industries, non-profit organisations, government agencies,

healthcare, and other areas are finding ways to apply the principles of lean as a means of

producing goods and delivering services that creates value for the customer with the minimum

amount of waste and the maximum degree of quality.

2.2.2 Kaizen

Kaizen, or rapid improvement processes, often is considered to be the "building block" of all lean

production methods. Kaizen focuses on eliminating waste, improving productivity, and achieving

sustained continual improvement in targeted activities and processes of an organization. Lean

production is founded on the idea of kaizen – or continual improvement. This philosophy implies

that small, incremental changes routinely applied and sustained over a long period result in

significant improvements. The kaizen strategy aims to involve workers from multiple functions

and levels in the organization in working together to address a problem or improve a process.

The purpose of Kaizen goes beyond simple productivity improvement. When done correctly, the

process humanizes the workplace, eliminates overly hard work, and teaches people how to spot

and eliminate waste in business processes.


The continuous cycle of Kaizen activity has seven phases:

1. Identify an opportunity

2. Analyze the process

3. Develop an optimal solution

4. Implement the solution

5. Study the results

6. Standardize the solution

7. Plan for the future

Kaizen

At its core, kaizen represents a process of continuous improvement that creates a

sustained focus on eliminating all forms of waste from a targeted process. An

advantage of kaizen is that it involves workers from multiple functions who may

have a role in a given process, and strongly encourages them to participate in

waste reduction activities.

2.2.3 A Model used to identify 'wastage' in the SCM process

The Supply Chain Council introduced the Supply Chain Operations Reference-model (SCOR). The

model defines common supply chain management process, matches them against “best

practices. It provides companies with a powerful tool in improving supply chain operations. It

allows manufacturers, suppliers, distributors and retailers with a framework to evaluate the

effectiveness of their supply chain operations and to target and measure specific process

operations.

The SCOR model was designed to enable companies to communicate, compare and learn from

competitors and companies both within and outside of their industry. It not only measures

supply chain performance but also effectiveness of supply chain reengineering. Further it has the

ability to test and plan future process improvements.

The SCOR model is primarily based on the pillars of “Plan, Source, Make, Deliver and Return”,

and these are utilised as an analytical tool to identify Lean opportunities in the Supply Chain.


In terms of the SCOR model, we can look for areas where “waste” might exist such as:

o Plan – Sales and Operations Planning (S&OP) process

o Source – Procurement and the use of JIT principles

o Make – Manufacturing, Assembly and Kitting

o Deliver – Transportation optimization (especially important with high fuel prices)

o Return – Shipping mistakes, returns, product quality and warranty issues often ignored or

an afterthought

Lean is of great interest to supply chain & logistics because it can help to give a company a

competitive advantage by supporting strategies based upon one or more of the following

concepts:

o Differentiation – your product is better or different than the competition in some way

o Cost Leadership – a low-cost strategy

o Response – a quick-response strategy

2.2.4 Just In-Time (JIT)

A buffer of inventory on hand is comforting – and costly. If you hold a lot of items in inventory,

you're locking away a huge amount of cash unnecessarily. These items can be lost, stolen, or

damaged, or they can deteriorate. They occupy space, which could otherwise be devoted to


operations. And they can become obsolete; particularly when products are improved or changed

often. All of this represents financial loss to the business.

In the 1970s, when Japanese manufacturing companies were trying to perfect their systems,

Taiichi Ohno of Toyota developed a guiding philosophy for manufacturing that minimized waste

and improved quality. Called Just-In-Time (JIT), this philosophy advocates a lean approach to

production, and uses many tools to achieve this overall goal.

When items are ready just in time, they aren't sitting idle and taking up space. This means that

they aren't costing you anything to hold onto them, and they're not becoming obsolete or

deteriorating. However, without the buffer of having items in stock, you must tightly control your

manufacturing process so that parts are ready when you need them.

When you do (and JIT helps you do this) you can be very responsive to customer orders – after

all, you have no stake in "forcing" customers to have one particular product, just because you

have a warehouse full of parts that need to be used up. And you have no stake in trying to

persuade customers to take an obsolete model just because it's sitting in stock.

The key benefits of JIT are:

o Low inventory

o Low wastage

o High quality production

o High customer responsiveness.

2.2.5 Total Quality Management

Total Quality Management (TQM) is a philosophy that says that uniform commitment to quality

in all areas of an organization promotes an organizational culture that meets consumers'

perceptions of quality. The concept of TQM rests largely on five principles:

1. Produce quality work the first time.

2. Focus on the customer.

3. Have a strategic approach to improvement.

4. Improve continuously.

5. Encourage mutual respect and teamwork.

The TQM philosophy focuses on teamwork, increasing customer satisfaction, and lowering costs.

Organizations implement TQM by encouraging managers and employees to collaborate across

functions and departments, as well as with customers and suppliers, to identify areas for

improvement, no matter how small. Teams of workers are trained and empowered to make

decisions that help their organization achieve high standards of quality. Organizations shift


responsibility for quality control from specialized departments to all employees. Thus, total

quality management means a shift from a bureaucratic to a decentralized approach to control.

An effective TQM program has numerous benefits. Financial benefits include lower costs, higher

returns on sales and investment, and the ability to charge higher rather than competitive prices.

Other benefits include improved access to global markets, higher customer retention levels, less

time required to develop new innovations, and a reputation as a quality firm. Only a small

number of companies use TQM because implementing an effective program involves much time,

effort, money, and patience. However, firms with the necessary resources may gain major

competitive advantages in their industries by implementing TQM.


3. GOVERNMENT AND PROCUREMENT

Procurement is as such concerned with establishing and documenting what is required; soliciting

from the private sector bid offers to provide supplies or services / to construct or maintain

infrastructure / to undertake disposals; awarding contracts to successful bidders; monitoring that

which was contracted to be provided is indeed provided; and paying contractors for executing

their contracts.

DEFINITION: PROCUREMENT

“The process that creates, manages and fulfils contracts.”

Public procurement operates in an environment of increasingly intense scrutiny driven by

technology, programme reviews, and public and political expectations for service improvements.

Procurement is of particular significance in the public sector and has been used as a policy tool

due to the discriminatory and unfair practices during apartheid.

Procurement vs. SCM

Although section 217 of the Constitution refers to procurement and the terms are

used inter-changeably; for the purpose of clarity and common understanding in this

Training Manual, Procurement is used to describe the process of implementing a

decision to buy, flowing from the pre-bidding process of supply chain management.

Whereas supply chain management (SCM) refers to the all processes leading up to

procurement and post-procurement.

Procurement is central to the government service delivery system, and promotes aims which are,

arguably, secondary to the primary aim of procurement such as using procurement to promote

social, industrial or environmental policies. Prior to 1994, public procurement in South Africa was

geared towards large and established contractors. It was difficult for new contractors to

participate in government procurement procedures. However, public procurement in South

Africa has been granted constitutional status and is recognised as a means of addressing past

discriminatory policies and practices.


In 2013/14, the South African public sector spent R500 billion on goods and services and on

construction works. These supported and enabled the delivery of services to the country’s

residents. However, it is important to note that the 2008 recession was followed by a dramatic

rise in government debt, from R450 billion in 2009/10 to R1.4 trillion in 2013/14. This is

projected to grow further over the coming years. To take account of this, while at the same time

continuing with service delivery, it is imperative that government must reprioritise its spending

and also at the same time increase efficiency in the system in order to keep the extent of its debt

in check.

Government is the country’s largest buyer of goods, services and construction works. To ensure

good-quality, efficient and cost-effective delivery and therefore achieve government’s objectives,

its SCM policies and legal environment must be clear and simple. Since the first democratic

elections, South Africa’s public SCM system, which is anchored in Section 217 of the Constitution,

has evolved towards being fair, equitable, transparent, competitive and cost-effective. In 2004,

the National Treasury made significant changes to the system by introducing a public sector SCM

legislative framework that provides for decentralized policy and public sector resource

management. In line with the Public Finance Management Act (PFMA) the aim was "to allow

managers to manage". However, reports of the issued by the Auditor-General (AG), indicate a

continuous low level of compliance with the SCM legal framework. The negative results of this

non-compliance include interruptions to the procurement of goods, services and works; and

failure to source goods and services at the right price and at the right time.

Common findings in the AG’s annual reports on SCM non-compliance and irregular expenditure

include:

o Appointment of suppliers who are not tax compliant

o Failure to use competitive processes for quotations and bids

o Incorrect use of the preference points system

o Lack of appropriate bid committees

o Use of unqualified suppliers

o Passing over of bids for incorrect reasons

o Use of incorrect procurement processes in relation to threshold values for quotations and

competitive bidding

o Extension of validity periods

o Incorrect use of the limited bidding process

o Inadequate controls and procedures for handling bids

o Appointment of bid committee members not aligned with policy requirements

o Insufficient motivation for deviations from SCM procedures

These Auditor-General reports indicate continuous poor policy implementation and operational

flaws in institutional SCM oversight. These weaknesses include the inability of staff to interpret

and apply SCM policies and standards. However, the underlying problem is that SCM is carried


out within a decentralised legal framework, at two distinct levels: operational and regulatory.

Operationally, it is carried out by SCM units in individual organs of state. The regulatory function

is also largely decentralised, governed by rules formulated at entity level as part of SCM policies.

3.1 Public Procurement as a tool for development and transformation

The PPPFA and its Regulations give expression to Section 217(3) of the Constitution which

prescribes the framework within which preference and socio-economic objectives are to be

achieved. There has been criticism that the PPPFA and its Regulations do not go far enough to

achieve the preference, empowerment and socio-economic objectives described in Section

217(2) of the Constitution. Three main arguments are put forward:

The point scoring system based on price and empowerment is biased in favour of established

businesses. The cost structures for emerging black businesses can be higher than those of their

established, mainly historically-white counterparts. In addition, established businesses have

experience of the supply chain processes and control many of the inputs of the economy. There

should be no limit to the cost premiums associated with empowerment, i.e. price should not be a

main criterion when adjudicating bids.

- Local economic and enterprise development is difficult to be attained within the current

procurement regime.

- ‘Set-asides’ of procurement for designated previously disadvantaged groups are the only way

in which economic transformation can be attained. However, the current system does not

allow for these. Realising the benefits of preferential policies and achieving the objectives of

empowerment and socio-economic change go beyond legislation. The reasons why this is the

case include:

� The current fragmented procurement regime is a barrier to entry for emerging small and medium

businesses; this makes it difficult for new businesses to transact with government. Public

procurement is not sufficiently seen as a strategic function, with departments and state-owned

entities tending to lack strategies which include socio-economic and preference objectives.

� Although it varies, SCM capacity is generally weak with practitioners unable to conceptualise and

implement bids aligned with government’s developmental objectives.

� The sustainability of empowered businesses and socio-economic development schemes remains a

challenge. There is no strategy to ensure the organic growth of black and emerging businesses.

� The lack of a proper system to monitor the effects of empowerment strategies results in activities

such as fronting.

The PFMA was promulgated in 1999 and became effective on 1 April 2000. The PFMA gave effect

to the provisions in the Constitution of the Republic of South Africa, Act No. 108 of 1996, relating

to national and provincial spheres of government. The PFMA ‘adopts an approach to financial


management which focuses on outputs and responsibilities’. The PFMA established the term

‘national government business enterprise’, which is defined in section 1 as an entity which:

- is a juristic person under the ownership control of the national executive;

- has been assigned financial and operational authority to carry on a business activity;

- as its principal business, provides goods or services in accordance with ordinary business

principles; and

- is financed fully or substantially from sources other than the National Revenue Fund; or

- by way of tax, levy or other statutory money.

All national government business enterprises are by definition ‘national public entities’ as

described and referred to in the PFMA, of which some are companies and some not. The

Companies Act, 2008 established the term ‘state-owned company’ (“SOC”), which is defined in

Section 1 as:

- “…an enterprise that is registered in terms of this Act as a company, and either

a) is listed as a public entity in Schedule 2 or 3 of the Public Finance Management Act, 1999

(Act No. 1 of 1999); or

b) is owned by a municipality, as contemplated in the Local Government: Municipal Systems

Act, 2000 (Act No. 32 of 2000), and is otherwise similar to an enterprise referred to in

paragraph (a);

TAKE NOTE:

SOCs fall within the ambit of the PFMA, which means that they need to

comply with additional provisions over and above those of the

Companies Act.

3.2 King III Report on Governance

King III applies to all entities regardless of the manner and form of incorporation or

establishment, including state-owned entities. Principles are drafted on the basis that, if they are

adhered to, any entity would have practiced good governance.

It is recommended that all entities disclose which principles and/or practices they have decided

not to apply or explain. This level of disclosure will allow stakeholders to comment on and

challenge the board to improve the level of governance within an organisation.


4. POLICY FRAMEWORK

Supply Chain Management operates within the parameters set down by the Constitution and is

supported by different legislative mandates as discussed in the following page. These legislative

mandates form the basis for the implementation of Supply Chain Management in the Public

Sector environment.

4.1 The Public Sector Procurement Regulatory Environment

There are more than 80 different legal instruments govern public sector SCM. These include:

- The Constitution:

Section 217 deals with the basic constitutional requirements of public procurement. Section

33 sets out the requirements for constitutionally valid administrative action and therefore

the grounds on which administrative action may be reviewed by the courts. Section 195 lays

down the constitutional values for the country’s public administration.

- Relevant Acts and their related Regulations:

o Public Finance Management Act 1 of 1999 (PFMA);

o Preferential Procurement Policy Framework Act 5 of 2000 (PPPFA);

o Broad-based Black Economic Empowerment Act 53 of 2003 (BBBEEA);

o Prevention and Combating of Corrupt Activities Act 12 of 2004 (Corruption Act);

o Construction Industry Development Board Act 38 of 2000 (CIDB Act);

o National Land Transport Act 5 of 2009; State Information Technology Agency Act 88 of

1998;

o Financial Management of Parliament Act 10 of 2009;

o Road Traffic Management Corporation Act 20 of 1999;

o Public Audit Act 25 of 2004;

o Housing Act 107 of 1997;

o Disaster Management Act 57 of 2002;

o Promotion of Access to Information Act 2 of 2000 (PAIA);

o Promotion of Administrative Justice Act 3 of 2000 (PAJA);

All of these laws and regulations relating to public procurement are implemented through a large

number of independent statutory instruments, with some catering for specific procurement

practices and others for particular sectors or industries. In some respects, such division of the

rules is unproblematic and even inevitable. In general, however, this fragmentation of public

SCM law results in a less-than-ideal regulatory regime.


4.2 The Constitution

The Constitution plays a crucial role in setting principles of sound financial management in the

public sector. Sections 213 and 215 to 219 of the Constitution regulate financial management in

the public sector.

The Constitution of the Republic of South Africa, Act No 108 of 1996, as amended, regulates

procurement through Section 217 and determines that:

- (1) When 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, it must do so

in accordance with a system which is fair, equitable, transparent, competitive and cost-

effective.

- (2) Subsection (1) does not prevent the Organs of State or institutions referred to in that

subsection from implementing a procurement policy providing for –

� Categories of preference in the allocation of contracts; and

� The protection or advancement of persons, or categories of persons,

disadvantaged by unfair discrimination.

- (3) National legislation must prescribe a framework within which the policy referred to in

subsection (2) must be implemented.

The intention, in the promulgation of the PFMA, is specifically to give effect to the above-

mentioned sections of the Constitution. The Constitution calls for the introduction of the

following:

- Generally Recognised Accounting Practices (GRAP);

- Uniform treasury norms and standards (to prescribe measures for ensuring transparency and

expenditure control in all spheres of government); and

- The setting of operational procedures for borrowing, guarantees, procurement and oversight

over various national and provincial revenue funds.

Furthermore, the Constitution specifically prescribes principles within which financial

management should be governed.

4.3 The Public Finance Management Act

The Public Finance Management Act, 1 of 1999, as amended by Act 29 of 1999 (PFMA), serves to

modernise financial management in the South African Public Service in order to support the

processes of public administration. The PFMA introduces a uniform system of public sector


financial management, which improves on the erstwhile system in which accountability was

undermined because different legislation applied to different entities, and expenditure control

was too narrowly regulated. Compliance with the PFMA is compliance with the International

Financial Reporting Standards (IFRSs). However, compliance with the PFMA remains a challenge,

as indicated every year by the Auditor-General.

Public financial management has traditionally been developed around a framework of control

and is reflected in checking, testing, verifying and regulating through control accounts, centres,

procedures (instructions) and departments (treasuries).

To complement the PFMA as a financial management regulatory vehicle, the Treasury

Regulations were promulgated and came into effect in June 2000. The Treasury Regulations

include, inter alia, internal control measures, planning, budgeting, asset management, cash

management, accounting and reporting. It should be noted that the Treasury Regulations are

consistent with those of the PFMA.

Point to note about the PFMA

The PFMA is based on the principle that managers should be allowed to

manage finances within an agreed framework whilst being held

accountable.

- Key issues to note:

The PFMA, together with the Treasury Regulations and Code of Conduct, provides basis of

legislative framework that dictates a single statutory and regulatory framework for all state

procurement. In essence this means that it does not require all organs of state to procure in

the same way; However, within a framework, organs are free to structure procurement

processes to suit own needs.

- Treasury Regulations

o Regulation 9: “unauthorised, irregular, fruitless and wasteful expenditure”

o Regulation 16: procurement in the context of PPPs

o Regulation 16A: national framework for supply chain management (SCM)

� Covers state departments, constitutional institutions and public entities

� Deals with various aspects of procurement, including:

• Obligation to develop and implement an SCM system in institution

• Essential elements of any SCM system


� Requirements of any bidding process:

• Adjudicating bids through a bid adjudication committee

• Making provision for establishment, composition and functioning of bid

specification,

• Evaluation and adjudication committees

• Detailed bidding procedures

• Mechanism/process for approving evaluation/adjudication recommendations

• Compliance with ethical standards

4.4 Preferential Procurement Policy Framework Act (No. 5 of 2000) and its Regulations, 2011.

Sections 215-219 of The Constitution, 1996 requires that National Treasury introduce uniform

norms and standards within the public sector, to ensure transparency and expenditure control

measures, which should include best practices related to procurement and provisioning systems.

The Preferential Procurement Policy Framework Act, 2000 (Act 5 of 2000) and its accompanying

Regulations were promulgated to prescribe a framework for a preferential procurement system.

This Act and its Regulations incorporate the 80/20 and 90/10 preference point systems.

Bids or proposals with a value equal to R30 000 and above may have to be evaluated on the basis

of price and functionality (where applicable), as well as the contribution to Broad Based Black

Economic Empowerment Act (B-BBEE). The combined percentages for price and B-BBEE should

total to 100 points.

- Take note

The following information below became applicable as from the 07 December 2011:

o Bids/ Quotations with an estimated value equal to or above R30 000 and up to R1000

000 will use the 80/20 preferential point system.

o Bids/ Proposals with an estimated value above R1000 000 will use the 90/10

preferential point system.

The 80 and 90 are points for price, while the 20 and 10 are points for B-BBEE

contribution.

Section 17(3) of the Act draws attention to the awarding of preference points in order to address

the imbalances of the past. The B-BBEE score card therefore, provide for that platform.


4.5 Broad-Based Black Economic Empowerment Act (BBBEE) (Act No. 53 OF 2003)

The BBBEE strategy highlighted the problems associated with the current definition of BEE (and

by implication the definition of ‘HDI’ in the PPPFA). The strategy document defines BEE as ‘an

integrated and coherent socio-economic process that directly contributes to the economic

transformation of South Africa and brings about significant increases in the numbers of black

people that manage, own and control the country’s economy, as well as significant decreases in

the income inequalities.

The BBBEE Act allows the Minister of Trade and Industry to issue codes of practice that could

include ‘qualification criteria’ for preferential purposes for procurement and other economic

activities’. Where BEE should at all times be included as a priority, at least until certain prescribed

targets have been achieved, allowance should also be made for pursuing other policy priorities

through PPPFA (in terms of the codes of good practice and the scorecard).

4.6 Promotion of Administrative Justice Act, 2000 (PAJA)

The Promotion of Administrative Justice Act, 2000 (Act 3 of 2000) (PAJA), ensures procedurally

fair administrative actions, giving people the right to request reasons for administrative actions

and decisions and to have such actions reviewed in court. The Act aims to make the

administration effective and accountable to people for its actions.

Together with the Constitution, the Act embraces the Batho Pele principles and promotes South

African citizens' right to just administration. Section 33 of the Constitution guarantees that

administrative action will be reasonable, lawful and procedurally fair and it makes sure that

people have the right to ask for written reasons when administrative action has a negative

impact on them.

Times frames in terms of PAJA

Anybody can ask for reasons for a decision that affects them negatively, and they

can ask for reasons to be given to them in writing within 90 days of the decision

being made.

In summary PAJA does the following:

o It ensures that administrative procedures are fair.

o It gives people the right to ask for reasons.

o It gives citizens the right to have administrative action reviewed by the courts.


5. THE SCM SYSTEM

Supply Chain Management involves the management of working capital that is invested in goods

and services with the objective of optimizing the economic return on the investment. It is a

process of proper planning at the budgeting phase, careful goods or service selection, supplier

selection and management, bidding, requisitions, and contract management. The process begins

when the needs are identified during the strategic planning phase of the organization when

service delivery targets are identified. It ends with the disposing of an item.

It is thus clear that Supply Chain Management is an integral part of prudent financial

management. It introduces internationally accepted best practice principles, while at the same

time addressing Government’s Preferential Procurement Policy Objectives. Integrated Supply

Chain Management aims to add value at each stage of the process – from demand of goods or

services to their acquisition, managing the logistics process and finally, after use, to their

disposal. In doing so, it addresses deficiencies in current practices related to procurement,

contract management, inventory and asset management and obsolescence planning.

5.1 The public sector SCM cycle

The public SCM cycle has three key stages: pre-bid, bidding, and post-bid. All of these must be

governed by rigorous governance principles. The pre-bid stage includes needs assessment,

planning and budgeting, development of specifications and selection of the most suitable

procurement strategy. The bidding stage includes the invitation to bid, evaluation and

adjudication of bids. Post-bid includes contract management, ordering and payment. It is

important that efficient governance principles be applied to all these stages of the SCM cycle.

5.2 The pre-bid (Demand management)

Demand planning, procurement planning, items and specification management, and supplier

management are critical phases in the pre-bidding stage. This stage ensures that goods, services,

construction work and other purchases are properly planned and aligned to the procuring

entity’s strategy and resource plan. This alignment is critical to ensuring that goods are delivered

at the right time, place and price, in the right quantity and of the right quality. It is at this stage

that a comprehensive needs analysis is carried out in line with the strategic planning process.


- The importance of procurement plans

Procurement plans indicate what purchases an institution will undertake in the short,

medium and long-term. Proper planning should reduce delivery delays, eradicate recurring

contracts and unnecessary extensions, and eliminate the need for emergency procurement.

Further, procurement plans should inform suppliers about future opportunities.

- Item and specification management

Item and specification management is critical to the procurement process as it gives the

details of the goods, services or construction works to be bought. Poor demand and

procurement planning result in poor development of specifications, wrong decisions taken

about the items to be procured and unrealistic cost estimates.

- Functionality evaluation criteria

Functionality evaluation criteria test bidders’ ability to provide what is to be bought. Whether

or not a bid should be invited on the basis of the functionality criteria depends on the nature

of the required commodity or service, taking into account quality, reliability, viability and

durability and the bidder’s technical ability to carry out the contract. When an institution

invites a bid that uses functionality as a criterion for selection, the accounting officer or

accounting authority must specify in the bid documentation the evaluation criteria for

measuring functionality; the weight of each criterion; its value; and the minimum qualifying

functionality score.

The functionality criteria should reflect the critical elements of the project; should contain

weightings in line with the relative importance of the selection criteria; and have a scoring

system drawn aligned with information submitted with the bid. The system should be able to

take account of suppliers who have good performance records and should therefore weight

for skills, quality, experience, previous performance and value for money.

- Supplier management

Supplier management allows an institution to select its suppliers carefully and negotiate the

best prices for the goods and services that it needs. Supplier management includes

procurement, contract development and administration, transportation and logistics,

strategic planning and supplier evaluation. Supplier management also enables the purchasing

organisation to monitor supplier performance; ensure that it attains its objectives; and

minimise pre-bid stage violations.


Some of the Pre-bid stage violations include:

- Development of biased specifications

- Procurement of items not budgeted for

- Wrong choice of procurement strategy

- Poor procurement plans

- Abuse of non-competitive procedures

- Inadequate needs assessments

5.3 The bidding stage (Acquisitions Management)

This stage includes the invitation to bid, and evaluation and adjudication of bids. To avoid lack of

competition and conflict of interest, all potential bidders must have access to the same bid

information. Information in the bid documents should include details of the product or service to

be procured, specifications, quantities, the timeframe for delivery, realistic closing dates and

times, where to obtain documentation, where to submit bids and a clear, complete and non-

discriminatory description of the selection and award criteria. These cannot be altered after the

closing date.

Public sector institutions must have clear procedures for opening the bid box. To avoid

manipulation of the bids received, this must be done before a public audience and basic

information disclosed and recorded in a register. They must also ensure that members of their

bid evaluation committees and bid adjudication committees are familiar with and adhere to

National Treasury norms and standards when evaluating and adjudicating bids. This is to ensure

that there are no bidding stage violations.

Bidding stage violations include:

- Absence of public notification of invitations to bid

- Evaluation criteria changed during bid evaluation and adjudication

- Conflicts of interest not declared

- Political interference

- Recommendations ignored by Accounting Officers

- Manipulation of scores

- Discretion used to award bids to more than one bidder.

- Detailed bid records not kept

- Unauthorised changes to terms of a bid


An example of bid manipulation

A government department advertised that it intended to lease an existing building for a period of two

years. Potential bidders submitted their bids, some offering to construct new buildings and others

offering existing buildings. The advertisement required a lettable area of 3,250 m2 plus 85 under cover

parking bays. Members of the Bid Evaluation Committee and the Bid Adjudication Committee disqualified

four bidders who offered to construct new buildings and recommended a supplier for a two year lease on

an existing building at an annual escalation rate of 6%.

The Accounting Officer signed the lease agreement with the supplier. However, the agreement changed

the conditions of the bid: the period was changed from two to ten years, the escalation rate was changed

from 6 to 8 per cent, the lettable area was changed from 3250 m2 to 5416 m2 and the condition that an

existing building must be leased was changed to the construction of a new building. The building plans

were approved by the municipality.

5.4 The post-bid stage (Logistics Management)

This stage includes contract management, issuing orders and processing payments. Contracts or

service level agreements must not contain requirements and conditions not included in the bid

documents but should contain sufficient information to enable the suppliers to deliver goods or

services of the correct description, quality and quantity within the specified time. If supplier

performance is not monitored, a range of post-bid violations may occur; for example, the

purchasing authority may expand or vary orders against the original contract, to the benefit of

suppliers. Contracts may be expanded or varied by not more than 20 percent of the original

value of the contract and, for all other goods and services, by not more than 15 per cent.

Examples of post-bidding stage violations:

- Contracts or service level agreements tailored to benefit suppliers

- Inadequate supervision of suppliers

- Submission and payment of fictitious invoices

- Quality of products compromised

- Use of sub-standard materials

- Abuse of the variation procedures

An example of weak post-bidding stage management:

Security bid in a municipality In October 2011, a Municipality awarded an R8.7 million,

three-year security bid to a supplier. The contract started on 1 November 2011 and expired

on 30 October 2014. By the end of August 2014, the municipality had paid the supplier

R22.4 million. The first variation, which was not considered by the bid adjudication

committee, was requested as early as October 2011, before the contract commenced. This

variation, which was not considered by the committee, requested an additional 36 security

guards at a cost of R7 million.


5.5 Price vs. Quality in evaluation

When organs of state in South Africa contract for or procure goods or services, they usually take

into account not only the price offered by the different bidders, but also other criteria such as

experience, quality, reliability, etc These non-price criteria are referred to as “functionality

criteria” or more simply referred to as “quality criteria” and there has been a lot of controversy

around their use in practice. Prior to the current preferential procurement regime (as prescribed

in the Preferential Procurement Policy Framework Act – PPPFA), functionality criteria could

form part of the award stage of the procurement process and they played a decisive role in the

determination of a winning bidder.

Under the new preferential procurement regime, functionality criteria have been given a very

specific role. In brief, an organ of state must determine whether functionality is relevant to the

particular procurement and if so, it must provide for it during the qualification stage of the

process. Bidders must be required to meet certain minimum scores for functionality and only

those bidders who meet such scores must then qualify for further evaluation on the basis of

price and preference during the award stage.

The PPPFA prescribes the use of a points system to evaluate bids during the award stage. In

terms of the points system, points are allocated to suppliers for both price and preference. For

high value contracts (at present above R1 million) 10 points out of 100 may be allocated for the

attainment of specific goals and 90 points for price, and for lower value contracts (at present

contracts equal to or above R30 000 and up to R1 million) 20 points out of 100 may be allocated

for the attainment of specific goals and 80 points for price. According to the PPPFA the award of

preference points is tied to a supplier’s certified Broad Based Black Economic Empowerment

(BBBEE) status in terms of the Broad Based Black Economic Empowerment Act (BBBEEA). The

supplier who scores the highest total number of points out of 100 (for price and preference in

the form of BBBEE) is then generally awarded the contract.

The 2011 Regulations provide for a situation where two or more bidders score equal total points

and stipulate that in such a case, the contract must be awarded to the bidder who scored the

most preference points for BBBEE. If, on the other hand, functionality forms part of the

evaluation process and two or more bidders score equal points, including equal preference

points for BBBEE, then the contract must be awarded to the bidder who scored the most points

for functionality. If two or more bidders score equal points in all respects, the award must be

decided by the drawing of lots.


Appointment of supplier NOT scoring the highest points:

The PPPFA also makes provision for the award of a contract to a bidder who does

not score the highest points. Section 2(1)(f) is a very important provision for the

purposes of this paper and provides that – “the contract must be awarded to the

tenderer who scores the highest points, unless objective criteria in addition to those

contemplated in paragraphs (d) and (e) justify the award to another tenderer.”

The courts have also created a certain level of ‘confusion’ around the matter of awarding

contracts to entities not necessarily scoring the highest points. There have been numerous cases,

all with ‘conflicting’ outcomes regarding this matter and this is best highlighted in the recent case

of Rainbow Civils CC v Minister of Transport and Public Works, Western Cape has, however,

complicated matters in that the court held that functionality criteria must play a role also after

the award of points for price and preference. The court in other words held that functionality

criteria must serve as both qualification and award criteria. The court held that even though the

general rule is that a contract must, in terms of the legislation, be awarded to the highest scoring

bidder on the basis of price and preference, functionality criteria may serve as “objective

criteria” for the award of a contract to a bidder other than the highest scoring one.


6. FUNCTIONING OF BID COMMITEES

6.1 Appointment of Bid Committee Members

One of the cornerstones of the successful implementation of Supply Chain Management is the

establishment of well functioning Bid Structures. The Accounting Officer is required to appoint at

least three Committees that will assist him/her in the proper execution of his/her duties for bids

exceeding R500 000 in value.

The three Committees that have been specified in the policy framework are the:

o Bid Specification Committee;

o Bid Evaluation Committee; and

o Bid Adjudication (Award) Committee.

TAKE NOTE:

The evaluation and adjudication Committees must comprise of

different members, to ensure:

o Transparent; and

o Objective evaluation of bids.

6.1.1 Bid Specification Committee

The Bid Specification Committee, assisted by the Demand Management section, is responsible

for the compilation of specifications and the evaluation criteria based on the request of the end

user. This Committee must consider whether all required quality assurance standards have been

met with regards to the type of goods and services requested. The specifications should be

compiled in a clear and unbiased manner to allow all potential vendors to be able to compete on

an equal footing.

The Bid Specification Committee may comprise of appropriately skilled officials, qualified

specialists or external consultants under the direction of the official concerned. It is

recommended that the specifications be approved by the Accounting Officer or his/her

delegates, prior to it being advertised to ensure consistency with the criteria stipulated in the bid

documentation.


6.1.2 Bid Evaluation committee

This Committee is responsible for the evaluation and verification of the bids that have been

received. They are then tasked with verifying, amongst other things:

o The capability/ ability of the vendor to execute the contract, from a technical, managerial

and financial perspective;

o Whether the bid is to specification in respect of quality, functionality, dimensions, design,

customer support, guarantee, etc.,

o Whether the bid offers value for money;

o Number of contracts awarded to vendors in contention during the preceding twelve

months;

o Allocation of preference points;

o Representivity in the composition of the vendor and the possibility of fronting;

o Success/failure in executing contracts awarded to a vendor previously;

o Tax clearance certificate issued by the South African Revenue Services; and

o National Industrial Participation Programme requirements. (Only applicable for contracts

in excess of R10 million).

NB: Bids must be evaluated against the set advertised criteria and preference goals.

It is recommended that the committee has a minimum number of 5 senior officials, including

Supply Chain Management Practitioners and officials from the user sections requiring the goods

and/ or services. After the evaluation, the Committee should submit a report and

recommendations regarding the award of the bid to the Bid Adjudication Committee.

6.1.3 Bid Adjudication Committee

This Committee should be cross-functional and composed of at least four senior officials, of

whom at least one member should be a Supply Chain Management Practitioner. The Chairperson

of the Committee should be the Chief Financial Officer or his/her delegate.

This Committee should consider the reports and recommendations made by the Bid Evaluation

Committee. Members of the Bid Evaluation Committee can be called on to give clarity to the Bid


Adjudication Committee when necessary. However, even though they might be called to sit-in

during the adjudication process, they do not have any voting rights.

The Bid Adjudication Committee must consider whether the recommendations made by the

Evaluation Committee successfully indicate:

o relevant information;

o logical decision making; and

o justifiable conclusion.

Depending on the delegations granted by the Accounting Officer, the Bid Adjudication

Committee may make the final award of the bid, or make a recommendation to the Accounting

Officer to make the final award. The Accounting Officer will then accept or reject the

recommendation for bids exceeding, R10m in value, the Accounting Officer may not sub-

delegate the award of the bid.

6.1.4 Co-opted members

The Accounting Officer may appoint any person or employee of an organisation to be co-opted

on to the Committee. This person may participate in the Bid Committee on an ad-hoc basis, due

to his or her expertise. This member has the same powers/duties as other members of the

Committee but has no voting rights.

The co-opted members are subjected to the same rules of conduct as permanent Committee

members. If a consultant is co-opted on to the Bid Committee his or her organisation may not bid

for the same project.

6.1.5 Drawing up Specifications

Standards and technical specifications quoted in bidding documents should promote the

broadest possible competition, while at the same time assuring that critical elements of

performance or other specified criteria are achieved. It is recommended that as far as possible,

the organization should specify accepted standards such as those issued by:


o Standards South Africa (the division of the SABS responsible for standards);

o International Standards Organisation; or

o An authority recognised by the South African National Accreditation System.

It is important to note that in instances of certain goods being required, the Bid Evaluation

Committee will not be able to make a decision without seeing samples of the proposed products.

As part of the Request for Proposals (RFP’s) samples may be requested from the bidder prior to

evaluation. Failure to provide such samples may lead to automatic disqualification.

The following points are important issues to consider when drawing up bid specifications for

goods or drawing up Terms of Reference or Requests for Proposals:-

o Specifications should be based on relevant characteristics and/or performance requirements.

o References to brand names, catalogue numbers, or similar classifications should be avoided. If

it is necessary to quote a brand name or catalogue number of a particular manufacturer to

clarify an otherwise incomplete specification, the words ‘or equivalent or similar’ should be

added after such reference.

o The specification should permit the acceptance of offers for goods which have similar

characteristics and which provide performance at least equivalent to those specified.

o The quality of goods/services required should, however, not be over-specified to the extent

that it will be impossible for others to offer such a product.

o A clear indication of the preference point system that will be applicable as well as the goals to

be achieved and the points allocated for these goals.

o Detailed information on the evaluation process should be provided amongst others by

indicating the ratio of percentage between functionality and price. The percentage for price

should be determined by:

- taking into account the complexity of the assignment and the relative importance of

functionality; and

- being determined and approved by the Bid Specification Committee prior to finalizing the

Terms of Reference.

o Evaluation criteria should be divided into sub-criteria.

o The validity period (normally 60-90 days) should be stated.

o Information must be provided on the evaluation process by:

- Indicating the applicable evaluation criteria;

- Their respective weights;

- Values that will be applied for evaluation; and

- The minimum acceptable score for functionality.

o A clear indication must be given of which preference point system in terms of the PPPFA will

be applicable as well as the goals to be targeted and the points allocated for each goal. (80/20

for contracts under R500 000 and 90/10 for contracts over R500 000).


6.2 Evaluating the bids

It is important to note that only those bids that have satisfied certain requirements will be

eligible for the evaluation. These statutory requirements include:

o the bid was submitted before the closing time;

o the standard bid documents have been used and signed accordingly;

o a tax clearance certificate has been submitted; and

o proof is submitted for registration on the suppliers’ database.

In the event that any of the above has been omitted, that bid cannot be evaluated and is

immediately excluded. The Accounting Officer is required to appoint a Bid Evaluation Committee

to assist him/her in the efficient execution of duties. Each member of the Bid Evaluation

Committee’s role must be clearly spelt out in their appointment letters.

6.2.1 Functionality

Where a bid contains functionality (quality) depending on the nature on the required

commodity, service or works the functionality should be evaluated on functionality (quality) first.

When inviting bids an organ of state must indicate in the bid document:-

1) whether the bids will be evaluated on functionality;

2) the evaluation criteria for measuring functionality;

3) the weight of each criterion; and

4) the applicable value as well as the minimum threshold for functionality.

The evaluation of the bids must be conducted in the following two stages:

(a) Firstly, the assessment of functionality must be done in terms of the

evaluation criteria and the minimum threshold referred to in paragraph

(2) above. A bid must be disqualified if it fails to meet the minimum

threshold for functionality as per the bid invitation.

(b) Thereafter, only the qualifying bids are evaluated in terms of the 80/20 or

90/10 preference points systems, where the 80 or 90 points must be used

for price only and the 20 or 10 points are used for B-BBEE contribution.


The evaluators should not have access to the financial proposal before they finish evaluating

functionality. The Accounting Officer/Authority should use at least one specialist in that

particular field of expertise during the evaluation of technical proposals.

The Bid Specification Committee should normally divide these criteria into sub-criteria. More

weight should be given to the methodology in the case of more complex and technically

demanding assignments.

A proposal should be rejected if it does not respond to the important aspects of the specification

and if it fails to achieve the minimum qualifying score for functionality. At the end of this process,

the Bid Evaluation Committee should then prepare an evaluation report on the quality of the

proposals and also make recommendations.

The report should substantiate the results of the evaluation and describe the relative strengths

and weaknesses of the proposals. All records relating to the evaluation, for example, individual

score sheets should be retained until the completion of the project and its audit.

KEY POINT DETAILED ACTIVITIES

1. Evaluation and

Comparison of bids.

- Evaluated based on the criteria in bidding documents.

- Amendments after bid closure are not allowed.

- Contract is awarded to bidder with highest points (price + BBBEE).

2. Rejection of all bids

- Non-compliance with the prescribed tender processes.

- Lack of effective competition.

- The prices are exorbitant.

- There are no longer funds for the supply/service.

- An incorrect specification or an error in the tender document.

- The supply or service is no longer required.

- Bids not substantially responsive.

- Causes to be reviewed, revisions made and new bids invited.

3. Vendor Assessment

- Supplier should be assessed by SCM Practitioner for possible risks, e.g.

capacity for delivery, previous performance on similar assignments.

4. Clearance of bidders

- Tax clearance certificate (valid for 12 months).

- Use of suppliers registered on the suppliers’ database.

- National Treasury database of tender defaulters

5. Negotiations

- Negotiations with successful bidders through a competitive bidding

process may take place.

- Negotiations should not change the original scope of work contained in

the specification.


- Some key things to note

i. The evaluation criteria to be used, their respective weights, the minimum passing

score for functionality and the values that will be applied for evaluation must be

clearly indicated in the bid documents.

ii. It is not always necessary that the lowest price will be awarded the bid quotation.

iii. PPPFA is applicable for all quotations exceeding R30 000 (limited to R500 000 and bids

exceeding R500 000

iv. Score sheets should be prepared and provided to panel members to evaluate the

bids/quotations on functionality.

v. The score sheet should contain all the criteria and weights for each criterion as

indicated in the Specifications/Terms of Reference, as well as the values to be applied

in evaluation.

vi. During the evaluation, each member should award his/her value to every criterion

using his/her discretion and without discussion with other members.

vii. No changes should be made on the evaluation criteria indicated on the original

bid/quotation document after the closing time.

viii. Panel members must sign their score sheets. Panel members may also be asked to

write motivation letters for their scores in certain cases if there are vast discrepancies

in the values awarded for each criterion.

The scoring for each criterion on the score sheet shall be in relation to the weighting (pre set) for

the relevant criterion to obtain the points scored for the various criteria. The scoring cannot

exceed the pre set weighting maximum possible score. These points should then be added to

obtain the total score.

6.2.2 Summary: Procedure for scoring functionality

- Step 1: Obtain criteria, values, weightings, etc from specification.

- Step 2: Prepare score sheets.

- Step 3: Members of panel to assess and score each bid response to each criteria.

- Step 4: Complete the table for functionality on the score sheet.

- Step 5: Each criteria is allocated a score per bid and it is inserted on the score sheet.

- Step 6: Total the scores per criteria per bid and divide by a total number of assessors.

- Step 7: Add all the average total scores per criteria and get a grand total.


6.3 Adjudicating the Bids

6.3.1 Duties of the Bid Adjudication Committee

The Bid Adjudication Committee must ensure that:

o all documents have been submitted;

o disqualifications are justified;

o scoring has been fair, consistent and correctly calculated; and

o Bidder’s declarations of interest have been noted.

TAKE NOTE:

If a bid other than the one recommended by the Bid Evaluation Committee is

awarded by the Bid Adjudication Committee, the Accounting Officer, National

Treasury and the Auditor-General must be notified within 7 days of the

award.

The Bid Adjudication Committee may also consider the recommendations of the Bid Specification

Committee to ensure that:

o a proper and unbiased specification is compiled for the specific requirement;

o a proper Specification/Terms of Reference is drawn up for the goods/service required,;

o strategic sourcing principles were applied;

o the necessary funds are available;

o if and when applicable, in addition to the General Conditions of Contract, appropriate

Special Requirements and Conditions of Contract are specified; and

o the preference point system prescribed and appropriate goals are identified and that

points allocated for these goals are consistent with the requirements of the SCM Policy

Framework.


7. BASIC PRINCIPLES OF CONTRACTS MANAGEMENT

Contract management activities can be broadly grouped into three areas.

o Service delivery management ensures that the service is being delivered as agreed, to the

required level of performance and quality.

o Relationship management keeps the relationship between the two parties open and

constructive, aiming to resolve or ease tensions and identify problems early.

o Contract administration handles the formal governance of the contract and changes to the

contract documentation.

All three areas must be managed successfully if the arrangement is to be a success. In addition,

good preparation and the right contract are essential foundations for good contract

management. The arrangement must also be flexible enough to accommodate change. A key

factor is intelligent customer capability: the knowledge of both the customer’s and the provider’s

business, the service being provided, and the contract itself. This capability, which touches all

three areas of contract management, forms the interface between supply and demand; that is,

between the business area and the provider.

7.1 Managing service delivery

Managing service delivery means ensuring that what has been agreed is delivered, to

appropriate quality standards. The contract should define the service levels and terms under

which a service is provided. Service level management is about assessing and managing the

performance of the service provider to ensure value for money. Considering service quality

against cost leads to an assessment of the value for money that a contract is providing.

As well as assessments of whether services are delivered to agreed levels or volumes, the quality

of the service must also be assessed. Quality metrics will have to be created that allow the

quality of service to be assessed, even in areas where it is hard to quantify. A key part of

assessing the service provided is the baseline, or level from which service levels and

improvements are measured. This will need to be agreed before the service commences.

Benchmarking, or comparing performance across different organisations and providers, is

another useful way to gauge improvements or pricing levels. Managing risk is another important

aspect of managing service delivery.

The fulfilment of the contract may be endangered by several kinds of risk; some within the

provider’s control, some outside it. Identifying and controlling (by avoiding or minimising) the

risks to a contract is a vital part of managing it. This includes those risks that have been

transferred to the provider under the contract. Business continuity plans and contingency plans


help prepare the customer organisation for the situation where the provider cannot deliver. They

are an important part of managing risk.

7.2 Managing the relationship

As well as the contractual and commercial aspects, the relationship between the parties is vital

to making a success of the arrangement. The approach to this will vary depending on the

contract, but it is important that the specific responsibilities are not neglected, even though

there may not be a nominated individual assigned to the role of relationship manager.

In long term contracts, where interdependency between customer and provider is inevitable, it is

in the interests to make the relationship work. The three key factors for success are trust,

communication, and recognition of mutual aims.

Management structures for the contract need to be designed to facilitate a good relationship,

and staff involved at all levels must show their commitment to it. Information flows and

communication levels should be established at the start of a contract, and maintained

throughout its life.

The three primary levels of communication in a contractual arrangement are:

o operational (end users/technical support staff);

o business (contract manager and relationship manager on both sides); and

o strategic (senior management/board of directors).

The right attitudes and behaviours, based on trust rather than adversarial models, should be

encouraged. There should be set procedures for raising issues and handling problems, so that

they are dealt with as early as possible and at the appropriate level in the organisation.

7.3 Contract administration

Contract administration, the formal governance of the contract, includes such tasks as contract

maintenance and change control, charges and cost monitoring, ordering and payment

procedures, management reporting, and so on. The importance of contract administration to the

success of the contract, and to the relationship between customer and provider, should not be

underestimated. Clear administrative procedures ensure that all parties to the contract

understand who does what, when, and how.

The contract documentation itself must continue to accurately reflect the arrangement, and

changes to it (required by changes to services or procedures) carefully controlled. Responsibility

for authorising different types of change will often rest with different people, and documented


internal procedures will need to reflect this. Management reporting procedures control what

information is passed to management about the service; this can range from a comprehensive

overview of all aspects to solely reporting ‘exceptions’ to normal service. Arrangements for asset

management must also be considered.

7.4 Seeking improvements

Service delivery management, relationship management and contract administration should

keep both contract and relationship running smoothly, and providing the value for money

represented by the contract at its outset. The customer will almost certainly want to aim for

improvement over the life of the contract as well; ideally, the requirement for improvement will

be built into the contract.

A good working relationship will help make improvement a reality, based on the

principle that improvement is good for both parties, not just a means for the

customer to drive down costs.

Incentives motivate providers to improve by offering increased profit or some other benefit as a

reward for improved performance or added value. Benefits based payments, where payment is

dependent on the realisation of specific benefits to the customer, are a more sophisticated form

of incentive. Normally built into the contract terms, it is vital that incentives are balanced and

encourage appropriate provider behaviour. It may be appropriate to aim for continuous

improvement over the life of a contract, perhaps expressed through a capped price that

decreases year on year. A plan could be developed with the provider detailing how

improvements will be made.

7.5 Managing changes

A successful arrangement requires a mutual commitment to meeting evolving business

requirements and adapting to changing circumstances. Properly managed change can be a good

opportunity to improve the service. Drivers (reasons) for change during contracts can come from

a range of sources, both internal and external. Whatever the drivers, it is important to realise the

implications of change for the contract and all parties involved. There could be implications or

concerns in areas such as continuing value for money and the possibility of moving beyond the

original scope of the requirement.


Change is easier to deal with when preparations are made. Not every possibility

can be foreseen and planned for, but it is desirable that the contract include some

flexibility as well as procedures for handling changes.

Areas where change might be necessary include performance metrics, service functionality,

service infrastructure and workload.

7.6 Construction contracts

Construction contracts are fundamentally different from major service contracts. There are

various types of construction contract. The choice of contract depends on the basis of pricing and

the contract strategy that best meets the project objectives. The various types offer different

ways of handling pricing, risk transfer, responsibility for performance, cost certainty, and

complexity. The main customer-side roles involved in handling construction contracts are the

project manager and the project sponsor. The project manager manages the contract on behalf

of the customer, co-ordinating the design and construction and managing claims and disputes in

an impartial manner. On large-scale projects, the project sponsor fulfils a higher level, less hands-

on role, overseeing the project manager and monitoring budgets (among other duties).


8. MANAGING PERFORMANCE IN SCM

The broad objectives of Supply Chain Management in the Public Sector are improved

governance and preferential procurement for socio-economic empowerment. Governance is

defined as “the interface with stakeholders, the source of the strategic decisions that shapes the

organisation and its work, and ultimately accountability for the work and the actions of the

organisation” (The Institute on Governance).

Performance Management and its application to specific functional areas like Supply Chain

Management (SCM) can therefore be seen as a key driver in the institutionalisation of good

governance practices within the Public Sector.

8.1 What is Performance Management in SCM?

Performance Management depicts the final element in the SCM cycle but should not be seen in

isolation as the monitoring processes often occur concurrently with all the other elements in the

SCM cycle. The process consists of a retrospective analysis to determine whether the proper

process was followed and whether the desired outcomes were achieved.

An effective SCM Performance Management System should be developed and implemented in

accordance with departmental policies and procedures and applicable legislative requirements.

Broadly speaking, SCM Performance can be measured in terms of the following:

o Suppliers of goods and services

o The SCM Unit

o Service Delivery Realisation and or Value for money

8.2 The Monitoring of Suppliers

The monitoring of suppliers should form the basis of Contract Management activities where

certain aspects should be monitored and reported on. These reporting elements include but are

not confined to the following:

o A database of contracts awarded, conclusion of Service Level Agreements

o Monitoring of the supplier according to the stipulations of the SLA,

o Documenting any deviation or non-performance by the supplier,


o It is also recommended that at the completion stage of each project, an assessment of

the supplier/service provider (including consultants where applicable) be undertaken and

that this assessment be available for future reference i.e. Close out Report with final

payment made to supplier.

o A review of the relationship with suppliers and the improvements needed to enhance

efficiencies across the supply chain.

8.3 Monitoring of the SCM Unit

The various elements of the SCM Cycle should be monitored for adherence to the relevant

legislative requirements and internal departmental policy and procedure.

The SCM Unit should further be monitored for key requirements under the following elements:

o Monitoring and evaluation of SCM policy and its delegations, training obligations, the

constitution of bid committees and all relevant statutory requirements;

o Planning and budgeting for all procurement and service delivery needs;

o Compliance to SCM policy and prescripts in respect of acquisitions; logistics; disposal and

contract management;

o Reporting requirements to key stakeholders

8.4 Service Delivery Realization and or Value for money

Monitoring of procurement for:

o The extent to which the objectives of the organisation were met through procurement

activities i.e. Socio-economic targets, financial targets etc.

o Adherence to the five pillars of procurement especially value for money, which is defined

as the best available outcome when all relevant costs and benefits over the acquisition

period is considered.

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