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CGF ARTICLES, OPINIONS & EDITORIALS

Procurement: Carving the tender rot (2014-02-25)

Advertorial issued by CGF Research Institute and Sentigol

After hearing President Jacob Zuma’s State of the Nation 2014 Address, many people have agreed that “South Africa is a better place for all to live in”, since the dark days of apartheid was dismantled in 1994.
But, President Zuma also stated that a lot more work must be done to uplift the millions of South Africans who still live in abject poverty, and in completely undesirable conditions. He also spent some time discussing the rampant corruption in South Africa, and that this scourge would need to be dealt with decisively in the new administration.  Of course, President Zuma discussed -- and rightly so -- the matter of corruption and its devastating effects on the nation as a whole.  Expectedly there is a direct link to these issues.  If corruption in South Africa (at its current magnitude) is left unchecked, millions of people will continue to suffer and the country’s democracy will be threatened.  Needless to say, South Africa’s ratings have dropped 22 places in the Corruption Perceptions Index, and an estimated R30 billion is being lost annually by South African taxpayers due to graft, incompetence and negligence in the public service. In addition, the recent World Economic Forum (WEF) Report, called the Global Competiveness Index 2012-2013, ranks South Africa 52nd out of 144 countries vis-à-vis our global competitiveness.  At international levels, South Africa has dropped a further two places from the previous WEF survey – which measures amongst other indices, South Africa’s institutions, policies and other factors that determines the level of productivity of a country.  Interestingly, Kazakhstan is rated one level above South Africa and stands at 51st position.

Considering some of the enormous challenges that face South Africa, and notwithstanding the many accusations of collusion, tender rigging, bribery and corruption, one does have to question why these practices still continue.  In fact, tender rigging and the associated crime syndicates could be halted in their tracks if the correct leadership and political will was in place.  The irony of course is that sometimes it is quite unnecessary to write legislation to curb (or halt) some of these business malpractices.  In the case of irregular tender practices, it is possible that computerised software could entirely eliminate the “sticky fingers” involved with directing tenders to certain politically connected cadres, who continue to win tenders in spite of their poor credentials and delivery.  Clearly, existing legislation such as the Prevention and Combating of Corrupt Activities Act, 12 of 2004 would then deal with the results flowing from the fraudulent activities and information discovered through the intelligence of such software.

Using tenders for maximum value

The intention of issuing tenders to the business community is to, primarily, find the best value for money and to ensure that the requirements of the person issuing the tender is met as closely as possible by the service provider.  In many instances, price may not always be the determining factor that clinches the deal.  However, any process where there are financial gains involved, will eventually come under some form of pressure (or manipulation) from the potential suppliers bidding for the work.  In some cases, suppliers may bid very aggressively on their pricing, whilst others may collude and fix their pricing in order to oust any potential or unwanted competition.  As such, all around the world stories of tender manipulation appear in the media with devastating results upon the credibility of the parties involved; reputational damage to brand and many more negative consequences usually also follow.  For those in charge of procurement systems (both in an audit capacity and in the decision making process) the question companies must be asking themselves is: how best must the company act to ensure the tender process produces the best decisions, and that these decisions to choose one supplier over another is free from undue influence?
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