Department of Defence

REPUBLIC OF SOUTH AFRICA

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The Procurement Process

Presentation to the Portfolio Committee on Defence

08 October 2009

Contents

Introduction

Procurement Process

Procurement System

Anti-corruption and Transparency

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INTRODUCTION

Aim

To orientate the Members of the PCD to the Procurement process within the Department

of Defence

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Definitions

Authorising entity: A board or committee established to monitor compliance to procedures and to authorise bid submissions. Delegan: a person or entity who has powers delegated upon them.JIT: Just-in-time; concept of rapid deliveries and inventory reductions.Material Value Chain: the process, system and infrastructure pertaining to movement and handling of material from requisition to disposal

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Definitions…Cont.

Procurement entity: DoD establishment whose primary function is to procure or sell goods / services SCM: supply chain managementTQM: total quality management; concept of continuous improvement with emphasis on quality throughout the supply chainTransversal contracts: centrally-managed contracts applicable to more than one government department.

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Scope

The content of this presentation only applies to the GDA [or FMS folio 01] procurement transactions, i.e. two thirds of the DOD budget.

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PROCUREMENT PROCESS

Procurement Objectives

To support the Material Value Chain in accomplishing optimal materiel readinessTo ensure delivery of cost-effective quality services to services / divisions through good procurement practicesTo align procurement systems and processes with DoD Strategic ObjectivesTo ensure compliance of the procurement execution process with the GRC frameworkTo develop partnership arrangements with suppliers, and other procuring organisations and explore opportunities for SC collaborationTo promote the principles of BBBEE, industry development and environmental sustainability

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RSA Constitution Sect. 217: Execute Procurement Function through a system that is

fair, competitive, transparent, equitable and cost-effective.

PFMA Sect 38(1)(a)(iii): Have an appropriate procurement system which is fair,

competitive, transparent, equitable and cost-effective.

Procurement Prescripts

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PPPF Act 5 of 2000

National Treasury SCM Practice Notes

DODI No Acq/2/99/Edition 2

JDP No Acq/00003/04/Edition 1

Secretary for Defense Delegations

BBBEE Act

Procurement Prescripts

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Procurement Process Flow

End User Proc Unit/Centre Proc Committees Depot/Unit Finance

Initiate reqsDraw Specs

Budget

Verify Req & SpecsDraw up PQ/Bid Doc’s

& Advertise

Receive PQ/Bids

Capture PQ/BidsTechnicalEvaluationacceptance

PQ/Bid evaluationRecommendation

EvaluationAcceptance

Approval

Request FA

Approve FA

LOA/Order

Suppliers

ReceiveGoodsPrint

ReceiptVoucher(Qualitycheck)

Process Pay’t Docs

VerifyBid docInvoicesReceiptVoucher

Makepayment

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Level 3 2x Procurement Service Centres [PSC’s]

Thaba Tshwane and Simons TownSAMHS: Procurement Unit [Medical specific]

Procure at a Corporate Level [central] Requirements come from Formations and/or

PSMs Purchase through contracts, bids and / or price

quotations

Procurement Execution

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Level 4 Regional Procurement Sections

SA Army: 15SAAF: 10SA Navy: 2SAMHS: 1J Ops: 2DHQ Unit: 1

Regional requirements [FSEs] Purchase through contracts or price quotes

Procurement Execution

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Procurement transactions fall within the following categories: Petty Cash:- R5,000-00 Price Quotes:- <R500,000-00 Bids:- >R500,000-00 Contract item:- Any Value

Procurement Categories

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Price quotations - fwd docs to selected suppliers. Suppliers chosen (rotation) from a database

Bids - advertised in government tender bulletin, all suppliers have access to this

All PQ’s and bids have closing dates and times.

Received, evaluated administratively & technically, ranked for acceptance and recommended to the relevant committee for approval

Sourcing Process

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NAME ABB PROC FIN THRESHOLD

Regional Commercial Procurement Committee

RCPC R1,000,000-00

Corporate Commercial Procurement Sub-committee

CCPSC R5,000,000-00

Corporate Commercial Procurement Committee

CCPC R10,000,000-00

Departmental Commercial Procurement Board

DCPB Unlimited

Authorising Entities

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Proc process ends when supplier is paid in full

Rule (National Treasury prescribed) - payment 30 days after receipt of invoice

Advance payments to suppliers is not done unless agreed to as part of the contract conditions, and approved by CFO

FASC – responsible for finalising supplier payments. PSC’s only deliver the payment packs

Payment Procedure

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For FASC to process payment, ff documents are required: Delivery note Invoice Receipt voucher (accounting) Order / contract Completion certificate (services/repairs)

Payment Documents

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A mix of flexible delivery programmes, activities and mechanisms that can be strategically used to achieve service delivery objectives by outsourcing or PPPs

Legislated by - PFMA - Treasury Regulation 16 (PPP’s) - DOD Policy - DODI/00003/2000

DOD Defence Review, April 1998 stated that all non-core functions must be considered for outsourcing, the DOD must focus on its core business

Alternative Service Delivery

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Types of Procurement Transactions

Transversal Contracts

Common Products / Services

Division-Specific Services

Control and Management

National Treasury / SITA / DPSA

Central Procurement via mid-term contracts

Central Procurement via tender process

Co-ordination and Admin

Corporate Procurement [Log Div]

Corporate Procurement [Log Div]

Corporate Procurement [Log Div]

Execution Services / Divisions Services / Divisions Services / Divisions

Monitoring Compliance

Materiel GRC Materiel GRC Material GRC

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PROCUREMENT SYSTEM

System Design Principles

Combining the principles of JIT, TQM and SCM

Responsible Procurement Officials shall be of the rank of SO1/Assist.Director/Lt Colonel/Cdr upwards

Separate ‘oversight’ function from the ‘execution’ function.

System must allow ‘pro-active’ monitoring

Centralise control, and localise execution

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Procurement Delegans

SECDEF : by law

CSANDF : by SECDEF

Authorising Entities : by SECDEF

Senior Proc Officials : by SECDEF / CSANDF

Proc Officials : by SECDEF / CSANDF

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Financial Delegans

SECDEF : by law

CSANDF : by SECDEF

Div / Serv. Chiefs : by SECDEF / CSANDF

Senior Personnel : by SECDEF / CSANDF

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Procurement Structures: Execution

ProcurementUnit

ProcurementCentre

CorporateProcurement

•Day-to-day procurement•Procurement officials coordinated•One for each service / division

• Supporting Procurement Units•Handling central procurement activities•Handling tender processes•3 of them•Managed by senior procurement officials

•Supporting procurement centres•A directorate within Log Division•Central control of procurement strategy•Issue directives and execution frameworks to the lower structures

Procurement offices / sections at units

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Procurement Structures: Oversight

Regional Proc Committee

Corporate Commercial Proc Committee

Departmental Commercial Proc Board

Corporate Commercial Proc Sub-Committee

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The New Procurement Framework

Services / DivisionsFinancial Delegations

Procurement Unit 1SA Army

Procurement Unit 2SAAF

Procurement Unit 3SA Navy

Procurement Unit 4J Ops

Procurement Unit 5SAMHS

Procurement Unit 6DHQ

Regional ProcurementCommittee

Procurement CentreCentral

Procurement CentreSimons Town

Procurement CentreWaterkloof

Corporate CommercialProcom

Corporate ProcurementSANDF Log Div

DCPB

CSANDF Procurement Delegation - Prerogative

Deliv

ery

of

Good

s/serv

ices

ProcurementDelegations

ProcurementDelegations

ComplianceTo Gov.Framework

ProcurementDelegations

ProcurementDelegations

GRC Support GRC Support

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Exercising Procurement Delegation: CSANDF

CSANDF shall exercise his Procurement Delegation within the Authorising Entities

However CSANDF may use his procurement delegation outside the normal procurement process in cases of emergency as defined in JDP: ACQ 0003/2004

Provided a condonment is prepared and submitted to the authorising entity within 14 days.

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CORRUPTION PREVENTION / CONTROL

Prevention / Control Mechanisms

Submission of needs by DOD end-users. All procurement requests are scrutinized by the DOD Corporate Procurement Centre’s prior to inviting tenders to ensure that specifications/contracts are not drawn up to favour particular suppliers.

Segregation of duties. All persons involved in the procurement process/cycle perform a single procurement task only i.e. person inviting tender is thereafter not involved in either evaluating, recommending or serving on approval committee’s/board’s to award the tender.

Invitation of suppliers to tender for DOD work. As prescribed by National Treasury, the DOD utilises an electronic database (Proquote) which chooses suppliers by a rotation system per commodity category. DOD also advertises in the Government Tender Bulletin.

Recommendation to Award Tenders. Entire procurement process is electronic on E-Proqure. (Capturing of PPPFA points).

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Approval of Tenders. Not vested in any individual in the DOD. Only authorised constituted committees and boards approve awards. Members serving must also declare their interests regarding awards under consideration.

Effective Procurement Governance. Achieved through proactive monitoring by GRC to ensure compliance of procurement policies and procedures.

GRC also retains Chairmanship of the procurement Committees and Boards that award tenders.

GRC provides specialist advice and guidance to all DOD entities executing procurement.

Procurement Training and Corruption Awareness. DOD procurement officials are regularly exposed by attending workshops, seminars, formal DOD courses, etc.

Prevention / Control Mechanisms

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Interaction with National Treasury. DOD regularly engages NT for clarification of specific procurement issues. NT also promulgates SCM Practice Notes that regulate procurement and the DOD must implement same.

Procurement Deviations. Are only approved by the Accounting Officer and must be reported to NT and AG.

Procurement Delegations. Only issued by the Accounting Officer [or CSANDF sub-delegations] iaw PFMA. No DOD official is authorised to execute procurement without a delegation from either SecDef or CSANDF.

Compliance to Legislation. DOD confirms strict compliance to all procurement prescripts as a measure to prevent corruption.

Prevention / Control Mechanisms

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Declaration of Interest. No legislation that prevents DOD officials from tendering for DOD work whilst in the employ of the DOD. Members need to only declare to higher authority that they own a business.

Segregation of Duties. Enforcement is problematic due to personnel shortages.

Electronic Procurement System Downtimes. Can result in specific suppliers being asked by procurement personnel to tender.

Challenges within Procurement

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THE END