Procurement Policy

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• Introduction

  
  As trustees of public funds, Councillors and officials of a Municipality have an obligation to ensure that resources are managed in the most efficient and effective manner possible. A determining factor in meeting this obligation is ensuring that when an organ of State, including Municipalities, procures  goods and services, it does so in accordance with a system which is fair, equitable, transparent, competitive and cost effective (Local Government Transition Act No. 209 of 1993, as amended, Section 10G(5)(a)).
  
  No contract for the supply of any goods to or for any work, undertaking or service for or on behalf of the Council involving an estimated expenditure in any calendar month in excess of an amount as prescribed by the Council from time to time, shall be entered into by the Council, unless public tenders have been called for in the manner likewise prescribed (Local Authorities Ordinance of Natal Section 187(1)).
  
  Notwithstanding the preceding paragraph, a Municipality may, in accordance with a framework prescribed by national legislation, in awarding contracts, give preference to the protection or advancement of persons or categories of persons disadvantaged by unfair discrimination, and shall make the granting of such preferences public in the manner determined by the Council (Local Government Transition Act No.209 of 1993, as amended, Section 10G(5)(b)).
  
  Notwithstanding 1.1 above, a Municipality must, in accordance with the Preferential Procurement Policy Framework Act, No.5 of 2000, in awarding contracts, give preference to the protection or advancement of persons or categories of persons disadvantaged by unfair discrimination.
  

• The Procurement Policy addresses the following functions:

  • Tender, Contracts and Retentions;
  • Purchase Requisitions and Orders;
  • Creditor Payments; and
  • Stores.

  All references to Heads of Sections applies to the managers of the various Departments in the Municipality.

• Objective

  The objectives of the Procurement Policy are:

  • To create a procurement system which is uniform within the Local Authority, and simple;
  • To create conditions which are conducive to the empowerment of small, medium, and micro-enterprises (SMME?s);
  • To promote the achievement of equity by measures designed to protect or advance previously disadvantaged individuals (PDI?s) / historically disadvantaged individuals (HDI?s), through the awarding of preference points as per Preferential Procurement Policy;
  • To eliminate fraud or any other irregularities in the procurement of goods and services; and 
  • To guide the Municipality in properly administrating processes relating to tenders/contracts/retentions, purchase requisitions and orders, creditor payments and stores.

• Responsibility/Accountability

  According to the Municipal Finance Management Bill, 2000, chapter 6, paragraph 27(1), the Municipal Manager is the Accounting Officer of the Municipality. However, he may delegate certain duties/tasks to designated Officials, who would be accountable to him. The Municipal Manager is therefore accountable for all transactions entered into by his designates.

  • The Chief Financial Officer is delegated responsibility for establishing and maintaining systems, procedures, processes and training and awareness programmes to ensure efficient and effective financial management.
  • The Financial Department (FSD) of Sisonke District Municipality has the primary responsibility to manage the financial resources of the Council efficiently and effectively.
  • Policies and procedures are the key management tools to ensure effective compliance with legislation. . The Council?s vision is cascaded into policies that guide all transactions of the Council. Financial policies are there to guide all financial transactions.

  These polices and procedures are controls that management (Municipal Manager and Heads of Department) utilize to ensure that all transactions are correctly recorded in the accounting records of the municipality, reported and disclosed as required by relevant legislation and the Code of Accounting Practice for Local Authorities./ GAMAP.

  • There are five functions that the finance department has to manage are.
  • Budget process and the budget monitoring
  • Financial Polices and Procedures
  • Financial and Management Accounting and Reporting
  • Information Technology
  • Support to local municipalities
  • Interaction with stakeholders

  These are elaborated on individually in the following sections.
  
  The Chief Financial officer must prepare a monthly report for submission to the Council. In terms of Government Gazette No. R 1536, dated 14/10/97, Municipal Managers must furnish the Council with the following information as part of Best Practices:

  • A comprehensive analysis of debits which shall reflect the number of debtors and amounts outstanding of current debts and debts outstanding for 30 days, 60 days, 120 days and more than 120 days;(Monthly Reporting to Council).
  •  A reconciliation of the cashbook with the statement, including an explanation of all reconciling items which have been outstanding for more than three months; (Monthly Reporting to Council).
  • The investment portfolio, including the type of investment, interest rates, period of investment and a summary of the exposures to particular financial institutions; (Quarterly Reporting to Council).

  The anticipated cash flow for the ensuing six months which shall include plans to finance any shortfall; (Quarterly Reporting to Council).
  
  The turnover rate of the 20 highest value stock items accompanies by recommendations on how to improve the turnover rate of such stock items; (Semi-annually Reporting to Council).
  
  All surpluses and shortfalls in stock levels as well as reasons for such surpluses and shortfalls; (Annually Reporting to Council), and
  
  An age analysis of the 20 highest value monthly paid creditors including the reasons for all amounts outstanding for more than 30 days. (Quarterly Reporting to Council).

• Preferential Procurement Policy Framework Act No. 5 of 2000

  In terms of the Preferential Procurement Policy Framework Act, No.5 of 2000, paragraph 2, all organs of State, including Municipalities, must have a preferential Procurement Policy. An organ of State, must determine its preferential Procurement Policy and implement it within the following framework.

  • Municipalities must ensure that proper planning and calculations of the estimated costs are done prior to prescribing the appropriate preference point system in the tender invitation.

• General Conditions of the Act:

  Municipalities must refer to the contents of the Preferential Procurement Policy Framework Act No. 5 of 2000. A summary is given below.
  
  Note:  It is expected that this policy will be amended.
  
  There are two formulae to calculate the points for price (refer Preferential Procurement Policy Framework Act, 2000, Paragraph 5(1)):

  • All contracts with a Rand value equal to or below a stipulated amount; and
  • All contracts with a Rand value above a stipulated amount.
  • For contracts with a rand value above a prescribed amount (in terms of Paragraph 5 of this Act) a maximum of 10 points may be allocated for specific goals such as contemplated in paragraph 4.4 provided that the lowest acceptable tender scores 90 points for price;
  • For contracts with a rand value equal to or below a prescribed
    amount (in terms of Paragraph 5 of this Act) a maximum amount of 20 points may be allocated for specific goals as contemplated in paragraph 4.4 provided that the lowest acceptable tender, scores 80 points for price; and
  • Any other acceptable tenders which are higher in price must score fewer points, on a pro rata basis, calculated on their tender prices in relation to the lowest acceptable tender, in accordance with the prescribed formula.

  It must be stipulated in the tender document which point system will be applicable to that specific tender:

  • Should any preference points be allocated for local content, it will be applicable to only local manufacturers/suppliers/service providers residing in South Africa;
  • Failure on the part of a tenderer to fill in and/or to sign the declaration will be construed to mean that preference points are not claimed;
  • Any Municipality reserves the right to require of the tenderer, either before a tender is adjudicated or at any time subsequently, that the tenderer should substantiate any claim with regard to preference and in any manner required by the Municipality;
  • Conditional discounts may not be taken into consideration in the calculation of comparative prices;
  • Where different prices are tendered for different periods of the contract, the tender price applicable in respect of a particular period of the contract shall be a firm price;
  • Points will be rounded of to the nearest 2 decimal places;
  • The contract must be awarded to the tenderer who scores the highest points, unless objective criteria justify the award to another tenderer;
  • In the event of equal total points being scored, the tender shall be awarded to the tenderer scoring the highest number of preference points; and
  • An agent will, if awarded a tender, be regarded as a contractor and will be liable for all benefits/losses.

• Specific Goals

  In terms of the Preferential Policy Framework Act, 2000, the specific goals  may include:
  
  Contracting with persons, or categories of persons, historically disadvantaged by unfair discrimination on the basis of race, gender or disability (also Municipal Systems Act, 2000, section 83(2).

• Other Provisions of the Preferential Policy Framework

  • The contract must be awarded to the tenderer who scores the highest points, unless objective criteria in addition to those contemplated in 4.4 above justify the award to another tenderer;
  • Any contract awarded on account of false information furnished by the tenderer in order to secure preference in terms of this Act may be cancelled at the sole discretion of the Council without prejudice to any other remedies the Council may have.

• Delegation of Authority - Empowering Heads of Sections:

  In order to promote efficiency and the effectiveness of the procurement process, the Municipal Manager must empower Heads of Sections by delegating responsibilities to them. The following are recommended limits:

  • Level 1 (for expenditure up to R1 000). At this level the buying department is empowered to select suppliers and negotiate price;
  • Level 2 (for contracts, purchases or services from R1 000 up to R10 000). At this level, the buying department must obtain three quotations and evaluate them according to the Municipality's Procurement Policy. The Head of Section will be responsible for authorizing the awarding of the contract;
  • Level 3 (for contracts, purchases or services from R10 000 up to R50000). The buying department concerned must obtain three quotations and
  • Evaluate them according to the Municipality's Procurement Policy. The Chief Financial Officer, Municipal Manager and/or the Head of the Section will be responsible for authorizing the awarding of the contract; and
  • Level 4 (for contracts of R50 000 in case of Category 1, R 70 000 in case of Category 2 and R 120 000 in case of Category 3) - Government Gazette No. 19886 dated 26 March 1999. However, it is recommended that all municipalities, in terms of best practices, adopt a uniform limit of
    R50 000. At this level, the tender process is invoked.
  • The limits outlined above are inclusive of VAT and are applicable to the total order and not to the individual items which make up the order; and
  • The Municipality can amend the above limits by resolution at a full Council meeting to effectively adopt limits that are more relevant to their specific circumstances.