Tender process for the tough-minded

Online since 5.09.2017 • Filed under Purchasing & Procurement • From Issue 6 - September 2017 - February 2018 page(s) 72-73
Tender process for the tough-minded

Speaking of transparency in the same sentence as tendering to government; surely not? Chartered accountant [CA(SA)] Julius Mojapelo, senior executive for the public sector at the South African Institute of Chartered Accountants (SAICA) sets the record straight.

There are many SMMEs doing honest deals with government through a legal, transparent process of procurement and tendering. But the truth is that by far the majority of SMMEs steer well clear of government even though BBBEE and tendering rules favour them.

As important as it is for tender processes to be above board for SMMEs, who find these processes onerous enough, they generally don’t look for business from government at any level for a much more critical (to them) reason – on average, they don’t get paid on time by public institutions. And, as a result, more than 80% of SMMEs don’t do business with government at any level.

This was among the findings of the 2016 SMME Insights Survey conducted by SAICA, which is the most recent research on the topic by the institution. The average turnover of these enterprises is R10.9 million, with a third employing between six and 49 people. According to the National Development Plan, these companies are the country’s only hope of reducing unemployment and poverty and of boosting our failing levels of gross domestic product. Among the survey’s critical conclusions is that SMMEs (and by extension our country) could flourish if the tender process was simplified and made more transparent, and if government and big business paid their accounts on or before 30 days.

Public finance management capacity building

With the low uptake by SMMEs tendering for government contracts and the often-bemoaned slow payment, it is heartening to learn that SAICA is working with government to improve public finance management capacity. But what’s being done? ‘Providing public finance management capacity and building support is a priority at SAICA,’ explains Mojapelo.

‘This involves collaboration with public sector institutions to help them improve financial management systems and processes to ensure sustainable service delivery.’ Paying SMMEs on time would be one of the outcomes. ‘SAICA is also educating SMMEs and its members who interact with SMMEs about the process of doing business with government. This makes it easier for SMMEs to tender for contracts.’

But with slow payment by government a concern for many SMMEs, is Mojapelo optimistic about a turnaround? ‘I see signs of government’s commitment to turning the situation around through recent legislation and measures,’ he maintains.

‘Among them, Treasury Regulation 8.2.3 states that unless determined otherwise in a contract or other agreement, all payments due to creditors must be settled within 30 days from receipt of an invoice or, in the case of civil claims, from the date of settlement or court judgement.’

Help at hand for SMMEs

He adds: ‘These measures include establishing a dedicated call centre within National Treasury to assist institutions and affected suppliers in resolving non-payment of suppliers/creditors appointed through the supply chain management process.’ National Treasury will provide quarterly reports to parliament regarding the non-payment of creditors within 30 days, and make the reports public. While this is a step in the right direction, SMMEs remain unconvinced about doing business with government.

The proof of the pudding it seems will only emerge in the eating. Mojapelo sympathises with the plight of SMMEs that are struggling to get payment from government. ‘The Small Enterprise Development Agency payment assistance hotline is a very important platform that SMMEs can use to facilitate payment of long outstanding payments from public sector institutions.’ Current legislation protects SMMEs in instances of slow payment. ‘Should entities fail to comply with the 30-day payment terms, this will result in non-compliance with the Public Finance Management Act and Treasury Regulations.’

The ball firmly in government’s court

During a budget speech earlier this year, Lindiwe Zulu, Minister of Small Business Development, said: ‘In January the National Treasury gazetted the revised Preferential Procurement Regulations that encourages government and its entities to procure at least 30% of goods and services from SMMEs and cooperatives.’ But, as the Minister observed, ‘the contribution of SMMEs to the South African economy is far below its potential’. According to the Quarterly Financial Statistics Report, the private sector earned R2.3 trillion in the last quarter of 2016. Large businesses contributed 60% with the balance from small and medium businesses.

‘We need to do better and match the global average that shows small businesses share higher levels of participation in various economies. This is possible if we heed the President’s directive to set aside 30% of government procurement budget of around R600 billion towards SMMEs and cooperatives.’

SMMEs might be tempted to reply to Minister Zulu that the contribution of government to encourage SMME involvement by paying its bills on time is also far below its potential. The ball, it seems, is firmly in government’s court. There is no chicken and egg situation here. If government pays on time SMMEs will engage in droves. The continued growth of SMMEs rests on government’s commitment to delivering on tender and payment policy. Everyone’s a winner when we create jobs through transparent tenders, fairly awarded, and where work is paid on time. SMMEs that want to report slow payment by government can call 0860 766 3729. For more information, visit www.saica.co.za; www.seda-smme.co.za.

Issue 6 - September 2017 - February 2018

Issue 6 - September 2017 - February 2018

This article was featured on page 72-73 of SABI Magazine Issue 6 - September 2017 - February 2018 .

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