The long awaited South African Preferential Procurement Regulations were published in final form on 20 January 2017. They take effect on 1 April 2017.

The changes made are mostly of a technical nature and don’t amount to a complete overhaul of the procurement system. More comprehensive reform is still expected when an overarching Public Procurement Act is published for comment later in 2017. Nevertheless, these interim changes could have a significant impact on the way that tenders are put out.

The main changes to the existing rules include:

• Clarity on when black ownership can be used as a “pre-qualification” criteria;
• The exclusion of 51% black ownership of large businesses as an acceptable pre-qualification criteria;
• Additional requirements for applying a “functionality” threshold;
• Raising the 80/20 threshold to ZAR 50 million;
• The regulation of price negotiation;
• The regulation of sub-contracting for contracts above ZAR 30 million;
• A requirement that any objective criteria relied are published in the tender documents.

There were also areas where National Treasury failed to provide clarity to matters which have been the subject of debate and conflicting court judgements in the last few years. These include:

• Whether the criteria specified for cancellation of a tender constitute a is closed list;
• Whether a threshold for local content can be published in a tender in the absence of standards to be published by the Department of Trade and Industry; and
• How subcontracting arrangements for large construction contracts should be treated for BEE purposes.

A full copy of the new regulations can be accessed here.

For more information on public procurement and government contracting contact Claire Tucker, head of the Public Law and Regulatory practice at Bowmans.