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PER: Potchefstroomse Elektroniese Regsblad

On-line version ISSN 1727-3781

PER vol.20 n.1 Potchefstroom  2017

http://dx.doi.org/10.17159/1727-3781/2017/v20i0a1359 

ARTIGOS

 

Using the Law to Combat Public Procurement Corruption in South Africa: Lessons from Hong Kong

 

 

P SewpersadhI, *; JC MubangiziII, **

IUniversity of KwaZulu-Natal South Africa. psewpersadh@gmail.com
IIUniversity of KwaZulu-Natal South Africa. Mubangizij@ukzn.ac.za

 

 


ABSTRACT

Since South Africa's political transition in 1994, corruption has been a major feature of the country's politics. However, the complexity of post-apartheid South African politics has sometimes prevented allegations and suspicions of corruption from being adequately dealt with by the law. This article examines the legal framework used to combat public procurement corruption in South Africa. Using a comparative approach, the article also examines the legal framework of Hong Kong - with a view to identifying lessons that South Africa can learn therefrom. Such lessons include but are not limited to Hong Kong's specific laws dedicated to public procurement, its particular legislative and institutional features, its commendable constitutional commitment to eradicating corruption, and the fact that Hong Kong's rules pertaining to procurement processes are more consistent and are not hidden in several legislative prescripts. South Africa may also do well to learn from the successes of Hong Kong's iconic anti-corruption agency, the Independent Commission against Corruption (ICAC) - in attempting to model its own anti-corruption agency.

Keywords: Public procurement; corruption; legal framework; South Africa; Hong Kong.


 

 

1 Introduction

Since South Africa's political transition in 1994, a major feature of the country's politics has been the centrality of issues around corruption in terms of public controversy. Although allegations and suspicions of corruption have plagued high-level government officials and politicians, the complexity of post-apartheid South African politics has at times prevented these allegations and suspicions from being dealt with by the independent hand of the law. Instead, they have been handled in politically expedient ways. Perhaps the point needs to be made in passing that corruption in South Africa is not confined to high-profile matters involving senior politicians or bureaucrats. Case law in this area tends to show that corruption pays a part in state procurement processes, whether or not senior political figures or bureaucrats are involved.

Corruption occurs in both the public and private sectors. However, the occurrence of corruption in the private sector has not enjoyed nearly as much attention as its occurrence in the public sector. This is because corruption in the public sector involves the resources and commodities that legally and rightfully belong to the public, and which are administered by public figures in trust, and on behalf of the public. Although it is widely accepted that public procurement is an area that is particularly susceptible to corruption, and while much has been written about corruption in general, not much has been written about corruption in the public procurement context specifically.

This article highlights the legal framework that is used to combat public procurement corruption in South Africa. It also examines the legal framework of Hong Kong with a view to identifying lessons that South Africa can learn therefrom. There are several reasons why Hong Kong is chosen as a comparator. Hong Kong, like South Africa, has in place a common law legal system. During its time as a British colony, Hong Kong was criticised as being one of the most corrupt places in the world,1 but it no longer bears this stigma. The 2014 Transparency International Corruption Perception Index ranked Hong Kong 17th out of a total of 175 countries.2 In comparison, South Africa was ranked 67th in the same index. It has been said that: "Hong Kong has transformed itself from a graft-plagued city into a place distinguished by its strong anti-corruption regime".3 The success in reducing corruption so significantly in Hong Kong, is attributable to a number of factors, including support from the legislature. Indeed, there are a number of lessons that South Africa can learn from the Hong Kong experience.

Public procurement has been defined as "the process by which governments and regional and local public authorities or bodies governed by public law purchase products, services and public works".4 Williams and Quinot define public procurement as the "purchasing by a government of the goods and services it requires to function and pursue public welfare".5 Corruption in the public procurement system subverts the constitutional principles on which the system is based, and failure by government to control and prevent corruption in this sector amounts to government's failure to meet its constitutional mandate. Before we examine that constitutional framework, a brief understanding of the international dimension is necessary.

 

2 The international dimension

International law plays an important role in the South African legal system.6 Since its constitutional recognition in South Africa, the courts have considered international law in most cases wherein international law is relevant. Perhaps the most well-known judgment which confirms the authority of international law in South Africa is Hugh Glenister v President of the Republic of South Africa7 (hereafter Hugh Glenister), wherein the Constitutional Court pronounced as follows while referring to anti-corruption international conventions to which South Africa is a signatory:

The obligations in these Conventions are clear and they are unequivocal. They impose on the Republic the duty of international law to create an anti-corruption unit that has the necessary independence. That duty exists not only in the international sphere, and is enforceable not only there. Our constitution appropriates the obligation for itself, and draws it deeply into its heart, by requiring the state to fulfil it in the domestic sphere.8

With regard to the eradication of corruption, South Africa is a signatory to several international or regional instruments including the United Nations Convention Against Corruption (UNCAC),9 the Convention Against Transnational Organised Crime,10 the Southern African Development Community Protocol Against Corruption,11 the Organisation for Economic Cooperation and Development Convention on Combating Bribery of Foreign Public Officials in International Business Transactions12 and the African Union (AU) Convention on Preventing and Combating Corruption.13 International anti-corruption instruments play a critical role in the fight against corruption. They enunciate principles and set universal and legally binding standards which signatory states undertake to be bound by. Such documents "foster both the domestic action and international co-operation needed to tackle the many facets of corruption".14 Taking into account the role which international law plays in the South African legal system and the number of international anti-corruption instruments to which South Africa is party, it is clear that international law is relevant to any enquiry relating to whether a specific body of law contains sufficient anti-corruption mechanisms.

In the context of public procurement, the 2011 UNCITRAL15 Model Law on Public Procurement (hereafter the Model Law) is the most relevant international instrument. It contains international best practices on public procurement procedures and principles in a national setting, seeks to harmonise public procurement processes across nations, and has been lauded by experts as being unique relative to other international public procurement texts.16 For example, the World Trade Organisation's Government Procurement Agreement17 tends to apply to international public procurement and international trade, while the Model Law provides procedures and principles which may be applied by nations in domestic procurement. It is therefore helpful to those nations undertaking legal reform in public procurement.

The Model Law also serves as a guide on various aspects of the open tendering process, including inter alia best practices pertaining to communication during a procurement process,18 the participation of suppliers or contractors,19 the qualification of suppliers and contractors, the minimum information to be disclosed in solicitation documentation and invitations to tender,20 evaluation and award criteria,21 rules pertaining to requests for information or clarifications sought by bidders,22 rules regarding the acceptance of the successful bid,23 rules regarding the manner in which records of procurement proceedings are to be maintained,24 various methods of procurement,25 the manner in which tenders are received, opened and evaluated,26 and challenge proceedings.27 A criticism of the Model Law, however, is that like most other public procurement texts, the focus is mainly on the selection and award stages of procurement. Notwithstanding this criticism, the Model Law has served as a benchmark for many countries, including South Africa, in reforming their public procurement regimes, as will be seen below.

 

3 The constitutional dimension

Section 217 of the Constitution provides the constitutional basis for public procurement in South Africa. Section 217(1) sets out five constitutional principles on which all procurement practices must be based: fairness, equity, transparency, competitiveness and cost-effectiveness. Subsection 217(2) recognises that public procurement may be used as a tool to promote social and policy objectives by promoting the development of previously disadvantaged groups, for example.28 In order to fully appreciate the constitutional framework, it would be prudent to briefly highlight, now, each of the five principles enunciated in section 217(1).

Fairness, as an abstract concept, is difficult to define. According to Baxter " as a bare concept, fairness has no meaning, but the meaning accorded to fairness in any given situation will be a conception of fairness".29 It is trite law, however, that fairness is often defined in terms of procedural fairness and substantive fairness. The Promotion of Administrative Justice Act30 (PAJA) sets out the elements of a procedurally fair administrative action.31 These elements largely reflect the well-known principles of natural justice. While procedural fairness is concerned largely with procedural safeguards and adherence to rules, substantive fairness refers to the reasons for a decision. This means that the decision must be reasonable, taking into account the circumstances of the case.

Transactions entered into by virtue of public procurement result in contracts. However such contracts are not entirely akin to contracts within the private sector, wherein the contracting parties are bound and obligated only to one another, to the exclusion of non-contracting parties. A government is in a different position. As the custodian of public funds, government can be said to always have a fiduciary duty to the general public in all of its decisions, actions and/or conduct, including when it contracts for goods and services with the private sector. This fiduciary duty means that there must be fairness in the relationship between organs of state, fairness in relation to competing tenderers, and fairness to the general public. In this sense, fairness to the general public and fairness to competing bidders may entail more than just procedural fairness to prospective bidders, as it includes considerations about whether the decision or action in question is substantively fair in the light of the interests of the general public. Considering that government's procurement decisions have a significant impact not only on the contracting parties but also on the general public, and seeing that section 217(1) has allowed room for such an interpretation, it is submitted that fairness within the context of public procurement means both procedural and substantive fairness.

As far as the principle of equity is concerned, Bolton's view referring to the fair treatment of disparate groups in South Africa is instructive.32 She states that:

Equity is a measure that compares one group with another, for example black with white, rural with urban, rich with poor and women with men. Instead of treating all groups exactly the same, groups who face different levels of resources and development should receive different treatment Areas with the most vulnerable populations and worst facilities should receive more resources than more affluent areas. Thus, equity can be said to be aimed at improving the position of vulnerable groups in South Africa.33

De la Harpe avers that in interpreting equity as contained in section 217(1) of the Constitution, the general tone and purpose of section 217 and of the Constitution as a whole is relevant.34 In that regard, he states that the utilisation of public procurement to address the legacies of Apartheid by the preferential treatment of previously disadvantaged South Africans may be equitable.35 In the circumstances, it is submitted that equity, in terms of section 217(1) of the Constitution, can be said to be aimed specifically at addressing the inequalities and unfair discriminatory practices of the past.36 During the apartheid era the procurement system in South Africa tended to favour "larger and better established entrepreneurs and did not create a favourable environment for small, medium and micro enterprises, in particular those owned and controlled by previously disadvantaged persons".37 In transforming its public procurement system, the post-apartheid government aims to "realise the potential of public sector procurement as an instrument of policy in the socio-economic transformation process." This is clearly reflected in the Constitution, where provision is made in section 217(2)(a) and (b) for categories of preference in the allocation of contracts, and for the protection or advancement of persons disadvantaged by unfair discrimination. In this way, public procurement is used as a vehicle to effect socio-economic reform in South Africa.

The interpretation of the constitutional principle of transparency is critical in any evaluation of laws aimed at combating corruption in the public procurement sector, because transparency is universally recognised as being indispensable in the fight against corruption.38 Apart from the context of section 217(1), the notion of transparency must also be interpreted in the light of the right to access to information, as contained in section 32 of the Constitution. It should also be seen in the context of section 33 of the Constitution, which affords every person whose rights have been adversely affected the right to be given written reasons for administrative decisions. Finally, transparency must take into account the secret and clandestine nature of procurement corruption. A transparent procurement system, in addition to ensuring that procedures are open to scrutiny, should ensure that actual reasons and underlying principles in terms of which decisions are made are fair, lawful, rational, and free of any venal intent.

In understanding the contextual meaning and content of the constitutional principle of competitiveness, the Competition Act39 is a useful starting point, because its preamble clearly recognises that the past apartheid and other discriminatory laws and practices resulted in excessive concentration of ownership and control within the national economy, weak enforcement of anti-competitive trade practices, and unjust restrictions on full and free participation in the economy by all South Africans. As the largest buyer of goods and services in the country, government is uniquely placed to promote and advance competition in order to create a more robust economy from a commercial perspective, as well as an economy that fosters full and free participation by all who wish so to participate. Public procurement must therefore seek to achieve competitiveness in terms of this dual perspective.

The commercial nature of competition implies that a wide range of suppliers ought to be given an opportunity to bid for government work, and government ought to then select the contractor whose bid represents the best value-for-money option.40 A procurement system that follows this approach will encourage the production and rendering of quality goods and services by commercial entities in the market, as competitors will understand that it is not only a low price which will secure them a public contract. In this way, public procurement advances competition, which results in an economy in which consumers benefit from superior quality goods and services.

With respect to redressing past apartheid and discriminatory laws and practices, competition will of necessity involve a structured system of preferential procurement. This is provided for within section 217(2) of the Constitution. With respect to public procurement, it is only through a system of preference that the ideals, as contained in the Competition Act, of creating an economy that is open to greater ownership by greater numbers of South Africans can be achieved. As such, public procurement in South Africa is subject to specific preferential procurement laws. It is therefore submitted that in order to satisfy the principle of competiveness, each procurement decision must be balanced in order to reflect the commercial nature of competition and the achievement of the ideals outlined in the Competition Act.

Competition and cost-effectiveness are largely interconnected and interrelated, as both principles concern the attainment of value for money.41 According to De la Harpe, a cost-effective action can be described as being effective or productive in relation to its costs.42 Therefore, in the example used above, while the initial cost of not utilising a competitive system may be higher, the action itself may be more effective, in that the prevention of delay may prevent further and more costly damage in the longer term. However, the danger in public procurement lies in the abuse of such methods and the unjustified non-use of competitive methods in the guise of emergency situations which in reality ought to have been anticipated well in advance. This will constitute a negation of the principle of cost-effectiveness.

De la Harpe further asserts that a system is cost-effective when it is standardised with sufficient flexibility to attain best-value outcomes in respect of quality, timing and price, and demands the least resources to effectively manage and control the procurement processes.43 In this respect, cost-effectiveness is interconnected with competition, in that the lowest tender might not always be the best option. A product with a longer lifespan or cheaper maintenance costs might be more cost-effective than its cheaper counterpart.</