Procurement Functionality

Procurement Functionality


The revised Preferential Procurement Regulations become effective 7 December 2011. The purposes are largely to align these regulations more closely with BBBEE, and to address some of the concerns raised by both the courts and business relating to functionality and how it relates to price.

Achmat Toefy, partner at Webber Wentzel, has welcomed the regulations saying they are a step closer to driving economic transformation, empowerment, technically sound delivery in a fair and effective manner and towards routing out fronting.


The new preferential procurement regulations will now require that all entities, if they wish to qualify for preferential points when bidding for work from the State, will need to be rated by accredited rating agencies in terms of the BBBEE codes and businesses will need to be in possession of a valid rating certificate reflecting such rating.

“This does not apply to smaller entities falling below a particular threshold and they will be given an automatic rating score,” explains Toefy.  “Such entities will need to be rated if they seek to achieve a better rating than the assumed score.”

A second notable issue is that there may be many private entities (both transformed or not) that are not yet rated and they have also not made sufficient plans to be rated.  Such entities are unlikely to be completely disqualified from the bidding process but they are however unlikely to qualify for preferential points until they are rated.

“This will result in some bids being awarded to somewhat less transformed entities that would have not won the tender had more transformed entities been duly rated,” he adds.


The key amendment in respect of functionality is that it may no longer be scored as part of the points which have in the past been allocated to price. “Now functionality (or quality of the bid) is seen as a gateway mechanism where bidders must obtain a minimum score for functionality in order to remain in the bidding process and thereafter to be scored for price and BBBEE considerations,” says Toefy.

Toefy adds that the much more stringent and thorough rating process to be conducted by accredited rating agencies will go a long way towards improving the integrity of procurement by the State in general.

“Of course, this does not mean that corruption and fronting will be completely eliminated, but it should be reduced with the implementation of the new preferential procurement regulations,” Toefy concludes.

Entrepreneur Magazine is South Africa's top read business publication with the highest readership per month according to AMPS. The title has won seven major publishing excellence awards since it's launch in 2006. Entrepreneur Magazine is the "how-to" handbook for growing companies. Find us on Google+ here.