A tender reform: The Competition Commission’s Guide on Promoting Competition in Public Procurement

The Competition Commission (Commission) recently published a Guide on Promoting Competition in Public Procurement (Guide) (accessible here) that aims to support South Africa’s public procurement procedures and authorities and address common anticompetitive concerns. The Guide intends to promote competition, advance small, medium and micro enterprise (SMME) development and benefit public sector institutions as well as customers.

4 May 2022 3 min read Competition Law Article

At a glance

  • The Competition Commission has published a Guide on Promoting Competition in Public Procurement in South Africa to address anticompetitive concerns and support public procurement procedures.
  • The Guide covers topics such as the benefits of promoting competition, common competition issues in public procurement, identifying anticompetitive conduct, principles for establishing competitive procurement processes, and guidance on handling suspicions of foul play.
  • The Guide also includes a summary of "do's and don'ts" for public sector institutions and procurement officials, covering areas such as internal procedures, competitive procurement procedures, transparency, professional training, and complaint handling.

The Guide broadly addresses five topics:

  1. The benefits of promoting competition in public procurement (e.g. bargaining power for the public sector institutions engaged in procurement; lower prices, higher quality and innovation in respect of the goods / services provided to the end consumer; and inclusivity through SMME participation).
  2. An explanation of the competition issues that may arise in public procurement (e.g. collusive tendering / bid rigging; market allocation; cross directorships / shareholding; excessive pricing; and exclusionary bid specifications or contracting models).
  3. How to identify anticompetitive conduct (e.g. analysing bid prices to determine patterns; assessing cross shareholdings / directorships; and identifying whether joint venture members have the requisite capacity to participate in a tender separately, whether they have done so or whether they have entered into a subcontracting relationship).
  4. Principles for establishing competitive public procurement processes (e.g. inclusive bid specification requirements; flexible qualification criteria and transparency).
  5. Guidance on what to do when foul play or anticompetitive conduct is suspected (e.g. discuss and clarify suspicions; record all suspicious behaviour; consult legal counsel on whether to proceed with the tender; and report detected conduct to the Commission).

Summary of do’s and don’ts

The Guide also provides a useful summary of “do’s and don’ts” for public sector institutions and procurement officials to be aware of when engaging in public procurement. This covers appropriate conduct vis-à-vis:

  • Internal procedures to identify warning signs for detecting anticompetitive conduct: Persons involved in the procurement evaluation or decision-making process should sign a declaration of no conflict of interest and report suspected price fixing, market allocation, excessive pricing, predatory pricing, foreclosure, and exclusionary conduct.
  • A competitive public procurement procedure: Bid specifications should be evaluated and updated or revised (where necessary) to ensure that they are sufficiently pro-competitive; contract award criteria and the system of awarding points to bidders should be transparent, and lengthy contract periods of more than five years should generally not be imposed.
  • Transparency and collection of information: Public tenders should be published on public forums; information from past tenders should be systematically collected and stored; and commercially sensitive information should not be shared with / among potential bidders.
  • Professional training of procurement officials: A regular training programme on bid rigging and cartel detection should be implemented.
  • Complaint handling: Internal procedures and a complaint handling mechanism should be established to refer suspected anticompetitive conduct to the Commission.

Notably, any person may provide information concerning an allegation of anticompetitive conduct, including, for example, an authorised representative of the public sector institution involved in procurement, a bidding firm, or members of the public.

Considering that firms found to have contravened the Competition Act in this regard will face severe penalties such as fines or criminal sanctions, it will be interesting to observe how the principles espoused in the Guide (albeit non-binding) will be incorporated in the South African public procurement process going forward.

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