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BUFFALO CITY COUNCIL

BUFFALO CITY COUNCIL. PROCUREMENT POLICY. PRESENTATION TO THE TENDER COMMITTEE. Presenter Geoff Walton Head: Internal Audit. INTRODUCTION. Legal provisions Policies set by Council Procedures defined by Council Administrative procedures Reports to Tender Committee Documentation required

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BUFFALO CITY COUNCIL

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  1. BUFFALO CITY COUNCIL PROCUREMENT POLICY

  2. PRESENTATION TO THE TENDER COMMITTEE Presenter Geoff Walton Head: Internal Audit

  3. INTRODUCTION • Legal provisions • Policies set by Council • Procedures defined by Council • Administrative procedures • Reports to Tender Committee • Documentation required • Local suppliers/manufacturers • Specifications/Tender Documents

  4. LEGAL PROVISIONS • Constitution • Local Government Transition Act • Municipal Structures Act • Municipal Systems Act • Preferential Procurement Policy Framework Act • Municipal Ordinance • Administrative Justice Act

  5. Constitution • The Constitution provides that contracts shall be awarded in accordance with a system which is fair, equitable, transparent and cost effective and that there may be a system of preferences as per guidelines set by National legislation (the Preferential Procurement Policy Framework Act).

  6. Other Legislation • The Local Government Transition Act, Municipal Structures Act, and Municipal Systems Act, all repeat the provisions of the Constitution. • The old Municipal Ordinance sets out various procedural matters such as the advertising etc. • Some of the provisions of the Ordinance are superseded by current legislation

  7. Preferential Procurement Policy Framework Act • This Act sets out the Guidelines as required by the Constitution • The Act refers to a preference points system with either 80 or 90 points being awarded for price and the remaining 20 or 10 points being awarded for HDI equity or the achievement of specified goals

  8. Cont’d • The Minister of Finance has yet to announce the level above which the 90/10 formula will apply • The draft notice set the limit at R2 million but it may be set lower as the intention is to target and develop small emerging HDI contractors. • The Council has set the limit at R1million to limit any potential additional costs

  9. Cont’d • The intention is to create an enabling environment for emerging contractors • The principle is not to guarantee work for any group, rather to provide a framework within which they enjoy a preference or protection • Awards are therefore based not on price but on points scored

  10. Cont’d • The Council’s emphasis should therefore be to develop HDI contractors and not to encourage fronting by simply promoting equity in a business • The Targeted Procurement documents produced by the Dept of Public Works could be used for this purpose

  11. What is a tender • A tender is a legal and binding offer • Once accepted it becomes a contract • A contract implies reciprocal rights and obligations • The contractor must supply or perform as envisaged by the contract • The employer (Council) must honour its obligations eg pay on time

  12. How is an offer submitted • The Council advertises its requirements either in the press if over R120 000 (formal) or on notice boards (informal) • Offers must be submitted by the stipulated time and date • Offers must be placed in the tender box provided

  13. The Tender Box • This is a locked box (two keys kept by different officials) • It is opened by two officials and all documents are removed • Thereafter, until opened in public, they are under constant supervision by the two officials

  14. Opening of Tenders • Tenders are opened in public at the set time • They are date stamped and initialed • Important pages are also stamped and initialed to prevent fraud • If there are defects with the offer eg form of acceptance not signed then this is recorded on the tender cover page

  15. Cont’d • All formal tenders are listed, and prices are announced if possible (per tender) • With informal tenders names are also recorded but prices are not read out • As informal tenders often cover a lot of different items they are simply stamped, initialed and recorded by supplier only

  16. Compilation of an offer • This is a technical issue but in brief entails a tenderer establishing by calculation what the value of the service is • There may be a Bill or schedule of prices to be filled in • Once a tender is opened in public the price structure cannot be amended • Addition errors etc can be corrected by the Council

  17. Price of offer • Some offers are fixed price tenders ie the value cannot be changed once accepted • Some offers are subject to escalation based on an agreed formula eg SEIFSA • Other offers are based on a foreign currency eg where items are imported from overseas

  18. Cont’d • The price is therefore often to be determined in terms of the actual work to be done • For this reason the resolution reads along the lines “Rx, or such other sum as may be determined in terms of the contract”

  19. Tender / Contract • Once awarded the tender becomes a contract with all the legal ramifications thereof • Acceptance can be verbal • All of the Council’s contracts must be in writing (either an order, letter, or contract document)

  20. Cont’d • Once the contract is concluded the contractor must perform as envisaged by the contract • Variations orders may be issued on engineering/ construction contracts and these must be recorded as they will affect the final payment value • The Engineer may issue such variations as the contract conditions permit

  21. Cont’d • Major variations or alterations to the nature of the work would require both the Contractor and the Council’s agreement • This should be done with great care

  22. Policies and procedures set by Council • Definitions • CONTROL • The possession and exercise of legal authority and power to manage the assets, goodwill and daily operations of a business and the active and continuous exercise of appropriate managerial authority and power in determining the policies of the business and directing the operations of the business.

  23. Cont’d • COMMERCIALLY USEFUL FUNCTION • The performance of real and actual work, or the provision of actual services, in the discharge of any contractual obligation which shall include but not be limited to the performance of a distinct element of work which the business has the skill and expertise to undertake and the responsibility for management and supervision.

  24. Cont’d • EQUITY OWNERSHIP • Equity ownership shall be equated to the percentage of an enterprise which is owned by individuals, or in the case of a company, the percentage shares that are owned by individuals who are actively involved in the management and daily business operations of the enterprise and exercise control over the enterprise, commensurate with their degree of ownership

  25. Cont’d • OWNED • Having all the customary incidents of ownership, including the right of disposition and the sharing of all the risks and profits commensurate with the degree of ownership interests as demonstrated by an examination of the substance rather than the form of ownership arrangements.

  26. Cont’d • LOCAL SUPPLIER : A Local Enterprise that:  • a. owns, operates or maintains a store, warehouse or other establishment within the boundaries of Buffalo City, in which materials or supplies required for the performance of the contract are brought, kept in stock and regularly sold to the public in the usual course of business; and

  27. Cont’d • b. engages as its principle business, and in its own name, in the purchase and sale of the products in question, or the provision of a professional service.

  28. Cont’d • AGENTS • Agent means an independent institution or individual which has the proxy from another institution or individual from the industry to independently do business on behalf of or represent such an institution or individual.

  29. Cont’d • AWARD TO AN AGENT An agent will, if awarded a tender, be regarded as a contractor and will be liable for all benefits/losses. • H.D.I equity points as defined will only be awarded to an agent if documents substantiating such an appointment accompany the tender submission

  30. Cont’d • Access to Tendering information • advertise widely • advertise in Xhosa and English (Think about the cost and the benefit) • documents in English only • give feedback to unsuccessful tenderers • consider advertising on radio

  31. Cont’d • Tender Advice Centres • workshops etc • take care not to favour one over another • not assist in actual preparation of offer • not see offer before submission

  32. Cont’d • Value levels • to R5000 by telephone (minimum 2 quotes) on a roster basis from data base to be maintained by Finance Directorate • R5000 – R120 000 advertise on an “informal tender Board” twice a week • greater than R120 000 advertise in the press

  33. Cont’d • The Regulations regarding the calling of tenders in terms of the Local Government Transition Act allow the Municipality to not call for tenders up to R120 000. • NOTE Council waives the invitation of tenders and officials should not use this excuse for not laying a report before the Committee before advertising

  34. Cont’d • Note that the circumstances when a Council may waive the invitation of tenders are set out in regulations in terms of the Local Government Transition Act • These include: • Consultants, but only to the extent that the fees charged are in accordance with a schedule of fees set by the relevant Institute

  35. Cont’d • Repairs or spare parts for which there is only one authorised supplier available in the Municipal area or in the Republic • Where the execution of the work is so urgent that it would not be in the interests of the Municipality to invite tenders

  36. Cont’d • Waiver of Securities • to protect Council in the event of default by the contractor • up to R100 000 little risk and therefore need for surety bond may be waived • don’t award more than two contracts to a tenderer if sureties waived

  37. Cont’d • Packaging • all contracts to be broken down into the smallest practical components to enable emerging contractors to participate • is not an excuse to avoid the tender process • where not practical then there is a need to specify sub-contracting to emerging contractors • NOTE: not an excuse to avoid formal tender procedures

  38. Cont’d • Payment cycle • only pay for actual work performed • pay emerging contractors regularly to assist their cash flow • adopt procedures if contractors require “direct payment” or if a cession is to be entered into • Directorate of Engineering Services need to formulate a policy in this regard

  39. Cont’d • Tender submissions • colour coded pages to assist tenders • standardise the conditions of tender (still to receive attention) • revise the layout to make user-friendly eg combine price schedule with form of acceptance (reduce number of signatures required) This matter still needs attention

  40. Cont’d • Surety Bonds • there is a need for adequate surety bonds to protect Councils interests • Council needs to provide evidence of due diligence and of good stewardship • appropriate surety bonds are required • The actual requirements must be set in the document

  41. Adjudication • Use of a point scoring system • 80/20 (or 90/10 above R1million) • based on HDI equity and / or • on Development objectives such as use of local labour, resources, sub-contracting, joint ventures with emerging contractors, use of Resource Specifications etc • must be specified in the document

  42. Cont’d • With Procurement tenders (ie purchase of goods or services) HDI equity is the only factor subject to compliance with the definitions • With Engineering/Construction tenders HDI equity or development objectives may be specified

  43. Cont’d • Points for price • Maximum of 90 points for the lowest responsive tender • As the formula is 1 minus - all remaining tenders get fewer points for price

  44. Cont’d • Process points are allocated based on equity ownership • Relevant registration papers duly certified are required to provide evidence. • There is a need to evaluate the documents submitted • Officials must evaluate the documents submitted and investigate where needed

  45. The Formula • Price points = 90 X {1-(T – T1) /T1} • T = Tender under consideration • T1 = Lowest responsive tender

  46. Cont’d • Process points • Based on the percentage of ownership which HDI’s enjoy in the business • Price and process points are added together to produce the total adjudication points

  47. Restrictions / Controls • Restrictions • designed to make fronting more difficult and to ensure that there is meaningful participation in the contract by a H D I • control • commercially useful function • ownership • local supplier • agent

  48. Cont’d • Agents • must be properly appointed • tender awarded to agent in agents name • agent responsible for delivery and penalties if applicable

  49. Clearance certificates • Receiver of Revenue • Municipal Services • also from other Local Authorities including District Council

  50. Cont’d • Municipal Clearance Certificate • Issued by the Municipality ie not completed by the tenderer

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