R700bn procurement crisis demands more than compliance

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JEREMY MAGGS: New estimates are suggesting procurement fraud and irregular expenditure may have cost South Africa as much as R700 billion. Despite years of reform, scandals continue and consequence management remains painfully slow. It’s a worrying situation.

Paul Vos is with me now from the Chartered Institute of Procurement & Supply (Cips), and he says that compliance alone is not going to fix the system. Fundamentally, behaviour has also got to change.

Paul, a very warm welcome to you and let’s get to that R700 billion, it is a staggering number. How realistic is that?

PAUL VOS: It’s very realistic, Jeremy. We have a very strong legislative framework in South Africa.

The issue isn’t that our reforms are focused overwhelmingly on compliance, so the paperwork, the processes, instead of the actual behaviours and the capabilities that we need to apply that legislation effectively.

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So you end up with a system that looks really, really good on paper, but it doesn’t always work in practice. So that’s the situation we find ourselves in.

JEREMY MAGGS: So it’s about behaviour and capability. Where specifically then does it fail in practice if the reforms look good on paper.

PAUL VOS: I think one of the biggest issues is around capability. We place these highly complex, high-value procurement responsibilities on people who don’t necessarily have the training as procurement professionals.

Even the best legislation can’t compensate for that capability gap.

Another issue that we see quite a lot from Cips’ perspective is around misaligned authority.

So junior staff often do all the operational work, while senior officials who may not have the requisite procurement expertise are the ones who are approving decisions. So that mismatch then leads to bottlenecks and inconsistent judgment.

Also on the contract side, there’s often contract misalignment as well, which is arguably where most of the of the problems lie.

Many audit findings we see don’t come from the tender process itself, but from what happens after the award.

After the award there are issues like weak oversight, there’s scope creep – and we’re familiar with many, many government projects in South Africa that have extensive scope creep – there’s late delivery, there’s poor supplier management.

So all those issues are fundamental.

Then around the professional independence, procurement can’t be done well when officials are under pressure and whether that pressure is political or internal.

So without that independence, good governance collapses. So that’s where we see some of the fundamental issues.

JEREMY MAGGS: How big an obstacle is political interference then when it comes to clean procurement?

PAUL VOS: I think that there’s interference on multiple levels and I think that political interference really plays a part in terms of ensuring that there’s transparency around tender processes.

What we’re seeing is that we need to divorce the political side of governance from the process of awarding tenders and awarding contracts to suppliers.

I think the political side of things, given our history and given some of the issues that are in the public space, really needs proper attention from our lawmakers.

JEREMY MAGGS: You don’t think that process has just become too entrenched? It’s almost impossible to fix now. It’s almost part of the currency of the deal.

PAUL VOS: I’m a glass half empty person. I do think that there’s opportunity for us to shift. I think there are opportunities.

If we look at systems like e-procurement systems, if we have transparency around suppliers, if we have transparency around beneficiation, I do think that there are opportunities for us to arrest this issue, but it’s going to take a massive amount of effort.

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What is interesting is that if we look at some of our neighbouring countries, they’ve already implemented e-procurement systems.

In South Africa, I’m led to believe that National Treasury is only looking at perhaps March 2027 to introduce an e-procurement system. Once those types of systems come into place, there’s a lot more transparency.

That transparency then leads to public confidence. It leads to much higher visibility around what is happening with the public purse and public spending.

JEREMY MAGGS: I accept that, but there is the argument, of course, that digital procurement designed to reduce fraud, but there’s also the risk of just creating new workarounds.

PAUL VOS: Well, I think this is the thing about the e-procurement systems.

There are a multitude of different platforms available to procurement professionals, and this is why we need to be very, very cautious about which e-procurement systems we adopt and obviously, that we have to ensure that any workarounds within those systems have a very robust and transparent audit process so that any workarounds, again, need to be visible, need to be transparent and need to be available to all key stakeholders in terms of justification for those workarounds.

JEREMY MAGGS: Paul, I mentioned in my introduction, consequence and the reality or the problem that I see is that senior officials very rarely face swift consequences for procurement failure. Unless that side of the equation is dealt with, the discussion we’re having here is just academic, surely?

PAUL VOS: I think that’s true because behaviour doesn’t change just because rules exist, and it changes when incentives line up with the outcomes that we, as citizens, really, really want.

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At the moment, most officials are more afraid of making an admin mistake than making a poor commercial decision. So that dynamic has to has to change.

What we need to do, and I’ve mentioned this earlier around professionalisation, it’s important, we need to professionalise procurement.

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If you think about it, you wouldn’t let somebody practice as an accountant or an engineer without proper credentials.

Procurement officials really need to hold some sort of recognised professional qualification.

From our experience, we see that many, many practitioners in the public sector are seconded from other parts of the business, whether it’s operations or finance, so they don’t necessarily have those skills.

So when you raise the bar to entry, decision making improves. Then around consequences, we need predictability around the consequence.

At the moment there’s a lot of inconsistency, as we’ve mentioned also, it’s influenced by politics, unfortunately.

So if someone knowingly breaks the rules, there should be automatic sanctions, whether it’s around the loss of their delegation or suspension of a professional registration or blacklisting, in serious cases.

When people know those consequences are real, then behaviour will shift. But until that happens, we’re not going to see a shift.

I think it’s also important to be able to reward outcomes, not just compliance.

So if we have clean audits, if we are able to reduce irregular expenditure, if we see and experience better supplier performance, those are indicators really of good procurement.

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So when institutions recognise and reward that, people start focusing on results rather than just the box-ticking exercise, which doesn’t really bring us the results that we need in terms of addressing this critical issue.

JEREMY MAGGS: Thank you very much indeed. In conversation there with Paul Vos from the Chartered Institute of Procurement and Supply.

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