The Department of Public Works and Infrastructure recently announced that forty contractors had been blacklisted from doing business with the Department and its entities. The Minister confirmed that the Construction Industry Development Board (CIDB) had imposed these restrictions since June 2024. Over the preceding two decades, this blacklisting practice was rarely invoked. The consequences are significant for those companies which are then excluded from public works contracts. This will have a downstream effect on joint ventures that include those entities, sureties and subcontractors dealing with those entities.
Richard Hoal.
Khanya Mgebisa.
Mohamed Mota.
Consequence management
There must be consequence management in place for contractors who do not deliver effectively or who are found guilty of corrupt activity. Historically, the State has been weak at imposing consequences on under-performing contractors. This affects the State’s rebuilding delivery capability as well as the safeguarding of public funds. Debarment and restriction are standard features of credible procurement systems worldwide, and their effective use in South Africa is to be welcomed.
Public procurement framework
In terms of the Public Finance Management Act 1 of 1999 (PFMA) and National Treasury supply chain systems, accounting officers must prevent abuse and, before making any award, check whether a bidder or its directors appear on the database of restricted suppliers or the register for tender defaulters.
Section 76 of the PFMA and the framework for restriction
The PFMA empowers the National Treasury to issue regulations and instructions to ensure proper financial management and prevent abuse in public procurement. Section 76(4)(c) authorises the Treasury to prescribe measures to combat abuse of the supply chain system. These measures are reflected in the Treasury Regulations and Instructions that create the framework for restricting or blacklisting suppliers.
When a contractor is found to have acted dishonestly or failed to perform on a public contract, the accounting officer must investigate and, where justified, recommend that the contractor be restricted from doing business with the State for a set period.
Grounds for restriction typically include corruption, fraud, fronting, submission of false information, collusion in tendering, or serious non-performance. Once confirmed, the restriction is recorded on the National Treasury’s database of restricted suppliers or the register for tender defaulters, both of which must be checked before any award is made.
Restriction blacklisting is an administrative action
A restriction under section 76 is an administrative act and must follow fair procedure. SOE entities would have adopted a supply chain management policy which would likely make provision for the requirements of formal notification of the intended restriction and the opportunity to make representations.
Equally, the Promotion of Administrative Justice Act requires a fair administrative process to be followed before imposing restrictions on contractors or tenderers. This would, at the least, include receiving formal notice of the intended restriction, access to all documents and material relied upon, an opportunity to make representations and the furnishing of written reasons once a decision has been made.
The administrative decision may be subject to review, both as regards the right to fair procedure as well as the consideration of the decision itself.
New public procurement system
Parliament has enacted the Public Procurement Act 2024, which has not yet commenced. This Act provides for a debarment process which will include provision for institutions to issue debarment with notice and reasons and provides for the right to be heard before those orders are issued.
It also provides for a central debarment register to be maintained. Until this Act is operative, the current PFMA/Treasury regime remains operative.
Consequences for the industry
It would be prudent for employers and professional teams to screen potential contractors against the restricted database of suppliers before any award to avoid exposure to irregular expenditure.
Contractors who may appear on the list should request their record as well as reasons, consider whether a compliant procedural process was followed and if necessary, consider a judicial review of the decision. There are limited time periods which apply for the right of review.
