The Nature of Procurement
In a front page report of Business Day (February 27 2001), Wyndham Hartley reports on the representations made by ministers Alec Erwin, Mosiuoa Lekota and Trevor Manuel to the public accounts committee.
In these representations they assert that there was "no way" that government could take responsibility for subcontractors since, to do so it would then not be able to hold primary contractors liable for the quality of products that they undertook to supply.
These comments reflect the comments made in the background note to the press statement issued by the three ministers on January 12 2001.
In this, the ministers argued that "Procurement does not deal with subcontractors. This has to be the contractual obligation of the prime contractor as it is they (sic) who must deliver reliable equipment and undertake the performance and delivery obligations...
"To insist that government must be held to account for minor subcontracts is to misunderstand procurement. The prime contractors are major international corporations and we are confident that they would ensure the quality of the subcontractors and this is their responsibility"
This statement, together with the statements of January 26 indicate that, whatever the state of understanding of procurement matters by the public accounts committee, the understanding of the ministers is somewhat confused.
What they do is to fail to differentiate the selection of subcontractors with the liability for their performance.
The ministers seem to believe that the two inevitably and invariably go hand in hand that if the government gets involved in the selection of subcontractors it will unavoidably and automatically lose the advantages that come from single point responsibility.
This view of procurement is not only incorrect in law, but also contradicts how many organisations, both public sector and private sector contract on a regular basis.
In the industry in which subcontractors are most commonly used, the construction industry, it is standard for construction contracts to specify a procedure whereby the client nominates or selects subcontractors without taking liability for his performance.
The prime contractor simply agrees that he will appoint subcontractors chosen by the employer, but will remain liable for his performance. If this approach seems too interventionist for the three ministers then why not take the approach taken by the public works department?
This department specifies, in its tender specifications, qualities which the subcontractor is to possess. Prime contractors are instructed to tender that their subcontractors will have to satisfy certain requirements.
Thus pressure is put on the prime contractor in his selection of subcontractors but nowhere does the department relieve him of liability for defective performance by the subcontractor.
The ministers would no doubt argue that principles which apply to construction contracts cannot be applied here, that the prime contractors were international corporations rather than small companies and similar arguments.
But the legal principles remain the same: involvement in the selection process does not necessarily imply that the primary contractor has been absolved of liability. Proper contract documentation, such as that used by the public works department can ensure that government retains the capacity to have a say in the selection of subcontractors without relieving the prime contractor of liability.
The dangerous area, where government may find that it does accept responsibility for subcontracts is where it issues instructions or discusses specifications directly with subcontractors yet this is what minister Erwin seems to have acknowledged that officials did do.
Wary of assuming liability for delivery by subcontractors, government refuses to take part in their selection and then, seemingly no longer wary, government discusses compliance with specifications directly with them. There has indeed been a misunderstanding of the nature of procurement.
The constitution requires in s217(1) that procurement by organs of state must be, among other things, transparent.
It is hard to see how the transparency requirement can be complied with when government refuses to look beyond the prime contractor in determining how contracts are to be awarded.
A final, worrying aspect of the minister's statement is the implicit suggestion that adjudicators did not satisfy themselves as to the identities of intended subcontractors before awarding the contract.
If public works is able to enquire into subcontractors on an ongoing basis, why was this not done on a bid as controversial, contested and sensitive as the massive arms bid?
Fenster is an independent legal researcher.
With acknowledgements to Giovanna Fenster and the Business Day.