Sakeliga cautions against Treasury's reintroduction of procurement race-rules struck down by ConCourt

Sakeliga has formally objected to National Treasury’s attempt to reintroduce race-restrictive and other procurement exclusions struck down by the ConCourt in 2022.

With its proposed 2026 Draft General Public Procurement Regulations, Treasury seeks to compel more than 700 state institutions – from municipalities to state-owned entities – to reserve major portions of their purchasing to preferred categories of race, gender, etc. Across all state procurement, a provider's eligibility would be determined primarily by racial ownership, with considerations of cost-effectiveness and efficiency treated as secondary factors. This would severely limit the pool of available suppliers, leading inevitably to higher prices and lower quality.

The result of Treasury’s proposals would be accelerated state failure across the board, driven by structurally deficient procurement.

Notably, the very sort of regulations now mooted by Treasury were already dealt a blow in 2022, when it was attempted under the Preferential Public Procurement Framework Act. Finding in Sakeliga’s favour, the Constitutional Court that year struck down similar race-restrictive procurement rules that had pre-excluded companies partly owned by white people from contracting with the state.

Having been blocked by Sakeliga's 2022 court ruling, the subsequent 2024 Public Procurement Act (not yet operational) and now the draft regulations constitute National Treasury’s attempt to achieve the same race-restrictive and other non-value-for-money procurement outcomes by other means.

Sakeliga reserves the right and is preparing to challenge the Act and regulations in court, should Treasury proceed to implementation.

Racial and other non-relevant precedence over price & quality

At the centre of the proposed regulations is a list of "designated categories" singled out supposedly for preference, but in effect to the exclusion of non-designated suppliers. The proposed regulations list 20 such categories – black people, women, people with disabilities, small enterprises and co-operatives owned by these groups, among others – and require a minimum share of each state institution's budget to be allocated to them.The size of the contract then determines the degree of race-restrictive and other preferential exclusions:

• Small contracts (up to R20 million) are reserved outright.
  
  Only suppliers that are 100% owned by people who fall within the designated categories may bid. Procuring institutions must allocate specific minimum percentages of their annual procurement budgets to designated categories, including 30% to black people, 18% to women, 30% to small enterprises, and 6% to co-operatives consisting of black people.
  
• Mid-size contracts (between R20 million and R100 million) are reserved for businesses that already apply these categories in their own supply chains.
  
  A business qualifies to bid only if it can show that at least 40% of its own past spending went to suppliers that are at least 51% black-owned. Furthermore, in order to qualify, businesses will be obliged to subcontract at least 30% of the relevant contract’s value to “qualifying persons”, being, amongst others, small enterprises 100% owned by black people, black youth, or black women.
  
• Large contracts (above R100 million) must be split.
  
  At least 25% of the contract value must be subcontracted to firms owned 100% by people in one or more of the designated categories.

In each case, a capable supplier can be excluded before its price or quality is even considered, purely on the basis of racial ownership and other non-competitive considerations.

Unlawful procurement mandates

Section 217 of the Constitution specifies that all procurement by all state entities must be done in accordance with a system that is “competitive and cost-effective.” It goes on to permit preferential procurement in certain circumstances, but does not make it compulsory. Instead, it leaves each organ of state with the discretion to determine whether preferences are appropriate in the circumstances, on condition that the procurement remains competitive and cost-effective, fair, equitable, and transparent.

The draft regulations purport to eliminate that discretion of state entities. They would require every public institution to apply preferential procurement requirements, regardless of cost, practicality, or operational need, and in terms of which open competitive procurement is only available as a last resort. This exceeds Parliament’s constitutional authority and is unlawful.

Resources

• Read Sakeliga's full submission here.