The value of contract deviations by organs of state declined markedly in the 2022/23 financial year but the number increased dramatically, a report on procurement risk trends has revealed.
The Procurement Watch Report on Procurement Risk Trends on contract expansions and contract deviations was compiled by Corruption Watch together with Stellenbosch procurement law professor Geo Quinot. The data was drawn from reports submitted to the Treasury by all procuring organs of state.
Corruption Watch noted in a media statement on the report that while deviations and contract expansions can raise red flags and indicate a lack of planning for procurement requirements, they do not necessarily indicate abuse of the public procurement system, as there could be valid reasons for them. They are accepted mechanisms within the procurement system.
“There may be perfectly valid reasons for deviating from a prescribed procurement procedure or for expanding an existing contract,” the report says. Deviations are, however, the exception and should only be used in exceptional cases.”
“An entity relying heavily on deviations in its procurement function may raise a red flag. It may signal abuse of the procurement system or that procurement planning is weak within the entity,” the report notes.
Between 2021 and 2023 there was a huge increase of 247% in the number of reported deviations, which was a cause for serious concern, Corruption Watch said. It cautioned though that the increase in the deviation numbers may reflect increased reporting of deviations rather than an actual increase.
There were 1892 deviations in 2022/23 compared to 251 in 2016 with the Council for Scientific and Industrial Research being responsible for 200 deviations in 2022/23 mainly due to the need to procure from one supplier.
On the other hand, the value of deviations declined significantly between 2021 and 2023. The total reported value of procurement via deviations in 2021 was about R34bn, in 2022 it was R28bn and in 2022/23 it was about R11.9bn.
“Thus, while the total number of reported deviations more than doubled from 2021 to 2023, the value of such deviations declined by two-thirds,” the statement said.
With regard to contract expansions, these steadily declined between 2017 and 2023 but this decline slowed down in the 2022/23 financial year. The number of reported expansions seems to have stabilised since 2019 to between 650 and 700. The total value of contract expansions in 2022/23 exceeded R157bn though in 58 cases the value of the expansion was not reported.
The value of expansions in 2023 is almost double the total reported value of expansions in 2021 even though the number of reported expansions in 2022/23 (673) was only slightly more than in 2021 (644). This implied that the extent of expansions was much higher in 2022/23 than previously.
“When compared to the original contract values to which the reported expansions relate, the overall percentage of expansion stood at 97%,” Corruption Watch said. “Put differently, this means that on average these contracts were almost doubled in value based on expansions.”
Eskom was responsible for six of the 10 largest expansions amounting to billions of rand in 2022/23.
Contract expansions relates to unexpected conditions that may emerge during the execution of a contract necessitating an adjustment of the contract.
Corruption Watch noted that contract expansions which involve an increase in the value of the contract carries an increased potential for abuse as much bigger contracts can be awarded to suppliers than was originally tendered for.
It noted that in terms of current law public entities can deviate from established procurement procedures under limited circumstances. National and provincial entities covered by regulations under the Public Finance Management Act (PFMA) may deviate when “it is impractical to invite competitive bids”.
Local government entities may deviate from prescribed procurement procedures in some specified circumstances, in terms of municipal supply chain management regulations including emergencies and where there is only one supplier that can provide the required goods or services.
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