The revised PPPFA Regulations that became effective on 01 April 2017 require that, if feasible to subcontract, for contracts above R30 million, organs of state must apply subcontracting to advance designated groups. The Regulations further state that if an organ of state applies subcontracting, they must advertise the tender with a specific tendering condition that the successful tenderer must subcontract a minimum of 30% of the value of the contract to specified EMEs, QSEs or Cooperatives.
- EMEs – Exempt Micro Enterprises (Revenue below R10 million)
- QSEs – Qualifying Small Enterprises (Revenue between R10 million and R50 million
The regulations are applicable to all organs of state including National and Provincial Departments, Municipalities and Municipal entities, Constitutional Institution, Parliament, Provincial legislatures and any other institution included by Section 239 of the constitution.
The organ of state is required to make available the list of all suppliers registered on a Central Supplier Database to provide the required goods or services in respect of the applicable designated groups from which the tenderer must select a supplier.
What does this mean for SMMEs?
- SMMEs must ensure that they are registered on the Central Supplier Database to benefit from this process
- Link to Central Supplier Database : https://secure.csd.gov.za/
- SMMEs must check regularly for advertised tenders with a subcontracting condition on the E-tender portal.
- Link to E-tender portal: http://www.etenders.gov.za/
It is also worth noting that organs of state may allow for subcontracting for procurement below R 30 million.
While both the PFMA and MFMA require that organs of state must take all reasonable steps to ensure that all money owing by them be paid within 30 days of receiving the relevant invoice, one of the biggest risk SMMEs take when doing business with Government is that they will mostly likely not be paid on time. This is what SMMEs can do to mitigate this risk:
- Ensure that they always obtain an approved purchase order prior to delivering any goods or services.
- Take steps to confirm that the organ of state has followed the correct bidding process when awarding the contract. This is important as delays may be experienced while the organ of state tries to ratify deviations from the bidding process before payment is made to avoid audit findings.
- Check the financial health of the organ of state to ensure that they are able to pay you. If the organ of state is experiencing financial difficulties an SMME is likely to experience delays in receiving payments.
- Keeping the entity’s tax affairs in order. Just in case the organ of state checks your tax status before they process payment.
Doing business with Government presents great opportunities for SMMEs to grow but if the associated risks are not managed this could turn into a nightmare for the business owner.