Original Research

Supply chain management administrative burdens: A case study of five South African municipalities

Tania Ajam

Received: 17 May 2024; Accepted: 25 Mar. 2025; Published: 14 May 2025

Copyright: © 2025. The Author(s). Licensee: AOSIS.
This is an Open Access article distributed under the terms of the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

Abstract

Background: The Supply Chain Management (SCM) function is indispensable for effective municipal service delivery but is vulnerable to fraud and corruption, and hence highly regulated in South Africa. This imposes significant administrative costs on compliance-driven municipalities hoping to obtain or retain clean audits.

Aim: This study explored the administrative burden of SCM compliance in five sampled municipalities, analysing its key root causes.

Methods: A qualitative case study approach within a critical realist paradigm guided in-depth interviews with 25 key senior managers and SCM practitioners in Cape Winelands District Municipality, Mossel Bay Local Municipality (LM), Overstrand LM and Saldanha Bay LM in the Western Cape and Midvaal LM in Gauteng.

Results: Complexity and fragmentated resource SCM regulations can create varying interpretations of SCM prescripts among municipalities, the National Treasury and the Auditor-General, resulting in significant administrative burdens, service delivery delays and higher prices for procured goods and services. There are sometimes trade-offs between SCM probity compliance and service delivery performance, e.g. compliance with SCM competitive market requirements can result in poorer access to service providers and greater costs. Integrated SCM electronic systems to support ambitious reforms are often lacking.

Conclusion: Supply chain management processes pursue too many other objectives simultaneously (such as local content, broad-based black empowerment, etc.), which can undermine value-for-money and municipal service delivery.

Contribution: Understanding the nature of administrative burdens facilitates streamlining onerous regulation while retaining sound SCM controls.

Keywords: supply chain management; public procurement; administrative burden; South Africa; municipal finance; regulatory compliance.

Introduction

The supply chain management (SCM) function is indispensable for effective municipal service delivery but is extremely vulnerable to fraud and corruption, and hence highly regulated in South Africa. Supply chain management entails planning, coordinating, executing and monitoring the timely flow of goods, services and information between municipalities and their service providers for effective municipal service delivery (Ambe 2012). Procurement, by contrast, has a narrower focus on creating and managing contracts through soliciting and evaluating tender offers (National Treasury & Civilution 2016:14).

Supply chain management may pursue several policy objectives such as Black Economic Empowerment (BEE), local economic development (LED) industrial policy, ‘green’ environmental sustainability objectives and quality assurance of infrastructure delivery through Construction Industry Development Board (CIDB) regulations. Consequently, SCM processes have become lengthy, cumbersome, fraught with legal challenges by disgruntled bidders, resource-intensive and vulnerable to audit findings (Brunette & Klaaren 2020; Watermeyer & Phillips 2020), even for well-performing municipalities. The associated administrative burden poses a dilemma to municipalities, sometimes creating an unpalatable trade-off between SCM probity and delivery performance (Ajam et al. 2023; International Monetary Fund [IMF] 2023; Klaaren et al. 2023).

The Zondo Commission identified systemic weaknesses in procurement regulations and enforcement mechanisms, which have resulted in the abuse and manipulation of SCM processes, ranging from tender fraud and bribery to collusion among public officials and service providers (Judicial Commission of Inquiry into Allegations of State Capture, Corruption and Fraud 2022). The surge in fraud, corruption and state capture has given rise to an increasingly stringent, complex SCM regulatory environment, which imposes significant administrative costs on municipalities seeking to comply to obtain or retain a clean audit.

A clean audit refers to a financially unqualified audit opinion (i.e. financial statements are free from material misstatements) without any material findings relating to reporting on performance objectives or noncompliance with legislation (Auditor-General of South Africa [AGSA] 2023). With a financially unqualified audit opinion, by contrast, the financial statements contain no material misstatements, but findings have been raised relating to reporting on predetermined performance objectives or noncompliance with legislation or both these dimensions (AGSA 2023).

The AGSA reported that 24% of the 241 municipalities audited in the 2021–2022 financial year had findings in respect of SCM which were not material, while 68% had material findings, indicating widespread noncompliance (AGSA 2022:44). Only 8% of these 241 (20) municipalities had no findings, suggesting that SCM compliance may be the exception rather than the rule (AGSA 2022:44). Inadequate SCM legislation enforcement, ineffective consequence management for infractions and the absence of effective remedial action result in recurrent procurement infractions (IMF 2023:19). Some noncompliant municipalities serially flout SCM regulations (as reflected in recurrent AGSA SCM-related audit findings over extended periods), bearing little of the administrative compliance burden.

Contribution of the study

Except for a study by Adams (2021) considering the non-pecuniary compliance costs of SCM in South African municipalities, there has been little systematic study into the nature of SCM administrative burdens on compliant municipalities, a lacuna in the academic literature to which this study seeks to contribute. Regrettably – although understandably – much of the South African academic literature has focused on the pervasive noncompliance with public sector SCM laws and unfair, uncompetitive, fraudulent or irregular SCM conduct (for instance, Makiva 2021; Matebese-Notshulwana 2021; Myeza, Nkhi & Maroun 2021; Nzimakwe & Biyela 2021; Odeku 2018; Zindi & Sibanda 2022).

Administrative burdens, red tape and excess compliance costs (discussed further later) are multifaceted, dynamic social constructs (Bozeman 1993), with quantitative and qualitative, pecuniary and nonpecuniary dimensions. Measuring their incidence is not a simple mechanical exercise in management accounting, given the high degree of context specificity across municipal SCM processes and outcomes. Publicly available audited financial statements of South African municipalities are too aggregated for quantification of the excess compliance cost of SCM.

Literature Review

Legislative and policy framework for supply chain management

Section 217(1) of the Constitution of the Republic of South Africa (RSA 1996) stipulates that the system by which municipalities and other organs of state enter into contracts for goods or services must be fair, equitable, transparent, competitive and cost-effective, within a policy framework prescribed by national legislation. Sections 102 and 110–119 of the Municipal Finance Management Act 56 of 2003 (MFMA) constituted that framework (RSA 2003b). The MFMA has not been reviewed since promulgated in 2003. In the last two decades, SCM regulations, treasury circulars and guidelines have proliferated. Supply chain management regulations were issued in terms of the MFMA in 2005 (National Treasury 2005) and amended in 2017 (National Treasury 2017a). Twenty-six SCM circulars were issued on the National Treasury (NT) website between 2004 and 2024 (National Treasury n.d.), covering a vast array of SCM dimensions. This alone gives a cursory indication of the extensiveness of the SCM regulatory framework.

The Constitution recognised SCM as a transformative vehicle for the economic inclusion of groups previously marginalised under apartheid. Section 217(2) permits municipalities and other organs of state to implement procurement policies providing for a category of preference in the allocation of contracts to advance persons historically disadvantaged by unfair discrimination under apartheid. Section 217 was given further substance by the Preferential Procurement Policy Framework Act of 2000 (PPPFA) (RSA 2000) and the Broad-Based Black Economic Empowerment Act of 2003 (BBBEEA) (RSA 2003a).

The constitutional intent is clear that SCM objectives should relate not only to value-for-money and probity in acquiring goods, services and assets but also to active promotion of businesses owned by black persons, women and persons living with a disability. The BBBEEA facilitates broad-based BEE by issuing codes of good practice to be applied by municipalities and other organs of state in developing criteria for entering into partnerships with the private sector and BEE sector scorecards for bidders (Musabayana & Mutambara 2022). The PPPFA and its regulations prescribe a framework for evaluating tender bids using a formula for a bid value between R30 000 and R50 million, based on a bid pricing weighting of 80% and a 20% weighting for preferential procurement points based on the bidder’s BEE status as reflected in its BEE scorecard. A pricing weighting of 90% and a preferential procurement point weighting of 10% apply to bid values exceeding R50 million (National Treasury 2022).

This pursuit of multiple regulatory objectives has culminated in a very complex SCM regulatory configuration. Over time, various policy objectives have been added, for example, local content (LC) requirements for industrial development, youth entrepreneurship and reduction of the carbon footprint. The PPPFA Preferential Procurement Regulations (PPRs) issued in 2017 allow the Department of Trade and Industry (DTI) – in consultation with the NT – to designate a sector, subsector, industry or product for local production and content in accordance with national industrial policies and to stipulate a minimum threshold for local production and content (National Treasury 2017b). A municipality must advertise an invitation to tender for provision of designated products or sectors with a specific condition that only locally produced goods, or locally manufactured goods meeting the stipulated minimum threshold for local production and content, will be considered (National Treasury 2017b).

The MFMA obliges a municipality’s accounting officer (the municipal manager) to put in place systems for demand management, acquisition management, logistics, disposal and risk and performance management to enhance SCM. The dense hierarchy of SCM guidance from the NT, DTI and other regulators sometimes makes it difficult for municipal officials to distinguish whether these instruments have legal standing or not. The complex layering of fragmented regulation also lends itself to different interpretations among municipalities, the nine provincial treasuries and the AGSA. Brunette and Klaaren highlight the uncertainty around the legal status of the regulatory instrument:

Although the binding nature of National Treasury practice notes and guidance documents is sometimes asserted, it is open to question … There is real difficulty, even for those experienced and expert in public procurement, to determine which laws are applicable to which intended procurements. Procurement practitioners, forced to cobble procedure together from this welter of regulation, often come out with incoherent processes that are open to court challenge. (2020:11)

The 2022 Procurement Watch Report on Procurement Risk Trends – based on MFMA section 168(3) – also affirms that NT instructions ‘are only binding upon an individual municipality if that municipality’s council formally adopts such instrument’ (Corruption Watch 2022:4). This contrasts with the Public Finance Management Act of 1999 that empowers the NT to impose binding instructions on the national and provincial departments.

Attempts to enforce SCM compliance in control environments with weak consequence management and accountability have tended to ‘tighten the construction and interpretation of rules and procedures, which has brought limited – if any – gains in integrity and has instead created impediments to smooth procurement operations’ (Brunette & Klaaren 2020:3). This can cause trade-offs between ‘the procedural integrity necessary for fairness and to protect public funds, and the flexibility associated with the operational substance of purchasing’ (Brunette & Klaaren 2020:3).

The high risk of compliance errors leading to decisions being overturned under judicial review, or labelled as irregular by the AGSA, may lead to overly cautious, risk-averse approaches by SCM decision-makers. This is intensified by the recent amendments to the Public Audit Act 5 of 2018 (RSA 2018), conferring on the AGSA the ability to impose binding remedial actions for failure by accounting officers to implement the AGSA’s recommendations on material irregularities. The Public Audit Act amendments also empower the AGSA to issue a certificate of debt to recover financial losses resulting from the failure to implement remedial action recommended by the AGSA. When compliance uncertainties or ambiguities are raised in a bid adjudication committee (BAC) consideration of a tender, the meeting may need to be deferred to the next meeting for further clarification. These delays prolong procurement processes, potentially leading to capital budget underspending, higher prices or increased costs.

Procurement reforms

The Public Procurement Act (PPA) was passed in July 2024 (after this study had concluded). This Act aimed to consolidate the fragmented legal regime for public procurement (including preferential procurement) into a single coherent regulatory framework for national, provincial and local spheres, with uniform procurement norms and standards (RSA 2024). The PPA establishes the Public Procurement Tribunal, an independent dispute resolution mechanism, as an alternative to litigation. an alternative to litigation. At the time of writing, the presidential proclamation required to bring its provisions into effect was still awaited, and its supporting regulations had not yet been promulgated.

Concerns have, however, been raised about the excessive discretion granted by the Act to the Minister of Finance to issue regulations (Klaaren et al. 2023) and the constitutionality of the proposed Public Procurement Office (PPO) in the NT issuing binding instructions to municipalities (Stevens 2023). The PPA creates multiple sources of binding instructions and regulations (including the Minister of Finance, the PPO and the nine provincial treasuries), which could lead to an increase rather than a reduction of subordinate SCM regulation. Without effective, prescribed protocols to manage and coordinate issuing binding instructions, frequent revisions to SCM regulation, duplication, overlap or conflicting norms may occur (Stevens 2023), amplifying interpretive uncertainty, magnifying the municipal administrative compliance burden and undermining the PPA’s original goal of simplifying SCM regulation.

Theoretical underpinnings

This section discusses the theoretical literature relating to administrative burdens in general and then focuses on their specific manifestations in municipal SCM.

Analysing administrative burdens

Herd and Moynihan define an administrative burden simply as ‘an individual’s experience of a policy’s implementation as onerous’ (2019:22). An administrative burden is therefore defined in this study as a municipal official or municipality’s experience of a regulatory compliance as onerous.

All regulations entail some level of administrative compliance cost. Regulations might entail extensive rules and procedures, rendering compliance onerous and engendering delays and frustration, but this does not necessarily signify failure to yield benefits or illegitimacy (South African Law Reform Commission 2019). When the benefits of regulation are commensurate with its compliance costs, the associated administrative burden may be justified (so-called ‘white tape’). However, regulatory compliance costs exceeding the benefits may be classified as ‘red tape’. Bozeman characterises red tape as ‘rules, regulations, and procedures that remain in force and entail a compliance burden for the organization but have no efficacy for the rules’ functional object’ (1993:283) and therefore, by definition, have ‘no redeeming social value’ (1993:283). Red tape is therefore the compliance costs that exceed the benefits of regulation, amounting to excessive regulatory costs.

The concepts of ‘administrative burden’ and ‘red tape’ are therefore – at least partially – subjective social constructs. As so aptly articulated by Kaufmann, ‘One person’s red tape may be another’s treasured safeguard’ (1977:4). What SCM practitioners regard as red tape may, from a NT official’s perspective, for instance, be an indispensable control mechanism. Bozeman recognises that regulations, rules and procedures:

[A]re not – either in number or content – inherently good or bad, but only good or bad from the perspective of values posited and the extent to which they seem to serve or thwart those values. (1993:283–284)

Quantifiable elements of administrative compliance costs are enumerated in Table 1.

The qualitative, nonpecuniary costs of SCM compliance are harder to quantify and include learning costs such as the time, effort and resources directed at following case law, conducting research and obtaining legal opinions, and psychological costs such as high staff absenteeism and turnover in SCM units, stress-related health concerns, toxic organisational culture and reputational risk (Adams 2021).

Theoretical frameworks for administrative burdens in supply chain management

There is currently no single, unified theory of SCM (Halldorson et al. 2007). Theories such as the principal-agent theory, transaction cost analysis, the resource based view and network theory, however, shed light on the key variables, which explain regulatory compliance costs and administrative burdens in the various phases of public sector SCM. These are summarised in Table 2.

Research methods and design

This exploratory research study adopted a qualitative case study approach with a critical realism orientation (Bhaskar 2008; Fletcher 2017; Lalwani 2021) to lay the foundation for more quantitative approaches in the future. The study formed part of a larger research project assessing South Africa’s municipal regulatory frameworks (Ajam et al. 2023). The study commenced with a desktop secondary content analysis of official SCM-related documentation (SCM policies, municipal Annual Reports and Auditor-General reports), a review of the academic literature and a legislative and policy analysis. The variables and constructs explaining SCM regulatory compliance burden outcomes drawn from the literature were then tested in the empirical component of the study, based on semi-structured focus group interviews with 24 senior financial management officials in the five sampled municipalities.

To enhance the credibility, transferability and confirmability of the data analysis in line with Lincoln and Guba’s (1985) Trustworthiness Framework, findings from interviews were cross-checked against findings from the content analysis of secondary data from official sources. In the member checking process, any divergent perspectives were shared with the interviewees to ensure that their experiences and insights were accurately and completely captured.

The sample was confined to ‘functional’, compliant and capacitated municipalities whose performance might be undermined by an excessive administrative burden of regulations. Metropolitan municipalities that had already been well researched were excluded from the sample, which focussed primarily on intermediate cities and smaller towns that were under-researched. Municipalities with severe organisational and financial capacity constraints and institutional weaknesses were also excluded from the sample. Under these dysfunctional circumstances of the municipalities excluded from the sample, it is unclear whether the poor regulatory outcomes observed are attributable to regulation design deficiencies or to poor implementation of these regulations. These challenges are also present in well-performing municipalities but to a much lesser degree, rendering the impact of regulatory instrument design more easily discernible and less obscured by regulatory implementation factors. The sampling criteria for ‘functionality’ related to: (1) acceptable service delivery performance, as measured by News24’s 2021 Out of Order Index (News24 2021), and (2) a financially unqualified audit by the AGSA for the 2018/2019 and 2019/2020 financial years (which were the latest available at the inception of the study).

Audit outcomes were extracted for four of the nine provinces (i.e. Western Cape, Gauteng, KwaZulu-Natal and Mpumalanga), which were purposively selected to ensure a range of geographic, financial and institutional maturity contexts. After considering the objective sampling criteria delineated previously, judgemental sampling was then applied to further narrow the sample to 14 municipalities across the four provinces meeting the sampling criteria, which were initially invited to participate in the study. However, only the five sampled municipalities reflected in Table 3 responded positively. Most of the sampled municipalities are situated in the Western Cape, which is a fair reflection of the universe of eligible municipalities because the vast majority of them are located in this province.

Ethical considerations

Ethical clearance was obtained from Stellenbosch University’s Research Ethics Committee (ref. no. SPLPAD-2022-25914). To protect the confidentiality of the research participants, pseudonyms (e.g. Municipality 1) were employed in reporting the findings.

Results

The themes emerging from the analysis of the qualitative data are discussed next.

Perception of supply chain management legislation

The municipal officials interviewed generally viewed the primary SCM legislation as relevant and appropriate for the management of municipal funds. Some officials were, however, critical of the regulations, circulars and other guidance issued in terms of the primary legislation and the way in which the SCM regulatory framework tends to be implemented in the local government sphere, as illustrated further next. The SCM primary legislation was regarded as practical even during the COVID-19 pandemic, despite the increased reporting burden. Although regulations had been relaxed during this state of disaster to permit more rapid procurement of the goods and services required to combat the pandemic, virtually all the municipalities in the sample elected not to deviate from their own SCM policies requiring a full tender for personal protective equipment (PPE) acquisition:

‘The COVID regulations for the emergency procurement of PPE required more reporting from municipalities but they were practical. Even though the regulations relaxed some controls, our municipality always followed our own policies and had full tenders for PPE.’ (Participant 1, Chief Financial Officer, Municipality 1)

Supply chain management regulation complexity and fragmentation

A recurrent leitmotif that emerged from respondents was that SCM regulation complexity and fragmentation created divergent interpretations, service delivery delays and higher prices for purchased goods and services. Several interviewees expressed the view that SCM legislation was onerous. An official from Municipality 5 was of the view that:

‘SCM legislation is strict, rigid and difficult to apply, with minor compliance issues resulting in delays and legal opinions.’ (Participant 19, CFO, Municipality 5)

An official from Municipality 5 cited an example where:

‘A tender had to be advertised for 30 days but was advertised for 29 days due to human error. The Municipality got an audit finding for this even though value for money and service delivery wasn’t compromised and people thought the Municipality was corrupt. The community can’t differentiate between material irregular expenditure issues where the community did not receive the service and minor human error.’ (Participant 22, SCM practitioner, Municipality 5)

It could be argued that the AGSA is sometimes more stringent than the courts. For example, in Berg River Municipality v Liebenberg NO and Others (26078/2010) [2011] ZAWCHC 371 (25 August 2011), the Supreme Court of Appeal held that minor infractions of statutory noncompliance without material effects did not necessarily vitiate ‘substantial’ compliance with the regulation’s object.

An official from Municipality 5 observed that advertising for tenders rather than employing the simpler quotation system was not only more complicated and time-consuming but could also result in more costly awards:

‘Bidders have to factor into their pricing the long tender award time – up to six months – and the additional risk of doing business with the municipality, which can result in higher bid prices.’ (Participant 19, CFO, Municipality 5)

While each regulation may have laudable intent, simultaneous compliance requirements intensify the cumulative administrative burden. A senior official from Municipality 2 expressed the view that:

‘SCM is trying to do too many things at the same time. Each objective is good, but each objective adds to the procurement process and to the complexity – additional forms and reporting in short time frames, and additional auditing.’ (Participant 9, CFO, Municipality 2)

Municipal finance officials opined that the Municipal Supply Chain Management Regulations issued in 2005 in terms of the MFMA (National Treasury 2005) were not onerous per se. However, their implementation was seen as complex because of the interaction between MFMA SCM regulations, other regulations issued in terms of the MFMA and other SCM legislation such as the PPPFA’s regulation of LC and the BBBEEA. Municipality 2 cited interactions between the MFMA SCM regulations and the MFMA Municipal Asset Transfer Regulations issued in 2008 (National Treasury 2008a & 2008b) in relation to the sale of properties as an example:

‘The MFMA asset transfer regulations say that property sales must be competitive, through auctions or open bids. You have to tender to sell properties whereas internationally municipalities use estate agents. This can increase the cost of the transaction because the process is so difficult and complicated.’ (Participant 6, SCM practitioner, Municipality 2)

An interviewee from Municipality 3 observed that attempts to counter fraud and corruption generated ever more stringent SCM regulation, but the greater regulatory complexity ironically increased vulnerability to the very fraud and corruption that the SCM regulations seek to prevent. (Participant 13, SCM practitioner, Municipality 3)

Supply chain management regulatory framework interpretation challenges

There appeared to be uncertainty among some of the sampled municipalities as to the interpretation and legal authority of the SCM circulars and guidelines from national and provincial treasuries.

Because each SCM bid is different, with many complexities in relation to different markets (particularly large, multi-year infrastructure bids), each combination of unique circumstances may create ambiguities and grey areas with much room for interpretation. Municipalities therefore resort to obtaining legal opinions (which can be quite expensive if there is no in-house legal department) to avoid appeals on technicalities that would result in further delays and audit issues. An official from Municipality 4 observed:

‘Implementation of SCM regulations is not straight forward. Suspected collusion among bidders must be reported to the Competition Commission. This isn’t contained in the SCM regulations but does affect SCM. The bid can’t continue until the Competition Commission has investigated and given findings, but the municipality has to decide how to respond. Both awarding and not awarding the bid has legal implications. Because the context is so specific, the interpretation of the legislation is difficult.’ (Participant 16, CFO, Municipality 4)

The legal risk is heightened because municipalities often deal with large firms that find it easy to litigate. Delays caused by legal challenges and efforts to pre-empt legal challenges not only undermine service delivery but often result in price increases that place municipalities’ budgets under further strain. An experienced SCM official from Municipality 2 estimated that municipalities pay 30% more than the private sector for the same goods or services because service providers are aware of the protracted and complicated SCM process that can be fraught with uncertainty and increase their prices to factor in prolonged tender award times and unpredictable payment periods, to the extent that sometimes less value for money is obtained through competitive bidding than through quotations (which is a simpler process) (Participant 8, SCM practitioner, Municipality 2).

National Treasury bid moratorium

Court cases and the changing body of SCM case law can prompt SCM policy changes to align with the courts’ interpretation. The phase-in of new policy directions can take place at relatively short notice after the financial year has already begun, further exacerbating uncertainty.

The Constitutional Court ruled on 16 February 2022 in Minister of Finance v Afribusiness NPC [2022] ZACC 4] that the minister did not have the power to issue prequalification regulations, and confusion ensued around the NT’s subsequent moratorium on tendering. All the sampled municipalities reported that the NT’s moratorium on bids had disrupted their SCM operations, compromising service delivery. In the period before publication of the new regulations, councils had to approve interim measures. For example, interviewees from Municipality 3 reported that the moratorium on awarding tenders following the Constitutional Court case had led to underspending on the municipality’s capital budget. Despite obtaining legal opinions on whether to proceed with tenders, Municipality 3 opted to follow a conservative approach in this legal vacuum, stopping all tenders to avoid noncompliance, possible audit findings and potential litigation. This clearly illustrates the trade-off between probity and compliance in SCM governance and capital infrastructure delivery (Participant 11, SCM practitioner, Municipality 3).

An interpretation of the draft regulations by an interviewee from Municipality 5 suggested that:

‘[E]ach municipality can decide how to implement the preference point system, which could lead to audit findings and confuse service providers who might not understand why different municipalities are employing different criteria.’ (Participant 24, Financial Manager, Municipality 5)

Local content compliance burdens

A participant from Municipality 2 acknowledged the need for LC for strengthening South African production value chains but reported that:

‘Local content is adding immense cost to infrastructure tenders. Sometimes we have to cancel tenders because there are no compliant bidders and re-start the process. Then prices increase. This also impacts on turnaround time and service delivery.’ (Participant 6, SCM practitioner, Municipality 2)

Sometimes, it is infeasible to source local products such as specialised equipment not produced in South Africa at all. Municipal officials also expressed the view that the regulations did not adequately specify how ‘local’ should be defined, and the concept could thus be open to misinterpretation.

Where the tender contract exceeds R30 million and 30% of the value of the contract needs to be awarded to designated groups for preferential procurement (such as Black- or women-owned small businesses), the process of identifying capable designated groups is complicated by the requirement for municipalities to comply with not only LC and BEE requirements but also with CIDB grading requirements in the case of construction projects. It is simultaneous compliance with the many requirements across the different SCM laws that increases the administrative burden of SCM regulation implementation.

Verification of bidder local content disclosures

Bidders for municipal tenders must submit LC declaration forms, but municipalities cannot check the veracity of these claims ex ante before the contract is awarded, even though bid documents are sent to the DTI for verification after the bid is awarded (Participant 21, SCM practitioner, Municipality 5). An official from Municipality 5 regarded it as ‘senseless’ to conduct the check after the bid had already been awarded. (Participant 21, SCM practitioner, Municipality 5). Municipalities are, therefore, by and large, compelled to accept the service providers’ LC declarations at face value. As one official in Municipality 3 asserted, ‘We know that the stuff is Chinese, but there is little we can do’ (Participant 12, CFO, Municipality 3). A local provider does not necessarily mean local production.

This ex-post reporting was seen as merely prolonging the process by creating an additional reporting burden with little value added, and officials from Municipality 4 were emphatic that the intended outcome of the LC regulations was not being achieved. Once the bid is awarded, municipalities have no way to systematically track the LC of the materials actually used, for example, in large-scale infrastructure projects, in relation to what service providers had initially declared.

Administrative burden of competitive market requirements

Reasons for a municipality to require that a service provider be located within its geographical jurisdiction include easy access to service providers, saving time, convenience and more efficient skills transfer. A senior official in Municipality 1, which is located in a rural area distant from the city centre, gave the example where the municipality attempted to purchase a bakkie (pickup truck) with the tender stipulation that servicing and maintenance servicing be supplied within the municipality’s boundaries:

‘It could a municipal official more than five hours to drive the bakkie to the city centre to be services, with fuel and possibly accommodation costs. So having a service point in the municipal area could lower costs to the municipality a lot. This was regarded as uncompetitive by the AG, even though the tender said that the appointed service provider could partner with service agents in the Municipality.’ (Participant 3, Municipal Manager, Municipality 1)

The bid requirement for the successful service provider to have a branch in the municipal area to service the bakkie, which was challenged by the AGSA was subsequently confirmed by the courts in Bigen Africa Services and Others v City of Cape Town (2021) as conflicting with the market competitiveness requirement of section 217 of the Constitution (RSA 1996) that stipulates that public procurement systems should be ‘fair, equitable, transparent, competitive and cost-effective’. The argument was that potential bidders without a local office at the time of bid submission were being excluded, to the detriment of competition and the fairness of the tender process.

Local content preferential procurement and local economic development

The DTI LC preferential procurement policies refer to products generated within the borders of South Africa. However, some of the sampled municipalities were more concerned about LC as a means of stimulating LED within their geographic jurisdictions. As an official from Municipality 5 commented:

‘When DTI first introduced the concept of LC and production it was viewed positively in terms of its potential for LED. However, DTI clarified that local meant produced in South Africa as a whole and not within the municipal jurisdiction, which led to the municipality viewing it with less enthusiasm.’ (Participant 19, CFO, Municipality 5)

Municipality 5 also noticed that there appeared to be tensions between the LED mandate of municipalities and current preferential procurement legislation. The officials reported that the 2017 PPPFA regulations had previously permitted awarding preference points to local businesses within the municipality’s boundaries but that the exclusion of service providers outside the municipal area was no longer allowed, as it was deemed anticompetitive. They suggested that this undermined LED, as municipalities were deprived of the power to employ procurement as an instrument to grow the local economy. The countervailing argument, however, is that restricting tender bids to local suppliers could result in the capture of municipalities by local business elites.

The PPA had not yet come into effect at the time of writing, nor had its regulations been promulgated yet. In the interim, interviewees from the sampled municipalities reported that they were uncertain about how LC preferential procurement would be dealt with. Regulation 8 on local production and content contained in the 2017 PPRs had been omitted from the revised 2022 PPRs, which do not provide for local production and content to be used as a disqualification criterion (National Treasury 2022). The NT had opined that local content fell outside the Minister’s regulation-making authority and the scope of the PPPFA because section 2(1) of the PPPFA did not provide for local production and content specifically but referred to preference points being awarded for specific goals of the Reconstruction and Development Programme (National Treasury 2022). Commenting on the PPA, an official from Municipality 4 asserted that:

‘[N]ew regulation is leaning towards the municipalities’ preference in terms of procurement policies, allowing each municipality to interpret it differently and exposing them to increased political pressure, such as giving preference to certain local suppliers.’ (Participant 15, SCM practitioner, Municipality 4)

Bid committee regulations

Interviewees asserted that NT, in its drive towards best practices, did not adequately consider the plight of smaller, rural municipalities lacking the necessary staff, skills and financial systems to establish and operate an SCM unit effectively. These municipalities were struggling to achieve basic compliance and were likely to be disproportionately burdened relative to their bigger or urban counterparts. For example, the Municipal Supply Chain Management Regulations issued in 2005 required that a BAC comprise at least four senior managers of the municipality. Interviewees were uncertain whether all four managers needed to be present at each BAC meeting and whether the BAC would need to be postponed if all four managers did not attend. Municipality 3 elected not to award tenders if all four senior managers were not present, to pre-empt audit issues.

Some municipalities employ fewer than four senior managers, which may imply that a BAC cannot be constituted. In response, the Minister of Finance in 2020 issued a general exemption from the BAC composition requirements to municipalities with less than four senior management posts approved in their organograms, allowing such municipalities to invite senior managers from neighbouring municipalities to serve on their BAC.

Because serving on BACs is a time-consuming activity and neighbouring municipalities frequently also labour under capacity constraints, this was not regarded as an entirely satisfactory solution. A senior official from Municipality 3 pointed out that ‘risk tolerance differs from one municipality to another, and if outside managers serve on the BAC then differing risk cultures can result in complications’ (Participant 12, CFO, Municipality 3). This arrangement also raised questions about holding the ‘visiting’ managers accountable for their BAC decisions, given that they are not employed by the municipality in need of assistance. The Code of Conduct for Staff Members instructs senior managers to declare their financial interests to the Speaker of their municipality. If a manager from a neighbouring municipality serves on a municipality’s BAC, the municipality should have procedures in place to be aware of any financial interests held by that senior manager that could influence their vote on the BAC. Such processes increase the administrative burden and may not always be in place.

These examples illustrate the trade-off between SCM compliance and service delivery, SCM probity and performance. The impact on smaller municipalities could have been foreseen during BAC regulation design. A senior official from Municipality 4 asserted that the custodian of the legislation should have immediately provided clear guidance on how to proceed under these circumstances (Participant 16, CFO, Municipality 4).

Supply chain management regulations and infrastructure development

Municipality 5 reported that the 2015 Standard for Infrastructure Procurement and Delivery Management (SIPDM) in MFMA Circular 77, which had been withdrawn (and replaced by the Local Government Framework for Infrastructure Delivery and Procurement Management, FIDPM), had required that qualified registered engineers comprise the Gateway Review team (National Treasury 2020). This was infeasible for smaller municipalities like theirs that did not employ three engineers and were unable to appoint more engineers. The interviewee indicated that the Municipality had been informed that engineers from neighbouring municipalities could not be used. An official from Municipality 4 also noticed that these initial SIPDM requirements – subsequently retracted in the FIDPM – would have added extra governance costs unrelated to service delivery:

‘A second consultant had to sign off on big projects if a smaller municipality does not have a qualified engineer, which added additional costs to the municipality. This requirement was removed from the regulations, and now a municipal official can sign off, even if not a qualified engineer.’ (Participant 18, SCM practitioner, Municipality 4)

Unlike its SIPDM predecessor, the FIDPM attempted to cater to the varying capacities across municipalities by expecting accounting officers to conduct an assessment of the municipality’s institutional capacity to implement the model and only submit those parts that were implementable for council approval. While the sampled municipalities welcomed greater sensitivity to capacity and financial constraints, a senior official from Municipality 5 expressed concern that the new approach placed municipalities in a position where they had:

‘[T]o interpret and decide how to implement [FIDPM] given their resource constraints, but then audit queries arise on the interpretation by the AGSA.’ (Participant 19, CFO, Municipality 5)

Integrated supply chain management electronic systems

Supply chain management processes and controls are very information intensive. Automation could potentially expedite the administration of the SCM framework. Municipality 4, for instance, catalogues each stored item with a unique number and related detail in its SCM system. Departments can select the item, which automatically updates the current price. Award letters are system-generated, assisting in eliminating error. Analysis of the historical usage data of items is used to estimate future consumption, enhancing demand management.

The sampled municipalities rely on NT’s Central Supplier Database (CSD) for their SCM processes. Municipality 5 reported that an advantage of the CSD is that the municipality does not have to employ a database administrator or manage its own supplier database. The disadvantage is that the CSD is sometimes incomplete, which lengthens the SCM process. A participant from Municipality 2 noticed:

‘The CSD should capture tax compliance details of a bidder, but if it is not included there, we have to go to SARS e-filing to check ourselves. If it is not on the e-filing, then we need to notify the prospective supplier to rectify their tax affairs. And the CSD may not reflect BEE or banking details.’ (Participant 6, SCM practitioner, Municipality 2)

Interviewees from Municipality 4 also reported being very dependent on the CSD, which does not have the functionality to fully meet its requirements; however, the municipality prefers to work around these constraints because it did not have the appetite to develop its own supplier database system. Municipality 5 reported that it had to provide reports on conflicts of interest of both employees and councillors on a monthly basis. However, the municipality could only do conflict of interest checks on PERSAL (the payroll system used by national and provincial departments) for employees and not for councillors. The phase-in process of new systems can pose challenges to municipalities, which might be compelled to run parallel systems.

Discussion

The sampled municipalities did not report factors such as poor procurement planning, ineffective execution and monitoring of SCM policies, lack of SCM expertise and vulnerable control environments (Mafini 2016; Selomo & Govender 2016; Zindi & Sibanda 2022). However, challenges relating to the complexity and rigidity of SCM policy and inadequate information technology (IT) systems reported by the sampled municipalities resonated with the findings of Brunette and Klaaren (2020) and Mlhembe and Mafini (2016). The SCM information systems required to implement SCM policy and monitor supplier performance may often be non-existent, inaccessible to municipalities, incomplete or inaccurate, result in time-consuming manual processes or municipalities being compelled to run parallel systems.

Fragmented SCM legislation exacerbated regulatory complexity, created uncertainty for municipalities in interpretating the SCM regulations, and intensified associated compliance burdens. For instance, Municipality 2 reported challenges interpreting regulations 4 and 9 of the 2017 PPPFA PPRs. Regulation 4 dealt with the prequalification criteria for preferential procurement to advance certain designated groups, and Regulation 9 dealt with subcontracting to designated groups as a condition of a tender. Prequalification criteria were also the subject of a constitutional court case and triggered the publication of a new set of PPRs in 2022 in which regulations 4 and 9 were entirely omitted.

Some of the challenges related to the fragmented and overly complex SCM regulatory regime will hopefully be resolved when the long-awaited PPA comes into force.

Compliance with infrastructure SCM regulations and policies such as the FIDPM can be very resource intensive, sometimes undermining compliant municipalities’ ability to roll out infrastructure development. The FIDPM requires that a professional experienced in infrastructure planning and registered with a built environment statutory council with lead the Gateway Review team, and that it comprises at least two other members with expertise in key technical areas, the implementation of similar projects and cost estimation (National Treasury 2020). For smaller municipalities without the necessary in-house skills, consultants may have to be engaged to ensure compliance, raising compliance costs.

Limitations of the study

The small non-random sample and the qualitative research approach in this study imply that the study’s findings may not be generalisable outside of the sample to other municipalities that have different contextual characteristics. Despite these limitations inherent in the qualitative nature of this exploratory research study, it lays the foundation for further research to quantify municipal SCM administrative burdens.

Recommendations

Where interpretation uncertainties arise, the custodians of the legislation (e.g. the proposed PPO and the provincial treasuries) need to provide clear SCM guidance to municipalities as soon as possible, especially on transversal issues affecting the entire local sphere and for the smaller municipalities, which cannot afford legal opinions. Given the wide variance in financial and organisational capacity across municipalities, the implementation feasibility of proposed SCM regulations should be tested prior to adoption, through a cost-benefit analysis and more extensive engagement with municipal officials. Regulators should manage the impact of court-related decisions on changes to SCM regulations more effectively and consultatively in order to minimise disruption of municipal operations. Minor, immaterial compliance deviations should be distinguished from material irregularities and substantive fraud and corruption in public disclosures.

Forthcoming PPA regulations should clarify explicitly the leeway open to municipalities to promote LED within their geographic area, within a consistent, uniform framework applicable across all municipalities.

Municipalities should be able to access the DTI LC verification system directly prior to awarding tenders instead of having to continually request information from the DTI or receive post-award verification findings. Local content should ideally be reported at the manufacturer level with the DTI issuing an LC certificate. The functionality and integrity of the CSD database should be enhanced to expedite the SCM process and to reduce the associated administrative burden.

Conclusion

The complexity and fragmentation of the SCM regulatory regime and the lack of IT systems impose significant compliance costs and administrative burdens on the sampled well-capacitated municipalities. The administrative burden on less capacitated, small or rural municipalities is likely to be disproportionately greater, given their human resources, financial and managerial and governance constraints. The PPA presents an opportunity to streamline SCM regulatory costs and reduce the administrative burden. This, however, depends on the detailed design of the anticipated new PPA regulations and the extent to which they are differentiated to respond to differing municipal SCM contexts. The Act also enjoins the PPO to develop a SCM IT system, which should be used by municipalities, as far as possible. If appropriately designed and swiftly implemented, some of the administrative burden associated with the CSD could be significantly reduced.

Effective implementation of the new PPA regulations requires better change management, capability building, legal and technical advice to municipalities, and more active participation by municipalities in conceptualising and implementing change management plans. Municipalities themselves should invest in the professionalisation and recruitment of SCM practitioners and SCM managers with the requisite expertise and ethical competences and ongoing training of line managers with budget delegations.

Acknowledgements

The author would like to thank Cape Winelands District Municipality, Mossel Bay Local Municipality (LM), Overstrand LM and Saldanha Bay LM and Midvaal LM for their willingness to support academic research.

The author reported that they received funding from the Hanns Seidel Foundation, which may be affected by the research reported in the enclosed publication. The author has disclosed those interests fully and has implemented an approved plan for managing any potential conflicts arising from their involvement. The terms of these funding arrangements have been reviewed and approved by the affiliated University in accordance with its policy on objectivity in research.

T.A. is the sole author of this research article.

Funding for this research was received from the Hanns Seidel Foundation.

Data sharing is not applicable to this article as no new data were created or analysed in this study.

The views and opinions expressed in this article are those of the authors and are the product of professional research. It does not necessarily reflect the official policy or position of any affiliated institution, funder, agency or that of the publisher. The authors are responsible for this article’s results, findings and content.

References