The Minister of Finance has now allowed organs of state to use a different formula for adjudicating tenders when selling or renting property to bidders, as well as for income-generating contracts.
The exemption comes in response to organs of state reporting over the years, that they have found it difficult, to apply the preference points calculation as instructed in the Preferential Procurement Policy Framework Act (Regulations) of 2017.
Some organs of state, due to this difficulty, have also incorrectly not applied the preference points at all and simply only considered the highest prices offered in a tender.
This was probably caused by the confusion created in a guide that was published by Treasury in 2017, wherein it states that “The preference points system does not apply to the leasing and disposal of state assets”, which would also include income-generating tenders.
However, the Guide failed to provide proper instructions and as a result organs of the state, used other pieces of legislation when disposing of state assets and awarding such income-generating tenders.
The Ministry has now released a new formula, “To calculate the points for price in respect of a tender for the disposal or leasing of state assets or another income-generating procurement”.
The formula will apply to tenders with Rand value equal to or above R30 000 and up to a Rand value of R50 million (80-20 point system), as well as for those tenders valued over R50 million (90-10 point system), inclusive of all applicable taxes.
Going forward, the highest price offer will be the determining factor in terms of which bid will score the highest out of 80 or 90 points, respectively.
The remaining points allocation for empowerment considerations such as B-BBEE will remain the same i.e., 20 or 10 points, respectively.
According to Gerrit Davids, Lead Advisor at TaranisCo Advisory CC, “This exemption is long overdue since bidders to such property tenders and income-generating tenders had a continuous battle to understand how organs of state will apply the preference points, which should have been incentivising the higher price offer, rather than the lowest.”
Davids says, “Considering all other regulatory costs, bidders will now have a clear idea as to how competitive their pricing should be, albeit that the higher price offer will now carry much more weight as opposed to a lower price offer, which is applicable for purchases.”
For more details on how to submit compliant tenders, visit our website: www.taranis.co.za