Government wants to clamp down on leaky procurement by putting a national project in place that it hopes will cut down on corruption, which costs the state at least R25 billion each year.
The overhaul, which will involve a mammoth ICT project, will integrate supply chain systems across the board. Government has more than 150 national and provincial structures, and over 700 state-owned entities.
According to Corruption Watch, in October 2011, then head of the Special Investigating Unit, Willie Hofmeyr, told Parliament that between R25 billion and R30 billion of government's annual procurement budget was lost to corruption, incompetence and negligence.
Problems with government's procurement practices have come up several times, and entities have previously received qualified audits from the auditor-general (AG) as a result. Now, government is overhauling the process and putting systems in place, which should provide transparency.
However, an analyst suggests the project is likely to fall under the much-delayed Integrated Financial Management System (IFMS), which includes supply chain management (SCM) as one of its modules.
IFMS was initiated in 2005 in a bid to replace current legacy transversal applications used in government, such as the Basic Accounting System, the Personnel and Salary System (Persal) as well as the Logistics Management System. Although it is being rolled out in a phased manner, government is set to re-examine it to make sure it meets requirements.
Integration
A presentation by National Treasury, to the Public Service and Administration Parliamentary Portfolio Committee, says the current dilemma is an operations management and administration problem rather than a procurement issue.
Government's procurement transformation initiative aims to design an overall SCM architecture, and create capacity at treasury to design and help implement SCM operational systems at institutions and monitor performance. It also aims to reduce complexity in the legacy system through standardisation, aggregation and data alignment.
However, there is currently no price tag on the project as costing is done as developing and implementing the system progresses, said deputy finance minister Nhlanhla Nene. He noted the biggest return on the investment would be if government could curb corruption that arose out of a system that was not able to detect some of these issues, while a second big return would be economies of scale from integrated systems.
The initiative will have a project approach with various streams, including the capability to manage critical items, which includes price indexing, sector-specific standard procedures, a SCM human resources framework, an integrated data management framework, as well as a compliance management framework.
Project pipeline
In year one, government wants to achieve procurement effectiveness improvements at five Limpopo departments, and pilot an SCM system at a national department. The national chief procurement office will establish data analysis and monitoring, as well as training.
In year two, government aims to fully integrate procurement data between manual and various technology systems and, the next year, the business and technology architecture needs to be wrapped up.
In years four and five, the state aims to rollout the modernisation and automation plan, the SCM operating model for all public sector entities, and the SCM human resources capability model.
Committee chairperson Joyce Moloi-Moropa emphasised the importance of synergy between the State Information Technology Agency and the Department of Public Service and Administration, with National Treasury driving the programme.
Clamping down
Last October, finance minister Pravin Gordhan cautioned there is a need to reinforce expenditure discipline. Rigorous procurement reforms were being planned across the whole of government, especially in infrastructure project management, to strengthen service delivery, eliminate waste and root out corruption, he said.
So far, implemented reforms include that the office of a chief procurement officer has been established at treasury and ratified by the Department of Public Services and Administration. In addition, a generic SCM operations framework has been drafted, including a procurement manual and set of procedures.
Effectiveness improvement projects are ready to be implemented in six provincial departments, and a generic SCM human resources framework has been developed for the needed internal capacity, says treasury's presentation.
Broader scope
Mukesh Chulani, research manager for IDC Government Insights Middle East, Turkey and Africa, says government's procurement issues will not be solved by technology alone.
The issue is that failure is not often attached to technology, but to issues with a lack of coordination, workflow design, governance and readiness, notes Chulani. He says the problem cannot be digitised away, or solved through patching, and the other aspects trump nitty-gritty IT aspects that can be resolved.
However, government's e-procurement plan seems to involve a large technical integration and it will have to ensure interoperability, says Chulani. He adds that a large amount of change management will be required, as will training.
Rethinking
Chulani adds that problems in the procurement supply chain have been raised year after year, and the AG has also been scathing about weaknesses. However, he notes it does not seem as if National Treasury is reinventing the wheel, but may rather do the project on the back of the IFMS.
Michael Sass, deputy accountant-general, told the committee that government will carry out audits to establish IFMS's status quo and identify project risks. A project management office will be set up within treasury, he added.
Sass said user requirements would be updated and new and realistic timelines for deliverables and implementation would be established. He said the state had underestimated the complexity of what IFMS entailed and many systems had to be integrated.
IFMS has five modules that deal with supply chain management, says Chulani. These include catalogue management, item and service master, asset management, procurement management, and inventory management.
Chulani says catalogue and procurement management is being used, and inventory management is still being "baked". He notes the state is coming across interoperability issues, a lack of readiness and change management problems in getting the system up and running.
If done right, the change in the way government procures can save the state a lot of money, says Chulani, as it will allow it to spot weaknesses, although it will not eliminate corruption. Integrating all the systems will give it a high level of transparency, he adds.
In the UK, a similar overhaul led to gains of 8%, and such a system provides a huge opportunity for government to patch leaks, Chulani says.
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