Finance and Economic Opportunities
Whether any municipalities in the province applied the MFMA SCM Regulation 32 in respect of procurement of goods and services under contracts secured by other organs of state in (a) 2019/20 and (b) 2020/21 financial years, if not, why not, if so, (a) what are the relevant details and (b) including (i) details of such municipalities, (ii) for which contracts, (iii) duration and (vi) value of such contracts?
Yes, a breakdown of the available information per municipality for the 2019/20 and 2020/21 financial years has been provided in the Excel spreadsheet attached as Annexure A.
Where municipalities have not applied the MFMA SC Regulation 32, this is broadly as a result of National Treasury Circular 96. This was issued following the 2018/19 annual MFMA audit process, where the Auditor-General audited municipalities that procured goods and services under contracts secured by other organs of state, taking cognisance of two court cases that provided rulings on the interpretation of SCM Regulation 32, namely:
- Blue Nightingale Trading 397 (Pty) Ltd t/a Siyenza Group v Amathole District Municipality [2016] 1 All SA 721 (ELC); and
- Kwadukuza Municipality v Skilful 1169 CC and Another (11060/2017) [2018] ZAKZDHC 35.
The Auditor-General’s opinion provided that municipalities should review their interpretation regarding the implementation of SCM Regulation 32 and implement the principles as clarified by these judgements, as they have the force of law and must form the basis against which the application of Regulation 32 is measured. The Auditor-General recommended that all expenditure incurred from SCM Regulation 32 contracts thus be classified as irregular expenditure as detailed in section 1 of the MFMA.
The irregular expenditure classification was applied retrospectively to all those contracts approved in the 2018/19 financial year by municipalities. This resulted in an increase of irregular expenditure across all the municipalities within the Western Cape.
When National Treasury issued NT Circular 96 to provide further guidance to municipalities and municipal entities on the principle as captured in Regulation 32 of SCM Regulations, this circular did not factor in the practical implications within the municipal environment as the circular was set on the principles of the two court judgements, and created more confusion, ambiguity, and additional red tape that was counter-productive to service delivery. As a result, most of the municipalities became risk averse and decided against utilising SCM Regulation 32 contracts in light of the 2018/19 audits and sought alternative mechanisms to procure in this manner such as NT Transversal Contracting, Framework Agreements, and District Transversal Contracting.
