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Suppliers are threatening to stall state-contracted projects if their unlawful demands for cash payments are not met, National Treasury has said.
Government has a requirement that 30% of public procurement must be subcontracted to certain designated groups, as provided for in the Preferential Procurement Regulations of 2017.
Instead, certain suppliers are demanding that they be paid in cash 30% of the value of each contract awarded, Treasury said in a statement on Tuesday.
This is both illegal and undermines Constitutional guidelines, Treasury argued.
It "defeat[s] the government objective of transforming the South African economy through equal opportunities for all" and providing opportunities for historically disadvantaged people as well as small, medium and micro enterprises, the statement said.
Officials in charge of supply chain management in departments and entities are held to high standards when managing procurement to prevent patronage networks.
However, many officials have found loopholes.
According to the statement, the errant suppliers "threaten contractors, interrupt or stop the implementation of projects" if their demands are not met.
The Constitution demands that when a department or parastatal procures goods and services, "it must do so in accordance with a system that is fair, equitable, transparent, competitive and cost-effective", the statement added.
"Demanding that one be paid in cash 30% of the value of every contract runs counter to this Constitutional requirement."
Public procurement can help drive transformation through sub-contracting and pre-qualification for preferential procurement, Treasury argued.
Treasury also said some organs of state were using procurement preferences not provided for in the regulatory framework, such as ring-fencing of procurement for service providers and suppliers who live within certain geographical areas. State funds spent in this manner would be classified as irregular expenditure, Treasury said.
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