Proposed South African procurement reform raises compliance challenges for contractors

The draft General Public Procurement Regulations 2026 (102 pages/2.1 MB PDF) seek to give practical effect to the Public Procurement Act 2024, including its transformation objectives, through measures such as prequalification criteria and mandatory subcontracting requirements. Contracts valued at R100 million (US$6.15 million) may be subject to a requirement that at least 25% of the contract value be subcontracted to designated enterprises or cooperatives.

Importantly, subcontracting will not apply automatically. The regulations flesh out the broad wording of section 19 of the Act, which provides that subcontracting should occur only “where feasible”. The draft regulations introduce a structured assessment that considers the nature of the work and the availability of qualifying subcontractors. Only where subcontracting is determined to be feasible may it be imposed as a condition of tender.

Where subcontracting is a bidding requirement, at least 25% of the contract value must be awarded to qualifying small enterprises or cooperatives, including those owned by Black people, women, youth, people with disabilities and military veterans, as set out in s19(2) of the Act.

The proposed framework is intended to broaden participation in public procurement and create opportunities for historically disadvantaged groups. However, concerns have been raised about the practical implications of the mandatory subcontracting regime. Feasibility assessments, subcontractor selection processes, compliance verification and ongoing monitoring will all increase the administrative burden on both procuring institutions and contractors. Where the pool of qualifying subcontractors is limited, the requirements may also reduce competition and increase procurement costs.

South Africa’s procurement system has a long history of fronting arrangements and the use of intermediaries who add limited value to projects while extracting economic benefits from public contracts. Although the draft regulations contain safeguards – including ownership requirements, eligibility criteria and reporting obligations – their effectiveness will ultimately depend on robust oversight and enforcement. Without adequate monitoring, additional layers within procurement chains could make corruption more difficult to detect.

Similar concerns have been expressed in relation to the regulations’ emphasis on “value for money”. While many stakeholders welcome the move away from a narrow focus on the lowest price, the broader concept introduces a degree of subjectivity into procurement decision-making. Critics argue that, unless applied consistently and transparently, value-for-money assessments could be used to justify higher expenditure on the basis of quality or developmental objectives that are difficult to measure objectively.

Supporters have welcomed measures aimed at increasing transparency, including enhanced publication requirements and the introduction of a procurement dashboard. Others argue that the framework is becoming increasingly complex and may impose significant compliance costs on both contracting authorities and bidders.

Impact on foreign contractors

The draft regulations are also likely to have significant implications for foreign businesses seeking public sector work in South Africa.

The Public Procurement Act defines a bidder broadly as “any person or an association of two or more persons that submit a bid”. The Act’s preamble further recognises that procurements from persons outside the state must be regulated where necessary, suggesting that both the Act and the regulations apply to foreign entities participating in South African public procurement.

As a result, international contractors bidding for public procurement sector projects may need to structure their bids carefully to comply with the preferential procurement requirements. Where subcontracting is imposed as a tender condition, foreign bidders may be required to appoint qualifying South African subcontractors, which is something they may not wish to do.

While the objective is to promote transformation and broaden participation in public procurement, concerns remain that such arrangements could be susceptible to abuse if improperly monitored. In some circumstances, local subcontractors may be appointed merely to satisfy tender requirements without carrying out meaningful work or receiving the intended economic benefits. However, such arrangements could amount to fronting and create opportunities for improper relationships between international contractors and local partners.

Reform agenda shaped by state capture findings

Public procurement occupies a central role in South Africa’s constitutional framework. The Constitution requires organs of state to procure goods and services through systems that are fair, equitable, transparent, competitive and cost effective, while also permitting measures designed to advance previously disadvantaged persons.

Despite constitutional safeguards, procurement has long been identified as a major corruption risk. The Judicial Commission of Inquiry into Allegations of State Capture, commonly known as the Zondo Commission, identified public procurement as an enabler of state capture, finding that procurement processes were frequently manipulated and abused across the public sector, including within major state-owned enterprises.

The significance of these concerns is reflected in the scale of government spending. National Treasury estimates that approximately R1 trillion (approximately US$61.5 billion) is spent on public procurement annually, equivalent to around 15% of South Africa’s GDP. Given the size of this expenditure, ensuring the integrity of procurement processes remains a critical policy objective.

Areas for improvement

Against this backdrop, National Treasury appointed the Organisation for Economic Co-operation and Development (OECD) in 2023 to assess South Africa’s public procurement system using the internationally recognised Methodology for Assessing Procurement Systems (MAPS). The assessment was conducted in collaboration with the World Bank and the African Development Bank.

The resulting report, published in 2024, provided an evidence-based assessment of progress achieved through successive procurement reforms while identifying opportunities to strengthen the system further. The findings have informed ongoing efforts to modernise South Africa’s procurement framework and improve governance, transparency and accountability.

The draft General Public Procurement Regulations are the latest phase of that reform process. Whether they ultimately succeed will depend not only on their ability to advance transformation and developmental objectives, but also on the effectiveness of the oversight and enforcement mechanisms designed to prevent corruption and abuse.

Co-written by Catherine Diemont of Pinsent Masons.