The meaning and application of cost-effectiveness as a constitutional requirement for the South African public procurement system

Abstract

Satisfying the need for goods and services from external parties is an inevitable requirement for any organisation, public and private. For public bodies, this is an undertaking vastly different from its counterpart in the private sector. The freedom in private procurement allows flexibility in the objectives, systems and decisions, limited only by the confines of good corporate governance. With few exceptions, cost-effectiveness can be argued to be the primary objective of all private-sector procurement. While cost-effectiveness could lay claim to being a fundamental objective in public sector procurement, a claim to its primacy is not sustainable. South Africa's constitutional recognition that cost-effectiveness is a requirement of the public procurement system is tempered by four co-requirements and entrenched preferential provisions ensure that the broader constitutional goal of substantive equality is reserved a place among the objectives of the procurement system. The requirement of cost-effectiveness was chosen as the focus of the study because - despite its fundamental nature and intuitive appeal – it is the requirement that has received little in the way of principles-based attention in the legal context. The definitional cost-to-outcomes assessment or decisions to award to the highest scoring tender accord with case-specific judicial interpretation, but fall short of establishing principles for its application in a system of procurement regulation. This principles-based study approaches the question of cost-effectiveness in the balance of constitutional requirements by developing an understanding of the structure of systems that underlie the operation of the envisaged constitutional procurement system. A full understanding of the meaning of the cost-effectiveness, requirements for decisions to be cost-effective and the legal requirements for such decisions are all pre-requisites to establish the principles for a cost-effective system. This study undertakes such an enquiry by developing a model for cost-effective decision making and uses this model to into investigate the interaction between cost-effectiveness and the other constitutional requirements of the system. A regulatory system for public procurement is a complex set of rules, rules about rules, principles and standards. How such a system gives effect to a requirement such as cost-effectiveness can only be judged by the way it compels the design of lower order systems of decision-making to meet such a requirement within the balance of other requirements. This study addresses the question of what tests may exist for a system's cost-effectiveness by establishing a structure of generic decision sub-processes for the procurement phase to identify properties of a system that would compel cost-effective decision-making in the lower order systems. With the model for cost-effective decision making, this study then attempts to answer the question of how the mechanisms of the South African regulatory system give effect to cost-effectiveness in the procurement phase. The system's conformance with the principles and models developed may be useful for identifying areas of regulatory strengths and weaknesses but cannot constructively provide solutions for improvement. The study addresses this constructive element by using comparative analysis techniques with a comparator regulatory system, that of the United Kingdom, to provide constructive prototypes for recommendations. The study is conducted in two parts. The model for the constitutional system and the models for the application of legal requirements for cost-effective decision-making within a procurement system are developed in the first part to provide the theoretical basis. The second part applies these theoretical models to decision-making specific to the procurement phase of the regulatory life-cycle. This provides a framework for analysis of the live South African regulatory system and the comparator UK system to test the practical application of the theoretical model for cost-effectiveness toward understanding the effects of regulatory mechanisms employed and to develop recommendations for the South African regulatory system. The law is stated, as far as possible, as at 30 November 2016