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PROVINCE OF THE EASTERN CAPE LUKHANJI LOCAL MUNICIPALITY SCM POLICY AND Supply Chain Management Users Manual Policy DEMAND MANAGEMENT (MFMA CHAPER 11) SECTION 111 & 112 (1) NOVEMBER 2011 TABLE OF CONTENTS CHAPTER 1: THE SCM MANUAL ................................................................................. 1 1.1 THIS USER MANUAL ..................................................................................... 1 1.2 MANUAL REVIEW .......................................................................................... 2 1.3 TERMINOLOGY ............................................................................................. 2 1.4 LEGISLATIVE ENVIRONMENT ...................................................................... 7 1.5 THE SCM SYSTEM: BACKGROUND; OVERVIEW AND PROCUREMENT PRINCIPLES………………………………………………………..…………….14 CHAPTER 2: INSTITUTIONALISATION ...................................................................... 23 2.1 THE SCM SYSTEM ...................................................................................... 23 2.2 THE SCM UNIT ............................................................................................ 24 CHAPTER 3: DEMAND MANAGEMENT ..................................................................... 25 3.1 SYSTEM OF DEMAND MANAGEMENT ...................................................... 25 3.2 ESTABLISHMENT OF A CROSS-FUNCTIONAL TEAM ............................... 25 Supply Chain Management: Demand Management Users Manual 3.3 FIVE-YEAR STRATEGIC AND PERFORMANCE PLAN .............................. 26 3.4 ANNUAL PERFORMANCE PLANNING PROCESS (APP) ........................... 26 3.5 NEEDS ANALYSIS ....................................................................................... 28 3.6 ANNUAL OPERATIONAL PLAN ................................................................... 29 3.7 BUSINESS PLAN FOR PROCUREMENT/PROCUREMENT PLAN ............. 30 3.8 AD HOC NEEDS ANALYSIS ........................................................................ 31 3.9 SCOPING THROUGH A REQUEST FOR INFORMATION ........................... 32 3.10 DETERMINING SPECIFICATIONS/TERMS OF REFERENCE .................... 32 3.11 COMPILATION OF THE SPECIFICATION OR TERMS OF REFERENCE ... 33 3.12 CONTRADICTORY STIPULATIONS ............................................................ 34 3.13 PRIVATE SECTOR INVOLVEMENT ............................................................ 34 3.14 STATUTORY REQUIREMENTS................................................................... 34 3.15 CONDITIONS IN SPECIFICATIONS ............................................................ 34 3.16 TOLERANCES ............................................................................................. 34 3.17 OTHER FACTORS ....................................................................................... 35 3.18 TECHNICAL EQUIPMENT ........................................................................... 36 3.19 USER SPECIFICATIONS VERSUS TECHNICAL SPECIFICATIONS .......... 37 CHAPTER 4: SPECIFICATIONS.................................................................................. 38 4.1 SPECIFICATION AND TERMS OF REFERENCE GUIDELINES.................. 38 CHAPTER 5: PLANNING ............................................................................................. 41 5.1 PLANNING FOR PUBLICATION .................................................................. 41 5.2 ESTABLISHMENT OF THE PROSPECTIVE PROVIDERS LIST PER COMMODITY ............................................................................................. 42 5.3 UTILISATION PROCEDURE ........................................................................ 44 5.4 REMOVAL FROM THE PROSPECTIVE PROVIDER LIST ........................... 45 CHAPTER 6: AUTHORITY........................................................................................... 46 6.1 ASSIGNMENT OF AUTHORITY ................................................................... 46 6.2 RESPONSIBILITIES OF OFFICIALS ............................................................ 46 CHAPTER 7: ETHICS .................................................................................................. 47 7.1 ETHICS IN SUPPLY CHAIN ......................................................................... 47 7.2 ETHICAL PRINCIPLES IN THE SCM ENVIRONMENT ................................ 47 CONCLUSION: POLICY IMPLEMENTATION......................................................... 56 CHAPTER 1: THE SCM MANUAL POLICY 1.1 THIS USER MANUAL POLICY POLICY This Users Manual Policy shall give effect to the legislation through policy and procedures. The LUKHANJI Local Municipality’s Supply Chain Management shall be executed in line with this Manual. Where the National Treasury and the Provincial Treasury issue amendments, those instructions, must also be taken into account in the execution of the Lukhanji Local Municipality- 1 - Supply Chain Management: Demand Management Users Manual supply chain management in addition to the Manual and the Manual amended at the earliest convenient opportunity. 1.2 MANUAL REVIEW POLICY This Users Policy Manual shall be reviewed at least annually or when the accounting officer deems it necessary to do so. The Demand Management Users Manual Policy must be reviewed at least annually to ensure it is aligned with the legislative environment. When deemed necessary, recommendations for amendments to the Manual must be submitted to the Accounting Officer for consideration on an ad hoc basis. 1.3 TERMINOLOGY 1.3.1 ABBREVIATIONS BAC Bid Adjudication Committee BBBEE Broad Based Black Economic Empowerment BEC Bid Evaluation Committee BEE Black Economic Empowerment BSC Bid Specification Committee HOD Head of Department CFO Chief Financial Officer AO Accounting Officer CIDB Construction Industry Development Board GCC General Conditions of Contract HDI Historically Disadvantaged Individual MTEF Medium Term Expenditure Framework NIPP National Industrial Participation Programme MFMA Municipal Finance Management Act (Act 56 of 2003) PGDP Provincial Growth and Development Plan PPP Public Private Partnership Lukhanji Local Municipality- 2 - Supply Chain Management: Demand Management Users Manual PPPFA Preferential Procurement Policy Framework Act (Act 5 of 2000) QCBS Quality Cost Based Selection RDP Reconstruction and Development Programme RFI Request for Information RFQ Request for Quotation SALGA South African Local Government Association SARS South African Revenue Services MBD Municipal Bid Document SCM Supply Chain Management SCMU Supply Chain Management Unit SITA State Information Technology Agency SLA Service Level Agreement SMME Small Medium and Micro Enterprise TCO Total Cost of Ownership TOR Terms of Reference 1.3.2 DEFINITIONS Acquisition management Acquisition management is the process of procurement of goods or services and includes the: Identification of preferential policy objectives; Determination of market strategy; Application of depreciation rates; Application of total cost of ownership principle; Lukhanji Local Municipality- 3 - Supply Chain Management: Demand Management Users Manual Compilation of bid documentation, including conditions; Determination of evaluation criteria; Evaluation of bids and tabling of recommendations; Compilation and signing of contract documents; Contract administration Affordable Affordable in relation to a PPP agreement, means that the financial obligations to be incurred by the municipality in terms of the agreement can be met. Black people Black people, is a generic term which means Africans, Coloureds and Indians. Demand management Demand management is a planning and controlled process to ensure that the resources required to support the strategic objectives are delivered at the correct time, at the right price, location, quantity and quality that will satisfy the needs. I LM LUKHANJI Local Municipality. Depreciation Depreciation refers to the reduction in the value of assets generally from wear and tear. The consumption of capital is recognised as a cost of production and an allowance for this is made before net profit is arrived at. Economic principle Obtain the highest possible output for the lowest possible use of resources. Economies of scale Reductions in the average cost of a product in the long run, resulting from an expanded level of output Historically disadvantaged individual Historically Disadvantaged Individual (HDI) means a South African citizen – who had no franchise in national elections prior to the introduction of the Constitution of the Republic of South Africa, 1983 (Act No 10 of 1983) or the Constitution of the Republic of South Africa, 1993 (Act No 200 of 1993) (“the Interim Constitution”); and/or who is a female; and/or who has a disability; Provided that a person who obtained South African citizenship on or after the coming into effect of the Lukhanji Local Municipality- 4 - Supply Chain Management: Demand Management Users Manual Interim Constitution is deemed not to be an HDI. Lifecycle costing Lifecycle costing is a technique developed to identify and quantify all costs, initial and ongoing, associated with a project or installation over a given period. Thus, it is a tool that forecasts the total cost of a purchase throughout its predetermined lifecycle. MFMA Municipal Finance Management Act No 56 of 2003 Practitioner A person who practises a profession or art. Procedures Policies are carried out by means of more detailed guidelines called “standard methods”. A series of actions conducted in a certain order or manner. Process A series of actions or steps towards achieving a particular end. Provider A provider is the private person or institution that provides supplies, services or works to the Government. Risk management Risk management may be defined as the identification, measurement and economic control of risks that threaten the assets and earnings of a business or other enterprise. Rules Rules are statements that a specific action must or must not be taken in a given situation. Small Medium and Micro Enterprise (SMME) SMME is as defined in the National Small Business Act, 102 of 1996, as amended. Employing a maximum of 100 employees in any sector except manufacturing or construction where the maximum is 200 employees. Sourcing Sourcing is the process to be followed in order to identify a suitable provider of goods, services and works. Strategic goals Strategic goals are areas of institutional performance that are critical to the achievement of the mission. They are statements that describe the strategic direction of the institution. It is useful to think of strategic goals as outcomes to be achieved by the institution. Strategic objectives Strategic objectives are more concrete and specific than strategic goals. They should give a clear indication of what the department intends doing or producing in order to achieve the strategic goals it has set for itself. As such strategic objectives would normally describe high-level Lukhanji Local Municipality- 5 - Supply Chain Management: Demand Management Users Manual outputs or “results” of actions that departments intend taking. Supply chain management (SCM) is an integral part of financial management. This function is the collaborative strategy that integrates the planning, procurement and provisioning processes in order to eliminate non-value adding cost infrastructure, time and activities, seeks to introduce international best practices, whilst at the same time addressing Government’s preferential procurement policy objectives and whilst serving the end users and customers efficiently. Six phases are distinguished in the SCM processes, namely: Demand management Acquisition management Logistics management Disposal management Risk Management Performance Measurement Based on the above SCM elements the local municipality has structured the SCMU as follows: SCM Directorate/Division has been divided into four sub-divisions which are: o Demand and Acquisition o Contracts Management o Logistics Management (Logistics Services, Asset Management, Stores and Warehouse & Fleet Management) o Compliance, Risk and SCM Performance Reporting Management The SCMU structure was approved during ......... financial year and is in line with the Supply Chain Management Framework since it incorporates all six elements of Supply Chain Management. The structure will be fully functional during the .... quarter of ........... financial year. Lukhanji Local Municipality- 6 - Supply Chain Management: Demand Management Users Manual The SCMU has been established as a Directorate within the office of the Chief Financial Officer as required by the MFMA. Value for money In relation to public-private partnership agreements, means that the performance of a private party in terms of the agreement will result in a net benefit to the department in terms of cost, price, quality, quantity, risk transfer or any combination of those factors. ANNEXURE B Paraphrase of Supply Chain Management Regulations Published on 30 May 2005 1.4 LEGISLATIVE ENVIRONMENT POLICY The LUKHANJI Local Municipality is committed to adhering to and applying the prescribed legislative environment as it affects SCM. 1.4.1 THE CONSTITUTION The Constitution of the Republic of South Africa, Act No 108 of 1996, as amended, regulates procurement through Section 217 and determines that: Lukhanji Local Municipality- 7 - Supply Chain Management: Demand Management Users Manual “217 (1) When an Organ of State in the national, provincial or local sphere of Government, or any other institution identified in national legislation, contracts for goods or services, it must do so in accordance with a system which is fair, equitable, transparent, competitive and cost-effective. (2) Subsection (1) does not prevent the Organs of State or institutions referred to in that subsection from implementing a procurement policy providing for – Categories of preference in the allocation of contracts; and The protection or advancement of persons, or categories of persons, disadvantaged by unfair discrimination (3) National legislation must prescribe a framework within which the policy referred to in subsection (2) must be implemented.” 1.4.1 THE MUNICIPAL FINANCE MANAGEMENT ACT (MFMA) The MFMA, Act No 56 of 2003, gives effect to and reiterates the Constitutional requirements of Section 217 quoted above and is primary in the regulation of Financial Management. It sets out broadly the requirements for the procurement and provisioning system to be in place and allocates responsibilities attached thereto. The Act stipulates that in contracting for goods and services, and the disposal and letting of state assets, including the disposal of goods no longer required, the Accounting Officer will develop and implement a system, which is fair, equitable, transparent, competitive and cost-effective. 1.4.1.1 Section (111 and 112), Chapter 11 of the MFMA determines inter alia that: Each Municipality and each municipal entity must have and implement a Supply Chain Management Policy which gives effect to the provisions of Chapter 11. Section 112 of the same chapter reiterates that supply chain management policy have to comply with prescribed framework Section (112)(1) states that the supply chain management policy of a municipality or municipal entity must be fair, equitable, transparent, competitive and cost effective. 1.4.2 TREASURY REGULATIONS ISSUED IN TERMS OF THE MFMA Lukhanji Local Municipality- 8 - Supply Chain Management: Demand Management Users Manual The Municipality shall apply Chapter 16 (A) 4.3 of Treasury Regulations 2005 issued in terms of the MFMA as it pertains to supply chain management. It serves as a formal requirement for municipalities, to ensure the establishment and implementation of an effective and efficient SCM system. Public Private Partnerships The Accounting Officer must ensure that Treasury Regulation 16 is complied with when goods or services are procured through public private partnerships or as part of a public private partnership. Supply Chain Management The Accounting Officer must ensure that Treasury Regulation 16A is complied with when dealing with Supply Chain Management to ensure the establishment and implementation of an effective and efficient Supply Chain Management Unit within the office of the CFO, as an integral part of their financial system. The SCM system to be implemented must be fair, equitable, transparent, competitive and cost effective; be consistent with the PPPFA and BBBEE Act and must provide at least for the following: Demand management Acquisition management Logistics management Disposal management Risk Assessment Regular assessment of supply chain performance. 1.4.2. Municipal Systems Act No.32 of 2000, Chapter 8 Section 83(1),(2),(3) &(4) If a municipality decides to provide a municipal service through a a service delivery agreement it must select the service provider through a selection which is competitive, fair, transparent equitable and cost effective. 1.4.3 POLICY TO GUIDE UNIFORMITY IN PROCUREMENT REFORM PROCESSES IN GOVERNMENT The Policy to Guide Uniformity in Procurement Reform Processes in Lukhanji Local Municipality- 9 - Supply Chain Management: Demand Management Users Manual Government was approved by Cabinet 10 September 2003 and promulgated on 05 December 2003. The policy strategy has, as a goal, the uniform implementation of Government’s procurement reform initiatives and compliance with minimum norms and standards in such a manner that the principles of cooperative governance are observed. In terms of this policy strategy, Accounting Officers are required to establish and implement a Supply Chain Management function that promotes sound financial management and uniformity in all spheres of Government. Regarding insurance, organs of State should either insure for procurement related physical risks, establish risk management programmes or make advance provision for losses associated with such risks, within the scope of the provisions of the Treasury Regulations. Suitable arrangements should also be made to ensure that insurance related excesses do not cause the failure of SMME’s. 1.4.5 NATIONAL TREASURY PRACTICE NOTES All documents relevant to SCM are available electronically on National Treasury’s web page http://www.treasury.gov.za /organisation/ specialist functions/ supply chain management: norms and standards. The SCM regulations in terms of the MFMA empower National Treasury to issue practice notes to ensure minimum norms and standards within Government. All practice notes issued from time to time must be taken into account and adhered to. 1.4.6 THE PREFERENTIAL PROCUREMENT POLICY FRAMEWORK ACT The Preferential Procurement Policy Framework Act (PPPFA), Act No 5 of 2000, was promulgated to give effect to Section 217(3) of the Constitution by providing a framework for the implementation of the Lukhanji Local Municipality- 10 - Supply Chain Management: Demand Management Users Manual procurement policy contemplated in Section 217(2) of the Constitution. The Act provides for the implementation of a preference system in the allocation of contracts for categories of service providers and the promotion of goals, including socio-economic goals, to advance the interest of persons disadvantaged by unfair discrimination on the basis of race, gender or disability and implementing the programmes of the Reconstruction and Development Programme (RDP). The Act also regulates that the evaluation processes are conducted in a fair, justifiable and transparent manner. There is currently a process underway to ensure that the PPPFA and the BBBEE Act is aligned which will ultimately culminate to a Balance Score Card that mitigates and strengthen some weaknesses identified on PPPFA No5 of 2000. Subsequent to the above, Preference Procurement Regulations 2011 has been promulgated on the 7 December 2011 whereby all suppliers are classified according to levels by verifying agents that have been approved by SANAS. 1.4.7 THE PREFERENTIAL PROCUREMENT POLICY FRAMEWORK ACT REGULATIONS AS AMENDED BY PREFERENTIAL PROCUREMENT REGULATIONS 2011 This is the enabling mechanism of the PPPFA mentioned above. It sets out the formulas for the points system and stipulates the rules and procedures governing the preferences that might be claimed in terms of this Act as per verification agents approved by SANAS. 1.4.8 BROAD BASED BLACK ECONOMIC EMPOWERMENT ACT The Broad Based Black Economic Empowerment Act (BBBEE Act), Act No 53 of 2003, provides the framework for the promotion of black economic empowerment, the establishment of a balanced scorecard and the publication of transformation charters. A supporting strategy has also been published. Draft codes of good practice have also been issued for comment. These codes could include qualification criteria for preferential procurement and other economic activities. The LUKHANJI Local Municipality will adhere to the directives contained in the Broad Based Black Economic Empowerment Act as it affects the procurement process. Economic transformation will be promoted through preferential procurement Lukhanji Local Municipality- 11 - Supply Chain Management: Demand Management Users Manual in order to promote meaningful participation of black people including women, workers, youth and people with disabilities and people living in rural areas, in the economy. Transformation will achieve a change in the racial composition of ownership and management structures of existing and new enterprises. 1.4.9 THE PREVENTION AND COMBATING OF CORRUPT ACTIVITIES ACT The LUKHANJI Local Municipality will adhere to the directives contained in the Prevention and Combating of Corrupt Activities Act, Act 12 of 2004 as it affects the supply chain process. The Act regulates offences in respect of corrupt activities relating to contracts, activities pertaining to acceptance or offering of any gratification and the improper influence of another person as well as offences in respect of corrupt activities relating to procuring and withdrawal of tenders and auctions. The Act provides for miscellaneous offences relating to possible conflict of interest and other unacceptable conduct such as acquisition of private interest in contract, agreement or investment of a public body. National Treasury has established a register for tender defaulters. 1.4.10 THE KING REPORT ON CORPORATE GOVERNANCE FOR SOUTH AFRICA, 2002 The LUKHANJI Local Municipality will subscribe to the Code of Corporate Practices Conduct in all material respects as it affects procurement. The Report concludes that successful governance requires companies to adopt an inclusive approach and there must be greater emphasis on the sustainable or non-financial aspects of its performance. The tests of fairness, accountability, responsibility and transparency to all acts or omissions, and be accountable to the Municipality, but also responsive and responsible towards the Municipality’s stakeholders must be applied. The Report describes the principles of risk management, ethical conduct, black economic empowerment and social investment prioritisation and spending. Lukhanji Local Municipality- 12 - Supply Chain Management: Demand Management Users Manual 1.4.11 PROVINCIAL GROWTH AND DEVELOPMENT PLAN The Province developed the Provincial Growth and Development Plan (PGDP), which set out all the objectives to be achieved by Municipality by the year 2014. The PGDP provides for a number of quantified targets for growth and development in the Eastern Cape for the period 2004 until 2014. These targets must be incorporated into each department’s strategic goals and objectives. 1.4.12 STATE INFORMATION TECHNOLOGY AGENCY ACT The State Information Technology Agency (SITA) Act, Act No 88 of 1998, as amended by Act 38 of 2002, requires that SITA must act as the procurement agency for the municipality’s information technology requirements. 1.4.13 THE NATIONAL SMALL BUSINESS ACT The National Small Business Act, Act No 102 of 1996, as amended, establishes the National Small Business Council (NSBC) and also the Ntsika Enterprise Promotion Agency (Ntsika). The main functions of Ntsika are inter alia: to consult with any organ of government, the NSBC or a service provider in order to inter alia: o Facilitate national market access for products and services of small business. o Generally strengthen the capacity of service providers to support small business and small business to compete successfully in the economy. o To enable small businesses to compete successfully in the economy, the procurement policies and practices influence the economic behaviour of small businesses, and therefore during the procurement process, it is important to implement guidelines to promote small businesses. Lukhanji Local Municipality- 13 - Supply Chain Management: Demand Management Users Manual 1.4.14 THE RELEVANT ACTS Cognizance must be taken of the following legislation that will impact on the supply chain environment: Public Service Act, Act No 23 of 1994. Promotion of Administrative Justice Act, Act No 3 of 2000. Promotion of Access to Information Act, Act No 2 of 2000. Protected Disclosure Act, Act No 26 of 2000. The Competition Act, Act No 89 of 1998. 1.5 THE SCM SYSTEM: BACKGROUND; OVERVIEW AND PROCUREMENT PRINCIPLES 1.5.1 BACKGROUND Section (112)(1) of the MFMA confers general responsibilities on the Accounting Officer. The Accounting Officer must ensure that the municipality has and maintains an appropriate procurement and provisioning system, which is fair, equitable, transparent, competitive and cost-effective. To this end, the Eastern Cape Provincial Treasury, in conjunction with the Eastern Cape Provincial Tender Board embarked upon a procurement reform process that took place in phases, the ultimate goal being to elevate the procurement process to its rightful place in the Financial Management System. The first of these phases was the introduction of the Preferential Procurement Policy Framework Act, Act No 5 of 2000 (PPPFA) that took effect in July 2002 (issued per Treasury Circular 26 of 2002) and the accompanying compilation of municipal preferential procurement plans. Subsequent thereto, during the second phase, greater powers have been devolved to Municipalities in preparation of transferring the entire responsibility and accountability for procurement to Accounting Officers. The third phase of the reform process entailed the full-blown introduction of the concept of SCM, the regulatory framework and guiding principles underpinning this concept that was issued by National Treasury in terms of its Section 119 (1), (2) and (3) obligation in terms of the MFMA. Lukhanji Local Municipality- 14 - Supply Chain Management: Demand Management Users Manual The current phase was introduced per Provincial Treasury Circular 12 of 2004. This circular sets out the obligations of Departments/Municipalities in anticipation of accepting complete accountability for SCM. Municipality’s SCM system signifies the dawn of a new era in procurement and provisioning, now encapsulated in the concept of SCM. The SCM system bestows the power and responsibility for these processes on the Municipality. Along with this, it gives effect to the intention of the MFMA and calls for initiative, innovation and the establishment of best practices by the Accounting Officer and the SCM Unit, thus creating a culture of responsibility and imposing a burden of care not only on the Accounting Officer, but on each and every official in the Municipality. All officials are therefore urged to bear in mind the principles of “Batho Pele”, the Pillars of Procurement as outlined in Section 217 of the Constitution and the other applicable legislation in the reading and execution of this Manual. The SCM system effectively constitutes the yardstick against which all the actions of the Municipality will be executed, measured, and justified. 1.5.2 OVERVIEW OF THE SCM SYSTEM The Municipal Finance Management Act requires that the Supply Chain Management framework be fair, equitable, transparent, competitive and cost effective. 1.5.1.1 ELEMENTS OF SUPPLY CHAIN MANAGEMENT The Treasury Regulations, Section 16A, requires that a Supply Chain Management system contains the following six elements: o Demand management o Acquisition management o Logistics management o Disposal management o Risk management o Regular assessment of supply chain performance Lukhanji Local Municipality- 15 - Supply Chain Management: Demand Management Users Manual 1.5.2.1(a) Demand management The objective of demand management in the context of the Eastern Cape is to ensure that the resources required to support the strategic objectives, as described in the Provincial Growth and Development Plan (PGDP), are delivered at the correct time, at the right price and at the right location, and that the quantity and quality will satisfy needs. In infrastructure projects, demand management will ensure that projects that support the Provincial Growth and Development Plan (PGDP) are identified, prioritised and budgeted for in a systematic manner. 1.5.2.1(b) Acquisition management Acquisition management within the SCM System deals with the decisions that have to be made in order to manage the acquisition of the required supplies, services, engineering, construction works and rights from within the institution, or through procurement thereof from the open market. 1.5.2.1(c) Logistics management The logistics management process deals with the coding of items, setting of inventory levels, placing of orders, receiving and distribution, stores/warehouse management, expediting orders, transport management and supplier performance. This process integrates with the financial system to generate payments to suppliers. 1.5.2.1(d) Disposal management Disposal management focuses on obsolescence planning, depreciation, identifying where all redundant material is kept or located and the identification of appropriate strategies relating to the manner in which items are to be disposed of. Disposal and letting of provincial assets is the final process when an institution needs to do away with unserviceable, redundant or obsolete assets. 1.5.2.1(e) Risk Management Risk management is the culture, processes and structures that are directed towards the effective management of potential opportunities and adverse effects. Risk management forms an integral part of the supply chain management system. Lukhanji Local Municipality- 16 - Supply Chain Management: Demand Management Users Manual 1.5.2.1(f) Assessment of supply chain performance Supply chain performance is characterised by a monitoring process and a retrospective analysis to determine whether or not the proper process was followed and the desired objectives achieved, i.e. has value for money, been attained, has the proper process been achieved, and is there room for improving the process, what is the assessment of supplies, and what are the reasons for deviating from procedures? 1.5.2.2 THE SCM SYSTEM DIAGRAM The SCM System is illustrated in the following diagram: SUPPLY CHAIN MANAGEMENT DELEGATIONS ACQUISITION MANAGEMENT LOGISTICS MANAGEMENT DISPOSAL MANAGEMENT GOVERNMENT’S PREFERENTIAL PROCUREMENT POLICY OBJECTIVES INFRASTRUCTURE (SYSTEMS) DEMAND MANAGEMENT POSITION OF PUBLIC TRUST RISK MANAGEMENT SUPPLY CHAIN PERFORMANCE MEASUREMENT DATABASE/S Lukhanji Local Municipality- 17 - Supply Chain Management: Demand Management Users Manual 1.5.3 PROCUREMENT PRINCIPLES POLICY The LUKHANJI Local Municipality shall adhere to the procurement principles as noted hereunder. Transparency The procurement process shall be open and predictable and shall afford each prospective bidder timely access to the same and accurate information Equal treatment All bidders and providers shall be treated equally throughout the whole supply chain process and shall be given access to the same information. Effectiveness The LUKHANJI Local Municipality shall strive for SCM system effectiveness and shall carry out its procurement processes as cost-effectively as possible while meeting the commercial, regulatory and socio-economic goals of government in a balanced manner appropriate to the procurement requirement. Efficiency The LUKHANJI Local Municipality shall strive to standardise and simplify procedures where appropriate to enhance SCM system effectiveness and shall carry out its SCM processes as cost-effectively and efficiently as possible. The Municipality shall strive to build relationships with providers, shall ensure good working practices and shall encourage innovative solutions for providers Competitiveness The LUKHANJI Local Municipality shall satisfy its requirements through competition unless there are justifiable reasons to the contrary. Fairness All bidders and contractors shall be dealt with, fairly and without unfair discrimination. Unnecessary constraints shall not be imposed on bidders/contractors and commercial confidentiality shall be protected. Lukhanji Local Municipality- 18 - Supply Chain Management: Demand Management Users Manual Ethics All suppliers shall be treated equally whilst promoting certain empowerment objectives, all stakeholders shall conduct business and themselves professionally, fairly, reasonably and with integrity, all interests shall be disclosed and all breach shall be reported. Proportionality The product/service requirements stipulated in the specification/terms of reference and the qualification requirements attached thereto must be appropriate, necessary and in reasonable proportion to the product/service being procured. Uniform application The LUKHANJI Local Municipality shall ensure the application of a SCM policy and a streamlined SCM process and documentation that is uniformly applied by the Municipality, all things being equal. The supply chain process shall be simple and adaptable to advances in modern technology to ensure efficiency and effectiveness. Accountability Each practitioner shall be accountable for their decisions and actions relative to their SCM responsibilities, the SCM process as well as in the implementation of concluded contracts. The Municipality shall have a system, when warranted by circumstances, to investigate and hold liable both employees and relevant private parties dealing with the Municipality, for their decisions and actions relative to their procurement responsibilities, the procurement process as well as in the implementation of concluded contracts. Openness The Municipality shall ensure a procurement process and a subsequent contract award and implementation according to the predetermined specification in line with the best practice procurement principles. Value for money The LUKHANJI Local Municipality shall achieve value for money through the optimum combination of whole life cycle cost and quality (or fitness for purpose) to meet the customer’s requirements while maximising efficiency, effectiveness and flexibility. Lukhanji Local Municipality- 19 - Supply Chain Management: Demand Management Users Manual The LUKHANJI Local Municipality shall apply the following TCO philosophy to the procurement of goods and services in achieving value for money. TCO = Price + Administration (maintenance and process) + Quality/Usage + Supplier Value-add. Commitment to safety, health and the environment The LUKHANJI Local Municipality is committed to the health and safety of its personnel and its providers in the application of its SCM process. The LUKHANJI Local Municipality is committed to the preservation of the environment, minimising pollution and the improved use of natural resources in the application of its SCM processes and more specifically in the design of the specifications/terms of reference for each requirement. The LUKHANJI Local Municipality shall apply preventative measures in situations of scientific uncertainty where a course of action could harm the environment. Lukhanji Local Municipality- 20 - Supply Chain Management: Demand Management Users Manual 1.5.4 STRATEGIC VISION AND OBJECTIVES SCM VISION VISION An efficiently, effectively and economically managed Supply Chain Management System in partnership with all Municipal stakeholders wherein an appropriate procurement and provisioning system is fair, equitable, transparent, competitive and cost-effective to all. The SCM vision is integrated with the municipal vision and must be lived by all SCM practitioners. OBJECTIVES POLICY To ensure the efficient, effective and uniform planning for and procurement of all services and goods, required for the proper functioning of the Municipality as well as the sale and letting of assets that conforms to constitutional and legislative principles whilst developing, supporting and promoting historically disadvantaged individuals, black economic empowerment, small, medium and micro enterprises (SMME’s) and preferential goals. The LUKHANJI Local Municipality shall strive towards achieving, by 2014, the specified objectives in line with the PGDP through supply chain management. The LUKHANJI Local Municipality shall set an annual incremental goal towards achieving the 10-year objectives. To ensure the efficient, effective and uniform management and disposal of goods and assets. The LUKHANJI Local Municipality must measure all SCM activities and processes against the five pillars of procurement, being fairness, equitability, transparency, competitiveness and cost-effectiveness. SCM is central to service delivery and to the physical implementation of the PGDP, particularly in relation to the provision and maintenance of infrastructure. In line with the PGDP, the Municipality shall strive to achieve the following quantified objectives by the year 2014: o To maintain an economic growth rate of between 5% and 8% per annum. o To reduce by between 60% and 80% the number of households living Lukhanji Local Municipality- 21 - Supply Chain Management: Demand Management Users Manual below the poverty line by 2014. o To reduce by between 60% and 80% the promotion of people suffering from hunger by 2014. The LUKHANJI Local Municipality shall ensure that these are addressed through the municipal procurement system by targeting or encouraging participation of previously disadvantaged groups in the provision of goods and services. 1.5.5 KEY OUTCOMES The key outcomes of SCM for the LUKHANJI Local Municipality are: Promoting uniformity in the processes relevant to devolving the responsibility and accountability for procurement related functions to Accounting Officers. Promoting uniformity in the interpretation of government’s preferential procurement legislation and policies, also in the context of other broad-based but related legislative and policy requirements of government. Replacing the outdated procurement and provisioning practices in government with a Supply Chain Management function and a systematic competitive procedure for the appointment of consultants as an integral part of financial management in government that conforms to internationally accepted best practice principles. Introducing parameters for the promulgation of Section 16A of the Treasury Regulations in terms of the MFMA, to ensure compliance with minimum norms and standards; but in such a manner that the principles of cooperative governance are observed. Lukhanji Local Municipality- 22 - Supply Chain Management: Demand Management Users Manual CHAPTER 2: INSTITUTIONALISATION 2.1 THE SCM SYSTEM POLICY The Accounting Officer shall develop and implement an effective and efficient supply chain management system for: The acquisition of goods and services. The disposal and letting of state assets and goods no longer required. The system shall be fair, equitable, transparent, competitive and costeffective. The system shall be consistent with the PPPFA and the BBBEE Act with its amendments as per Preferential Procurement Regulations 2011. The system shall provide for at least the following: Demand management. Acquisition management. Logistics management. Disposal management. Risk management. Regular assessment of supply chain performance. The SCM system must, in the case of procurement through a bidding process, provide for: Bidding procedures The establishment, composition and functioning of one or more bid specification, evaluation and adjudication committees. Selection of bid committee members Adjudication of bids through a bid adjudication committee. Approval of bid evaluation and/or adjudication committee recommendations through award structures. The SCM system shall provide for at least the following SCM structures: A SCM Unit. One or more Bid Specification Committees. One or more Bid Evaluation Committees. One or more Disposal Committees. Award structures, including one or more Bid Adjudication Committees. Lukhanji Local Municipality- 23 - Supply Chain Management: Demand Management Users Manual 2.2 THE SCM UNIT 2.2.1 ESTABLISHMENT OF THE SCM UNIT POLICY The Accounting Officer shall establish a SCM Unit within the office of the CFO, to implement the SCM system. The SCM Unit was established in year 2004 although the implementation of the SCM System took place with effect from March 2005. 2.2.2 FUNCTIONS OF THE SCM UNIT POLICY The SCM Unit shall perform the following functions: Demand management. Acquisition management Logistics management. Disposal management. Risk management. Assessment of SCM Performance. The SCM Unit shall provide administrative support services to the Bid Specification, Bid Evaluation and Bid Adjudication Committees and the award structures. The SCM Unit is to execute any other functions as prescribed by the Provincial Treasury from time to time. Lukhanji Local Municipality- 24 - Supply Chain Management: Demand Management Users Manual CHAPTER 3: DEMAND MANAGEMENT 3.1 SYSTEM OF DEMAND MANAGEMENT POLICY Demand management shall translate the Annual Performance Plans (APPs) into current and future needs, to cost and budget for it. The demand management system must ensure that the resources required to support the strategic and operational commitments of the Municipal are delivered at the right time, at the right price and at the right location, and that the quantity and quality satisfy the needs of the Municipality. Having been established, the system will ensure that the LUKHANJI Local Municipality can coherently plan for the timely execution of its requirements. 3.2 ESTABLISHMENT OF A CROSS-FUNCTIONAL TEAM POLICY Demand management or planning shall be a cross-functional exercise that brings the supply chain practitioner closer to the end user and ensures that value for money is achieved. The SCM practitioner responsible for the demand management function coordinates the appointment of the cross-functional team. The cross-functional team must at least consist of the following expertise: Relevant end user. Human resource specialist. Financial specialist. Information technology specialist. Acquisition specialist. Logistics specialist. Disposal specialist. The SCM Unit must facilitate the establishment of the cross-functional team through its demand management function. Ensure that the team consists of the relevant expertise, but ensure that the size of the team is not of such a nature that it cannot function properly. The Team will meet as required in line with the planning and budgetary process of the Municipality and will execute all other activities to be aligned with the timing of the planning and budgeting process. Lukhanji Local Municipality- 25 - Supply Chain Management: Demand Management Users Manual 3.3 FIVE-YEAR STRATEGIC AND PERFORMANCE PLAN POLICY Only one five-year strategic and performance plan will be produced per election cycle with a review every year during the period. The five-year strategic and performance plan is to set out the newly elected government’s strategic policy priorities and plans for the next five years. This document should serve as a blueprint for what the Municipality plans to do over the next five years. The SCM Unit must participate in the strategic planning process. The aim of producing a five-year strategic and performance plan is to detail the Municipality divisional strategic priorities. Therefore the focus must be on those issues that are strategically important. The resultant document must be clear, concise and coherent, focussing attention on the strategic issues the Municipality intends addressing or doing in the next five-year period. Identifying strategic priorities of necessity entail making difficult choices between different areas of possible focus and action. The cross-functional team can be very useful in helping the end-users in identifying and determining strategic priorities. Under no circumstances should a strategic plan seek to be “complete” in the sense of covering all that divisions are currently doing and hoping to do in the future. The five-year strategic and performance plan is divided into three parts as follows: o Part A provides a strategic overview and specifies the strategic goals it aims to achieve over the next five years. o Part B gives more detailed planning information on the individual programmes and specifies measurable objectives where relevant. The cross-functional team must play a very supportive role in specifying measurable objectives. o Part C presents the background information on which the Municipality based its strategic planning. It is already at this stage that the objectives of the PGDP must be taken into account and be planned for. 3.4 ANNUAL PERFORMANCE PLANNING PROCESS (APP) Lukhanji Local Municipality- 26 - Supply Chain Management: Demand Management Users Manual POLICY The SCM Unit must participate in the annual performance planning process. Each user division shall perform an annual needs analysis of strategic objectives and programmes involving SCM, Human Resource and Finance to determine strategic sourcing that will ultimately provide best value for money. The Annual Performance Plan is to set out what the LUKHANJI Municipality intends doing in the upcoming financial year and the following two years in line with the medium term expenditure framework (MTEF), towards progressively achieving the full implementation of the five-year strategic and performance plan. The purpose of the annual budget is to spell out what funds the Municipality requests are allocated in order to deliver on the measurable objectives and service delivery targets set out in the annual performance plans. In addition, the Municipality will be required to indicate their expected capital requirements in years 4 and 5 as well (i.e. the two years following the final year of the MTEF). Annual performance planning and prioritisation is the starting point for preparation of the annual budget submissions as it guides Municipal reprioritisation within the medium term baseline allocations and provides the rationale for policy options regarding changes to baseline allocations over the next 3-year period. The integration of annual performance planning, budgeting and monitoring of service delivery performance, coupled with effective financial information and advice, will enhance the link between the services that the Municipality provide and the benefits and cost of such services. The annual performance plan must: o Cover a period of three years and be consistent with the Municipality’s medium term expenditure estimates. o Provide for strategic objectives. o Include the measurable objectives and outcomes for the Municipality’s departments. o Provide for performance measures and targets. o Include details of proposed acquisitions of fixed or movable capital assets, planned capital investments and rehabilitation and maintenance of physical Lukhanji Local Municipality- 27 - Supply Chain Management: Demand Management Users Manual assets. o Include multi-year projections of income and projected receipts from the sale of assets. o The preparation of estimates should be a participative process whereby all end users and SCM practitioners are involved. 3.5 NEEDS ANALYSIS The official responsible for the demand management function must coordinate the needs analysis and costing of each and every department in the Municipality. To do this the following process must be followed: o The end user gives an overview of the detail of his/her annual performance plan. The human resources and financial experts give their guidelines applicable to this plan. o The cross-functional team does needs analysis to determine the total needs required to support the annual performance plan. The needs analysis will include the following activities: - Understanding the future needs in terms of quantity and specification. - Frequency of the needs. - Critical delivery dates. - Budgetary requirements. - Analysis of the supplying industry. With the needs analysis the following activities have to be done to determine the inputs for the annual performance plan and budget: o Spend analysis to provide input into sourcing strategies such as consolidated buying and to gain an understanding of historical spend patterns of different items/commodities and services. o Determine the Economic Order Quantities. The question of “how much” should be answered based upon balancing storage cost and ordering cost, is resolved with the economic order quantity model (EOQ). o Determine the lead and delivery time of each commodity. o Determine the lifecycle cost of each commodity. Lifecycle cost is a tool for applying the total cost of ownership (TCO) principle. Lifecycle Lukhanji Local Municipality- 28 - Supply Chain Management: Demand Management Users Manual costing includes costs associated from the commencement of the budgeting process until the requirement is disposed of. o Determine the total cost of ownership for each commodity. Total cost of ownership (TCO) is widely used for decisions on ownership of assets. It is based on the fact that all costs applicable to ownership should be included in any analysis where decisions should be made on the options of owning a capability or the contracting for the supply or the service. o To do obsolescence planning. Obsolescence cost is the difference between the original cost of the unit and its salvage value. o To do renewal planning. The asset renewal planning involves the assessment of existing assets and planned acquisitions against service delivery requirements. o Planning for Information Technology requirements. o Determining an asset strategy. o Asset management decisions should be integrated into the annual performance planning process. Following an evaluation of lifecycle costs and the benefits and risks associated with each option, the strategy will identify the most appropriate approach for meeting programme delivery needs. o Setting benchmarks for complying with targets. o Mechanisms for accounting and reporting. o Linking the requirements with the baseline allocations over the next 3-year period. o Commence with the identification of contract conditions. 3.6 ANNUAL OPERATIONAL PLAN Lukhanji Local Municipality- 29 - Supply Chain Management: Demand Management Users Manual POLICY The SCM Unit must participate in the operational planning process. The first year of the strategic plan is known as the Operational Plan. It must provide a sufficiently detailed quantification of outputs and resources, together with service delivery indicators. The operational plan must not be a wish list, but must be flexible and adjustable while remaining within the MTEF allocation. The purpose of the operational plan is to plan the implementation of the annual performance plan, the budget and other management objectives. Operational plans must be developed for each programme within the Department. When the budget for the next financial year is approved, the cross-functional team develops an operational plan for that year. This ensures a direct link between key departmental objectives and what management and staff are expected to do to meet these objectives. Specific information on how the Municipality will achieve its objectives during the next financial year should be included in the operational plan, complete with service delivery indicators. The minimum requirements for information are outlined below: o Descriptions of the various programmes that Municipality will pursue to achieve its objectives, and for each programme, the measurable objectives, total cost and intended lifespan. o Information on any new programmes to be implemented, including the justification for such programmes, expected costs, staffing and new capital, as well as future implications. o Information on any programmes and outputs to be scaled down or discontinued during the financial year. 3.7 BUSINESS PLAN FOR PROCUREMENT/PROCUREMENT PLAN Lukhanji Local Municipality- 30 - Supply Chain Management: Demand Management Users Manual POLICY The SCM Unit must compile a business plan for procurement for the next financial year. The identified requirements in the operational plan are drawn from and summarised in a business plan for procurement for the next financial year. The minimum requirements of information for the business plan for procurement are outlined below: o Detailed description of the programme. o Detailed description of the goods, works or services required. o Reference to the relevant specification / terms of reference. o Funds available. o Date when required. o Quantity required. o Reference to the following information: - Frequency of requirements. - The lead and delivery times. Acquisition management uses the business plan for procurement to start the procurement process. All the procurement information is verified. 3.8 AD HOC NEEDS ANALYSIS POLICY Lukhanji Local Municipality- 31 - Supply Chain Management: Demand Management Users Manual Over and above the planned needs analysis, an ad hoc needs analysis has to be done for unplanned activities during the financial year. The cross-functional team will perform needs analysis on a case-by-case basis as and when required in order to determine a sourcing strategy for the appropriate product or service that will ultimately provide best value for money. The end user must establish the need and in the event of an acquisition in excess of the quotation threshold or a period contract, the total value of which exceeds the quotation threshold, perform a needs analysis in conjunction with the cross-functional team. Technical expertise may be coopted to the team. 3.9 SCOPING THROUGH A REQUEST FOR INFORMATION POLICY If sufficient information is not readily available with which to draft terms of reference/specifications, a request for information (RFI) process may be followed in order to obtain more market information. The information collected in this fashion may not be used to lead to sourcing from one provider only nor must it be used to write the ultimate specification/terms of reference around just one specific product. It must be clearly stated in the RFI that the result of this process will not lead to an award and does not constitute a commitment. A request for information may be published in the media in which information may be sourced to determine the following: o What products are available in the market? o What specifications do the products have? o What is the availability of the product in the market place? o What are possible rates of delivery? 3.10 DETERMINING SPECIFICATIONS/TERMS OF REFERENCE POLICY The LUKHANJI Local Municipality must compile detailed, clear and Lukhanji Local Municipality- 32 - Supply Chain Management: Demand Management Users Manual unambiguous specifications and terms of reference. Include clear evaluation criteria prior to the invitation of the quotation/bid as offers may only be evaluated according to the criteria stipulated in the quotation/bid document. It is the responsibility of the end user through the facilitation of the Bid Specification Committee to compile detailed, clear and unambiguous specifications with which to source proposals. 3.11 COMPILATION OF THE SPECIFICATION OR TERMS OF REFERENCE “Specification” is the terminology generally used to describe the requirement for goods. “Terms of Reference” is the term used to describe the requirement for professional services. Specifications should be based on relevant characteristics and/or performance Standards and technical specifications should promote the broadest possible competition, while assuring those critical elements of performance or other requirements for the goods, services and/or works being procured are achieved. As far as possible, accepted standards are to be specified such as those issued by Standards South Africa [a division of the South African Bureau of Standards (SABS)], the International Standards Organisation or an authority recognised by the South African National Accreditation System with which the equipment, materials or workmanship should comply with requirements. References to brand names, catalogue numbers, or similar classifications should be avoided. If it is necessary to quote a brand name the words “or equivalent” should be added after the reference. The specification should permit the acceptance of offers for goods which have similar characteristics and which provide performance at least equivalent to those specified. The quality required should not be over specified to the extent that it will be impossible for others to offer such a product. In the case of period contracts, all specifications, drawings etc. must be numbered. When specifications are amended, the number must be amended also to indicate the year of the amendment. Thus contract ABC/2004 will be amended to ABC/2005 indicating the year of the Lukhanji Local Municipality- 33 - Supply Chain Management: Demand Management Users Manual amendment. To simplify the evaluation process a space should be left on the right hand side of each page, in which the bidder will indicate whether the offer complies with the specification or not. Particulars of the offer, such as any deviations will also be indicated in this space. 3.12 Care must be taken to guard against obscurities and contradictions in specifications/TOR. 3.13 STATUTORY REQUIREMENTS Care should be taken to ensure that specifications, where applicable, give effect to the requirements set by other control bodies and that they are not in conflict with legal or statutory requirements that have been stipulated. 3.15 PRIVATE SECTOR INVOLVEMENT It is a sound principle, however not compulsory, that suppliers/service providers of repute should, whenever required, be involved in the drafting of specifications. Therefore, the relevant industrial sector's representative body should, where possible, be involved in the decision of who to invite to attend specification compilation meetings. 3.14 CONTRADICTORY STIPULATIONS CONDITIONS IN SPECIFICATIONS Bidding and contract conditions must not be included in specifications. 3.16 TOLERANCES As a rule, products cannot be manufactured precisely to dimension. Therefore, a specification of precise dimensions without tolerances will generally not be permitted. The necessary tolerances, which will take one of the following three forms must be set: o A minimum dimension. Lukhanji Local Municipality- 34 - Supply Chain Management: Demand Management Users Manual o A maximum dimension. o A median dimension with a tolerance to either side. 3.17 OTHER FACTORS Any subjective factors playing a role in the determination of the specification/TOR can be dealt with through specification clauses and specific conditions. A number of broad guidelines may apply for which examples will be given. Visible or tangible factors, such as colour or style of furniture can be specified. Where compatibility with existing equipment is required, three broad groupings are identified: o Cases where the required item has to function with existing equipment, such as office automation equipment: - All requirements can be specified, one of which will be that the equipment must integrate with the existing equipment, which must also be specified. Naturally this will then be a primary criterion when evaluating offers. o Cases where the item is required as a direct component of existing equipment: - The item is regarded as a proprietary spare part and is so specified, with suitable motivation for restricted bidding if required. o Cases where the required item must be the same as the existing items: - It may be necessary, because of the large investment in the existing equipment in terms of capital, inventories and skills, to obtain the relevant approval beforehand for specifying the particular product by submitting motivation and the proposed procedure to be followed to the relevant delegated authority. Where the knowledge and/or skills of individuals or companies are required in respect of services such as advertising services, facilitating services, etc. Lukhanji Local Municipality- 35 - Supply Chain Management: Demand Management Users Manual Although creative thinking is involved here, the output, which is desired, can be specified and for purposes of selecting a contractor certain evaluation criteria can be specified together with points attached to each criterion. Institutions must ensure that the SABS is approached in good time for the drafting of proper specifications. Where subjectivity plays a role in a specification, evaluation criteria must form part of the specification. Only then can sound evaluations and recommendations be made on a properly regulated basis and responsible decisions taken in respect of commodities and services. Where items are required which cannot be specified at all, e.g. the purchase of works of art, the Provincial Treasury must be approached beforehand with a motivated application, which includes suggestions regarding the selection procedure, and if necessary, deviation from prescribed procedures. 3.18 TECHNICAL EQUIPMENT In respect of technical equipment, apparatus, machinery and fragile goods, the following must be clearly specified so that they may be priced separately for evaluation purposes: o Whether installation/erection is required. o Whether servicing/maintenance is required. o Whether demonstration/training is required. o The warranty, which is required. o Servicing and maintenance can be divided into the following categories namely: o Computer Hardware o Normal maintenance o This would entail a contract for the repair of any broken components of the installed equipment. This might either be during or after the warranty period and should be indicated in the specification if required. o Maintenance costs are to be specified in terms of hourly tariffs for labour and the actual cost of materials. Therefore, a list of the materials is to be included in the bidding documents. Lukhanji Local Municipality- 36 - Supply Chain Management: Demand Management Users Manual o Preventative maintenance - Preventative maintenance entails a service that is supplied to the Municipality to keep the equipment in running order. The details will not be specified in the bidding documents. o However, where it is known beforehand that certain parts will have to be replaced on a regular basis, these details (how, when, where and on what equipment) must be specified in the bidding documents. Any repairs done should be covered in the normal maintenance contract. o Support/standby services o If the Municipality does not wish to enter into maintenance and/or a preventive maintenance contract, a contract for the services of a skilled consultant/individual to rectify faults on equipment may be entered into on an as-and-when required basis. o Computer Software - The Municipality purchases the right to install a certain software product. After the initial licence purchase, the following fees are payable: Entering into an optional maintenance agreement - this would ensure that all version changes, new releases etc. are supplied to the Municipality at the nominal monthly/annual cost as determined in the contract. License fees - normally the software houses require that the Municipality pay renewal/license fees for the continual use of the product. This amount should normally be paid annually in arrears. - In both cases the contract period must be determined and specified as open-ended contracts are not allowed. 3.19 USER SPECIFICATIONS VERSUS TECHNICAL SPECIFICATIONS A technical specification determines mainly observable characteristics, such as the dimensions of the product and the material of which the Lukhanji Local Municipality- 37 - Supply Chain Management: Demand Management Users Manual product is to be manufactured. A user specification on the other hand describes mainly the result, which is to be achieved and how compliance is to be tested. The onus then rests on the supplier to offer a suitable product. Where appropriate, a special condition must prescribe that the bidder must substantiate its offer by means of a suitable certificate. It is desirable, wherever possible in practice, to make use of user specifications. These are usually easier to draw up and they stimulate technological development and competition. 3.19.1 Specific brands or trademarks only If in exceptional cases a specific brand name or trademark is used in the specification the words “or equivalent” must be inserted after the brand name or trademark, unless reasons for doing so are provided and approved accordingly. Specifying a brand name is acceptable where existing equipment is involved and the item comprises a component thereof, which must be of the same brand. The requirement is still to be advertised in the Government Tender Bulletin. Fully motivated requests for the invitation of bids from multiple/single/sole source providers for a specific brand name or trade mark only must be submitted to the relevant award structure for approval prior to the invitation of the bid. CHAPTER 4: SPECIFICATIONS 4.1 SPECIFICATION AND TERMS OF REFERENCE GUIDELINES Lukhanji Local Municipality- 38 - Supply Chain Management: Demand Management Users Manual A specification or terms of reference need to include the following, where applicable: o Description of the requirement o Background. o Objective of the project, where applicable. o Quantity/volume applicable o Plans and drawings. o Plans and drawings that reflect the text of the specification. (Please note, that the order of precedence between the drawings and the specifications should be specified.) o Minimum performance requirements. o Expected outcomes/deliverables. o Evaluation criteria including the ratio of points as applicable and the quantification thereof. o The particulars pertaining to the goal to be met, where applicable. o The delivery date(s), place(s) of delivery and/or the contract period applicable. In the case of period contracts a period of time for completion of the contract must always be prescribed in the relevant bid documents. This period of time must also be precisely stated, e.g. “contract period: 24 months”. Statements such as “within x months” or “before x months” must not be used. o Schedule for service delivery or completion date. o Shelf life, where applicable. o Packaging, where applicable. o Whether installation/erection is required and if affirmative, an indication of the place/address where the installation/erection is to take place. o Whether demonstration/training is required and if affirmative, an indication of the place/address where the demonstration/training is to take place. o Whether a performance guarantee is required. Full particulars, amount Lukhanji Local Municipality- 39 - Supply Chain Management: Demand Management Users Manual and reasons must be given. o Performance guarantees should be commensurate with the degree of contractual risk to which the Municipality is exposed and are normally applicable to large and complex contracts. Performance guarantees should spread the cost of the risk of failure between the contracting parties and should be set at such a level that all the Municipality’s costs relating to such failure are likely to be recovered. o It would be prudent to make provision in all engineering and construction work contracts to ensure that monies are available to rectify defects. o Performance guarantees in engineering and construction works contracts should be waived in low value, low risk contract or where a third party carries the risk of failure in an acceptable manner. o The warrantee requirement and period applicable. o Whether samples must be submitted and whether the samples must be tested before the award of the contract. Reasons for testing should be given. o Where samples are to be submitted, the special conditions should state that samples must be submitted not later than the closing time or the date and time specified in the bidding documents. o Indicate inspection, testing, analysis, standards or method requirements, where applicable. Where tests, inspections and analyses are a bid condition, the bid documents should specify that the premises of the bidder should be open at all reasonable hours for inspection by a representative of the Municipality. o Price particulars applicable. o The most common types of contracts provide for payments on the basis of lump sum prices, unit prices, reimbursable cost plus fees, or combinations thereof. o Reimbursable cost contracts should be acceptable only in exceptional circumstances, such as conditions of high risk or where costs cannot be determined in advance with sufficient accuracy. Such contracts should include appropriate incentives to limit costs and may only be concluded Lukhanji Local Municipality- 40 - Supply Chain Management: Demand Management Users Manual subject to the approval of the Accounting Officer. It is advisable that the reasons and formal approval for following the reimbursable route are recorded for auditing purposes. o Indicate in the case of capital goods, whether foreign export credit facilities should be utilised. o Competency and expertise requirements. o Roles assigned to role players, where applicable. o Reporting requirements, where applicable. o Available documentation pertaining to the specific project, where applicable. o Any other information. CHAPTER 5: PLANNING 5.1 PLANNING FOR PUBLICATION Lukhanji Local Municipality- 41 - Supply Chain Management: Demand Management Users Manual POLICY The LUKHANJI Local Municipality shall ensure that proper planning takes place at the beginning of the year by establishing as far as possible the Municipal website, Local media and where possible Government Tender Bulletin publishing dates for that year and the date of the first bulletin for the following year. Past experience has shown the tendency to invite bids or place orders for goods or services near the end of the financial year in order to spend unused funds in their budgets. This practice places extreme pressure on both providers and SCM practitioners. It also, does not reflect prudent planning and in fact is an indication that unspent funds drive the needs. No Special Government Tender Bulletins are published anymore. It is therefore imperative to ensure that it is known when Bulletins are published. 5.2 ESTABLISHMENT OF THE PROSPECTIVE PROVIDERS LIST PER COMMODITY POLICY The Municipality shall establish and maintain a list of prospective providers per commodity for the purpose of obtaining quotations. The prospective providers’ list shall be used effectively to promote the participation of HDI’s and SMME’s. The prospective providers’ list must be re-advertised at least once every year. The prospective providers’ list must be updated quarterly in order to accommodate addition or amendment of information about the service provider’s status. Prospective providers will be assessed in terms of predetermined evaluation criteria. The LUKHANJI Local Municipality shall, at least once every year, through an advertisement placed in the local representative newspapers and/or the Government Tender Bulletin, to invite prospective providers to apply for evaluation and registration in different commodities and categories, as prospective providers for the department. The Municipality needs to compile the list per commodity, categories, subcategories and monetary categories to provide for capacity. The following essential information must be obtained from each prospective provider to enable the Municipality to establish a provider profile per commodity: Lukhanji Local Municipality- 42 - Supply Chain Management: Demand Management Users Manual o Name of the entity/individual. o Physical and postal address. o Entity type for example public company, private company, close corporation, partnership, sole trader. o Appropriate registration numbers. o Contact details, such as telephone number, facsimile numbers and e-mail if applicable. o Name(s) of director(s), member(s), partner(s) and owner(s)/principal(s) of the entity. o Annual turnover of the entity/individual. o Equity profile of the entity. o Black economic empowerment profile of the entity. o Original tax clearance certificate as proof of tax compliance. o List of products/services offered, linked to requirement categories provided by the Municipality. o Capacity and capability should be indicated. o Specific expertise vested in the entity/individual, linked to requirement categories of the departmental list. o List of previous/current projects with at least three (3) contactable o Preferences. o Bank details (physical, postal and electronic banking address). o Provider’s compliance with the essential requirements will be evaluated to determine whether the entity will be placed on the provider list. o The assessment criteria referred to above, to determine placement of the provider on the list, must be determined based on the categories chosen for the list, but may be the following: - Proof that tax affairs are in order. Lukhanji Local Municipality- 43 - Supply Chain Management: Demand Management Users Manual - Sufficient expertise vested in the entity/individual linked to requirement categories of the Municipality. - At least 3 (three) contactable references of previous/current projects proving the capability of the company. - Proof of sufficient capacity. - All information pertaining to the providers must be treated as confidential and maintained as such. After closing of registration, the relevant Bid Evaluation Committee evaluates and recommends and the relevant award structure considers and approves the list. Successful applicants must be informed and reasons for non-inclusion in the list must be furnished to the unsuccessful applicants. A provider that did not qualify can re-apply to be included in the prospective providers’ list if their status should change. Providers already on the list may provide their details on a continuous basis, but they will only be considered for additions on a quarterly basis, except for changes in banking details and other critical information. 5.3 UTILISATION PROCEDURE POLICY Up to the quotation threshold, (less than R30 000) the Municipality will invite prospective providers (in the relevant commodity), featured on the prospective provider list, to submit a quotes. Once the list has been established per commodity, quotations should be invited there from. Quotations should be requested from the first three suppliers of a particular commodity in the database and then for the next purchase/transaction, quotations must be invited from the fourth to the sixth providers from the list and so on. This will ensure a fair competition among suppliers. This is a fair supplier rotation process that ensures that you do not procure from same suppliers whilst discriminating against others. This is in line with Section 217 of the Constitution of the Republic of South Africa. Lukhanji Local Municipality- 44 - Supply Chain Management: Demand Management Users Manual In the event that there are too many names on the list of prospective providers per commodity, for example you may request at least five (5) providers to quote at a time. No company may be approached for a second time before all providers for a specific commodity have had the opportunity to quote. The Municipality shall manage and utilise all its prospective providers efficiently and effectively. The IQUAL System is still the recommended system for supplier rotation and is used by the Office of the Premier, Provincial Treasury and a few other departments in the Eastern Cape. Records (manual or electronic) must be kept to record full particulars of price quotations obtained. 5.4 REMOVAL FROM THE PROSPECTIVE PROVIDER LIST POLICY Prospective providers may be removed from the list for non-compliance with relevant legislation, proven non-delivery and proven fraud and/or corruption. A provider will be removed from the providers’ list under the following circumstances: o The entity ceases to exist. o Sole proprietor dies. o Liquidation/sequestration of the entity. o Continual proven non-delivery (two and more times) or unable to meet minimum specification continuously. o Non-compliance with legislation or statutory requirement e.g. its tax status. o Proven fraud and/or corruption. o On provider’s request. o By mutual agreement. Where required, the relevant legal expertise will assist in ensuring that the correct processes are followed to deal with providers fairly. Lukhanji Local Municipality- 45 - Supply Chain Management: Demand Management Users Manual CHAPTER 6: AUTHORITY 6.1 ASSIGNMENT OF AUTHORITY POLICY All SCM activities shall be executed in accordance with pre-established levels of authority through delegations attached thereto to ensure control and division of responsibility. Delegations shall be in writing to a specific individual or the holder of a post. A delegation shall be subject to such limitations and conditions as the Accounting Officer or the Provincial Treasury may impose in a specific case. The Accounting Officer is entitled to confirm, vary or revoke any decision taken in consequence of a delegation, provided that no such variation or revocation of a decision should detract from any rights that may have accrued as a result of the decision. 6.2 Any activity to be executed must be done in accordance with a delegation. These delegations must be personalised (indicating a person and/or a rank), in writing and contained in the Accounting Officer’s delegated powers. RESPONSIBILITIES OF OFFICIALS POLICY Each official shall carry out his/her activities within his/her area of responsibility. Each official shall take appropriate steps to prevent any unauthorised, irregular, fruitless and wasteful expenditure in his/her area of responsibility. A person in the relevant division holding the rank to which the authority has been delegated or the person with the authority in the Municipality appointed for the task must carry it out satisfying the various supply chain requirements, including the ability to commit the Municipality. All activities not delegated to a person in the relevant division or the supply chain division holding the rank to which the authority has been delegated, must be forwarded upwards to the person holding the required rank or to the relevant delegated structure. Lukhanji Local Municipality- 46 - Supply Chain Management: Demand Management Users Manual CHAPTER 7: ETHICS 7.1 ETHICS IN SUPPLY CHAIN POLICY The LUKHANJI Local Municipality commits itself to a policy of fair dealing and integrity in the conducting of its SCM activities. The LUKHANJI Local Municipality’s Code of Conduct shall incorporate the Code of Conduct for SCM practitioners as contained in Practice Note Number SCM 4 of 2003 and shall direct all SCM officials and role players in their conduct within and with the Municipality. Non-compliance shall be subject to the appropriate action. All SCM officials and role players are required to promote an environment where business will be conducted in a fair and reasonable manner and with integrity. All SCM officials should ensure that they perform their duties efficiently, effectively and with integrity, in accordance with the relevant legislation and regulations. An official in the SCM Unit who becomes aware of a breach of or failure to comply with any aspect of the SCM system must immediately report the breach or failure to the Accounting Officer, in writing. 7.2 ETHICAL PRINCIPLES IN THE SCM ENVIRONMENT 7.1.1 THE HIGHEST ETHICAL STANDARDS All SCM officials and other role players must comply with the highest ethical standards in order to promote: o Mutual trust and respect. o An environment where business can be conducted with integrity and in a fair and reasonable manner. o Perseverance of the highest standards of honesty, impartiality and objectivity. o Maintenance of the highest level of impartiality and objectivity. Lukhanji Local Municipality- 47 - Supply Chain Management: Demand Management Users Manual The SCM officials and role players: o Must treat all providers or potential providers equally whilst still promoting the BBBEE Act and the PPPFA. o May not use their position for private gain or to improperly benefit another person. o Should ensure that officials are scrupulous in their use of departmental funds and property. The Accounting Officer shall take all reasonable steps to prevent abuse, corruption and collusion through at least regular internal audit reviews, and external audit as well as risk assessments in the supply chain environment. All allegations of corruption, improper conduct or compliance failure shall be reported to the Accounting Officer and investigated by an appropriate individual/organisation appointed by the Accounting Officer. The accounting officer shall take steps against such official or other role player and inform the Provincial Treasury of such steps. The accounting officer Report any conduct that may constitute an offence to the South African Police Services. The accounting officer shall ensure that the Municipality considers all complaints received and shall respond thereto in a timely manner. All bidders and contractors shall be made aware of the ethical standards of the Municipality, its expectations of them and the consequences of noncompliance. The application of these standards by bidders that the Department does business with must be promoted. 7.1.2 DECLARATION OF INTEREST All SCM officials and other role players must recognise and disclose any interest and determine any possible conflict that may arise. SCM officials, to the extent required by their position, should declare any business, commercial and financial interest or activities undertaken for financial gain that may raise a possible conflict of interest. The Accounting Officer shall determine whether the interest declared, constitutes a conflict of interest in circumstances where it is not clear that it presents a conflict. Lukhanji Local Municipality- 48 - Supply Chain Management: Demand Management Users Manual SCM officials or other role players should not place themselves under any financial or other obligation to outside individuals or organisations that might seek to influence them in the performance of their official duties. SCM officials should not take improper advantage of their previous office after leaving their official position. 7.1.3 EQUAL TREATMENT All SCM officials and other role players must treat all suppliers and potential suppliers equally. All municipal SCM officials associated with supply chain management, particularly those dealing directly with service providers/suppliers or potential service providers/suppliers, are required to: o Provide all assistance in the elimination of fraud and corruption. o Be fair, efficient, firm and courteous. o Achieve the highest professional standards in the adjudication of contracts. 7.1.4 ACCOUNTABILITY All SCM officials and other role players must be accountable for their decisions and actions to the public as well as to the Municipality. The Accounting Officer or his/her delegate is fully responsible and should be held accountable for any expenditures relating to SCM within its area of responsibility. Officials should not make any false or misleading entries into the accounting system for any reason whatsoever. 7.1.5 OPENNESS Officials should give reasons for their decisions and actions. 7.1.6 CONFIDENTIALITY Matters of a confidential nature in the possession of supply chain officials should be kept confidential unless legislation, the performance of duty or the Lukhanji Local Municipality- 49 - Supply Chain Management: Demand Management Users Manual provisions of law requires otherwise. Such restrictions should also apply after separation from service. Any information that is the property of the Municipality or its suppliers/service providers should be protected at all times. 7.1.7 INDEPENDENCE All SCM officials and role players may not use their position for private gain or to improperly benefit another person. If a SCM official or other role player’s family member, partner or associate of such official or role player, has any private or business interest in any bid to be submitted or to be adjudicated, such interest must be disclosed and recorded and the party with the interest must withdraw from participating in the evaluation process relating to the bid if there is a conflict of interest. 7.1.8 GIFTS AND HOSPITALITY All SCM officials and other role players must: Ensure that officials do not compromise the credibility or integrity of the Municipality through the acceptance of gifts or hospitality or any other related act. Officials should exercise caution in the acceptance of such gifts. The Municipality shall maintain a gift register in which gifts as well as hospitality received must be recorded in line with the municipal policy. The Municipality shall determine a value level for gifts that officials may accept and which gifts and/or value level may not at all be considered for acceptance. In essence, all gifts or donations exceeding R300.00(Three Hundred Rand should be dislosed. 7.1.9 CONDUCT OF MEMBERS OF BID COMMITTEES POLICY Conduct of all members and non-members must be in accordance with the relevant legislative environment, the National Treasury’s Code of Conduct for SCM practitioners and instructions issued from time to time by the Provincial Treasury in this regard. A member of any Bid Committee, technical advisor or user representative who contravenes or fails to comply with the aforementioned must summarily Lukhanji Local Municipality- 50 - Supply Chain Management: Demand Management Users Manual be dismissed from its role and appropriate steps taken against the person. It is the responsibility of the SCM Unit to ensure that all members of Bid Committees are aware of the required conduct and that they are provided with a copy of the relevant documentation regulating the behaviour. Should a member fail to comply, the SCM Unit must draw in the relevant role players such as HR to deal with the issue and to escalate it appropriately. 7.1.10 FRAUD AND CORRUPTION POLICY The Prevention and Combating of Corrupt Activities Act, Act No 12 of 2004 shall be adhered to. The Municipality is to ensure that all officials, clients and other stakeholders (including providers) are made aware of the implications of The Prevention and Combating of Corrupt Activities Act. Fraud prevention and anti-corruption plans should be instituted. A SCM practitioner or other role player must assist the Accounting Officer in combating corruption and fraud in the SCM system. The Accounting Officer must reject a proposal for adjudication if he/she determines that the supplier/service provider recommended for adjudication, has engaged in corrupt or fraudulent activities in competing for the contract in question. Contractors shall observe the highest standard of ethics during the selection and execution of the contract. In terms of this provision corrupt and fraudulent practices can be defined as follows: Corrupt practice means the offering, giving, receiving or soliciting of any thing of value to influence the action of a public official in the selection process or in contract execution. Fraudulent practise means a misrepresentation of facts in order to influence a selection process or the execution of a contract to the detriment of the Accounting Officer and includes collusive practices designed to establish prices at artificial, non-competitive levels and to deprive the Accounting Officer of the benefits of competition. Contractors must assist in combating corruption in supply chain management in line with the Prevention and Combating of Corrupt Activities Act, by not Lukhanji Local Municipality- 51 - Supply Chain Management: Demand Management Users Manual giving, receiving or soliciting any item of value to influence the action of an official dealing with supply chain management. Contractors and municipal officials must assist in combating procurement fraud through awareness, vigilance and consistent assessment in line with the Prevention and Combating of Corrupt Activities Act by not misrepresenting facts in order to influence a procurement process or the execution of a contract to the detriment of the Municipality including collusive practices. The Constitution provides for rights such as just administration and access to information and requires high standards of ethics within public administration. Recent legislation dealing with transparency and anti-corruption measures strengthen Government’s ability to combat corruption and also protects employees from making disclosures against their employers in both the public and private sectors. All SCM practitioners and other role players must assist the Accounting Officer in combating corruption and fraud. The Accounting Officer must insist that a provision be included in the contract agreement, requiring contractors to permit the Accounting Officer to inspect their accounts and records relating to the performance of the contract and to have them audited by auditors appointed by the Accounting Officer. 7.1.11 COMBATIVE PRACTICES POLICY The use of combative practices shall not be allowed. Combative practices are unethical and illegal and should be avoided at all cost. They include but are not limited to: o Suggestions of fictitious lower quotations. o Reference to non-existent competition. o Exploiting errors in bids. o Soliciting bids from bidders whose names appear on the list of restricted bidders/suppliers/persons. The use of the above practices should be avoided at all costs. Lukhanji Local Municipality- 52 - Supply Chain Management: Demand Management Users Manual 7.1.12 INTERNAL ABUSE OF THE PREFERENTIAL PROCUREMENT SYSTEM POLICY The Accounting Officer shall ensure that the preferential procurement system is not abused for any purpose, neither for the benefit of the Municipality nor for the benefit of any potential provider/contractor or individual. All conducts, dealings and actions are to be bona fide. Any employee suspected of acting contrary to this policy, will be dealt with in terms of the disciplinary code of the Municipality. No official of the Municipality should be involved in or promote the abuse of the preferential procurement system. Internal control mechanisms should have as objective to at least try and avoid abuse of the system internally. 7.1.13 EXTERNAL ABUSE OF THE PREFERENTIAL PROCUREMENT SYSTEM POLICY The LUKHANJI Local Municipality shall vigorously pursue all legal remedies available in the event that the preferential procurement points system is abused, particularly through for example, but not limited to the following ways: That a provider or contractor is suspected of contravening Regulation 13 of the PPPFA. Has promised, offered or given a bribe during the bidding process and/or after conclusion of the contract. Has acted in a fraudulent manner or in bad faith or in any other improper manner during the bidding process or after conclusion of the contract. That an agreement was entered into with the contractor on the strength of information furnished by him, and it became apparent after conclusion of such agreement that the information provided was incorrect. Has supplied a misleading information to the verification agents so as to acquire an upper level. To protect both parties to an agreement, potential providers, contractors and municipal officials must be made aware of the implications of any contraventions. Potential providers shall be informed via the special conditions of contract Lukhanji Local Municipality- 53 - Supply Chain Management: Demand Management Users Manual and the applicable paragraphs in the GCC of implications of contraventions. 7.1.14 FRONTING POLICY The LUKHANJI Local Municipality shall ensure that, where possible, fronting is identified before a contract is awarded. Where, after award of a contract it becomes evident that the award made to the organisation based on incorrect information constituting fronting, the appropriate action is to be taken in accordance with all legal remedies available.LUKHANJI Local Municipality shall ensure that Regulation 13 of the PPPFA is adhered to. Where the LUKHANJI Local Municipality becomes aware of a possible fronting case, the process in accordance with the Constitution, the rules of Administrative Law and the Promotion of Administrative Justice Act, shall be followed as a starting point. Fronting is inseparably linked to equity and therefore largely finds its application in those particular circumstances. Where, after award of a contract it becomes evident that the award made to the organisation based on incorrect information constituting fronting, the appropriate action is to be taken in accordance with all legal remedies available, especially the Prevention and Combating of Corrupt Activities Act, Act No 12 of 2004 and the Promotion of Administrative Justice Act, Act No 3 of 2000. The Municipality shall ensure that Regulation 13 of the PPPFA is adhered to i.e. equity ownership, active management and active control. Where the Municipality becomes aware of a possible fronting case, the following process that is in accordance with the Constitution, the rules of Administrative Law and the Promotion of Administrative Justice Act should be followed as a starting point: The Organ of State must inform the bidder/contractor of the alleged/suspected offence, i.e. o That he is suspected of contravening Regulation 13 of the PPPFA or; o Has promised, offered or given a bribe during the bidding process and/or after conclusion of contract; or Lukhanji Local Municipality- 54 - Supply Chain Management: Demand Management Users Manual o Has acted in a fraudulent manner or in bad faith or in any other improper manner during the bidding process or after conclusion of contract; or o That an agreement was entered into with the contractor on the strength of information furnished by him, and it became apparent after conclusion of such agreement that the information provided was incorrect. o The bidder/contractor must be informed of the recourse sought. o The bidder/contractor must also be afforded an opportunity to state their case. This is the application of the principles of natural justice, with particular reference to the audi alteram partem rule. The organ of state must follow the requirements for procedural fairness as outlined in Section 3 of the Promotion of Administrative Justice Act, 3 of 2000. Briefly it states: o An administrator must give a person adequate notice of the nature and purpose of the proposed administrative action. o A reasonable opportunity to make representations. o A clear statement of the administrative action. o Adequate notice of any right of review or internal appeal, where applicable. o Adequate notice of the right to request reasons in terms of Section 5 of this Act. Lukhanji Local Municipality- 55 - Supply Chain Management: Demand Management Users Manual CONCLUSION: POLICY IMPLEMENTATION This policy has been approved by the Council of LUKHANJI Local Municipality under the Chris Hani District Municipality. This policy supersedes all previous policies in this area, which are hereby repealed. Responsibility for the implementation of this policy rest with Municipal Manager/Accounting Officer or his designated Official. _________________________ DATE: RECOMMENDED / NOT RECOMMENDED COMMENTS: CHIEF FINANCIAL OFFICER DATE: APPROVED / NOT APPROVED DATE: Lukhanji Local Municipality- 56 -
