SANRAL acting against irregular expenditure

Issued by SANRAL
Johannesburg, Nov 30, 2016

The South African National Roads Agency (SANRAL) appeared before the Standing Committee on Public Accounts (Scopa) for the second time in its history to clarify R1.165 billion in "irregular, fruitless and wasteful" expenditure.

"We are committed to good governance and stringent financial controls. The committee pointed out some shortcomings and we acknowledge that we need to improve our internal processes. We will do so, and have already instituted disciplinary action against several officials for failing to adhere to our processes," said acting CEO Koos Smit.

This year, SANRAL received its 13th unqualified audit from the Auditor General (AG).

At the heart of the matter is SANRAL's routine road maintenance (RRM) contracts, which are in place on 100% of its network.

These contracts are a great incubator of small, medium and micro enterprises (SMMEs) and in line with SANRAL's policy of ensuring that a significant amount of work is awarded to SMMEs. RRM contracts are awarded for three years and renewable for two years, subject to satisfactory performance.

The finding of irregularity was made because neither the Preferential Procurement Policy Framework Act (PPPFA) nor its regulations define the lowest acceptable price, and SANRAL had in the past used a method to determine a viable lowest acceptable price.

"As a result, SANRAL developed and introduced a statistical method to establish the lowest acceptable price for each RRM contract. This method is independently calculated by the University of Pretoria for every contract and allows for the appointment of a contractor with the most realistic rates at which SMMEs can do work and be financially viable," explained Smit.

This method was in use for over 11 years with the AG's knowledge of the rationale. During this time, there were no findings from the AG or complaints from contractors.

However, in 2013, the AG declared the method non-compliant with the PPPFA.

"We respect the comments made by Scopa members. We have been rectifying the irregularity in a phased approach as we had contracts in place that we left to run their course in order not to incur cancellation claims. The last contracts will expire in 2017. New contracts have since been awarded to the lowest price and in line with PPPFA," said Smit.

Many black-owned SMMEs in the construction and maintenance sectors have received their first experience working on SANRAL projects. The training and empowerment programmes that accompany these work packages enable them to become eligible for larger and more complex contracts in the future.

In 2015/16, SANRAL awarded 210 contracts worth R14.8 billion for new works, rehabilitation and maintenance projects. SMMEs earned a total of R3.5 billion, of which R1.9 billion went to more than 1 000 black-owned enterprises.

SANRAL's projects created the equivalent of 15 721 full-time jobs.

"These numbers are important to us, as every job means that a family is being fed. We will continue to make every effort to grow the economy and play our part in the socioeconomic upliftment of the people of our country, while acting in accordance with the law."