Frank discussion needed about 30% local procurement rule – Macpherson

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The country must have a frank discussion about the 30% local procurement rule, which has been abused by the so-called construction mafia, says Public Works and Infrastructure Minister Dean Macpherson.

Macpherson spoke at the National Construction Summit on Crime-Free Construction Sites, held in Durban on Tuesday.

"We remain fully committed to the empowerment of local communities," he noted.

"But, it is clear that the 30% local procurement rule, which was introduced by the National Treasury under former President Jacob Zuma, has been used by criminal syndicates to extort contractors.

"We need to have an honest conversation about whether the…rule achieves its intended outcomes, or whether other interventions can be used to meaningfully empower our people.

"To end the influence of these criminal syndicates at infrastructure projects, it will require that we remove the incentives for these criminal syndicates to operate at construction sites," added Macpherson.

"Once we open the door to negotiations, and once we give in to paying what is, essentially, a bribe, it means that these criminal syndicates are incentivised to repeat their actions elsewhere."

The 30% local procurement rule stipulates that 30% of spending on public infrastructure and procurement worth more that R30-million should go to subcontractors based in local communities.

However, criminals are using the 30% rule to demand that 30% of project costs are paid to them directly.

"Or, they demand that only their people or contractors be hired for construction to continue. In many cases, these criminal syndicates demand the 30% payment without ever doing any work," said Macpherson.

"They demand their 30% share, even if the construction project isn't valued over R30-million. And now, they are demanding a 30% share from the private sector as well - even though the National Treasury rule has never applied to their projects.

"In the end, it is legitimate, hardworking black businesses in the built environment that have suffered the most, when they were supposed to benefit the most."

Deputy Minister of Finance Ashor Sarupen said in his address that no challenge in the construction industry was more urgent than the persistent site disruptions by criminal syndicates and protesting communities.

He said the construction mafia had disrupted more than 180 projects worth R63-billion since 2019, using tactics such as extortion, intimidation, violence and sabotage.

"Their demands for up to 30% of contract value undermine the integrity of our procurement systems and delay critical infrastructure delivery.

"Let us be clear: these disruptions are not merely operational challenges," said Sarupen.

"They represent a critical stress test for our economic governance. They expose the vulnerabilities in our institutional frameworks."

To address the challenge, government had started to reform the public procurement process, explained Sarupen.

"The Public Procurement Act, signed into law earlier this year, lays the foundation for a more transparent, efficient and inclusive procurement system."

Under the new regulations, subcontracting will be allowed only where feasible, and the process is expected to follow due process to prevent abuse.

Government entities will also have the option to pay subcontractors directly, eliminating the delays and exploitation often experienced under the current system.

"These reforms are designed to empower small and emerging contractors, while safeguarding the integrity of our procurement processes," said Sarupen.