SUNREF Municipal Contracting Seminar By Kumeshnie Naidoo and John - - PowerPoint PPT Presentation

19/09/2017

SUNREF

With the financial participation of

Municipal Contracting Seminar By Kumeshnie Naidoo and John Ferraz

• f

5 September 2017

Towards a greener future

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Overview

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In this presentation we will address the following topics:

• Municipalities
• Powers and Functions of Municipalities
• The supply of goods and services to a Municipality
• The provision of municipal services to a Municipality
• The use of municipal infrastructure by private sector parties
• Municipal PPPs
• Financial undertakings by Municipalities

Municipalities

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Municipalities

❖ A Municipality, when referred to as:

• an entity, is an organ of state within the local sphere of government exercising

legislative and executive authority within its municipal area;

• a geographic area, is a municipal area determined in terms of Local Government:

Municipal DemarcationAct, 1998.

❖ A Municipality is a juristic person and as such it has a separate legal personality. ❖ The executive and legislative authority of a Municipality is vested in its municipal council and the municipality has the right to govern the local government affairs

• f its community.

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Powers and Functions of Municipalities

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The Powers and Functions of Municipalities

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The Constitution

• Section 156(1) of the Constitution
• a municipality has executive and

administrative authority iro matters listed in Parts B of Schedules 4 and 5

• f the Constitution and any other

matter assigned to it by national or provincial legislation

• Part B of Schedules 4 and 5
• includes electricity reticulation,

municipal roads, refuse removal, potable water supply etc. The MSA

• Section 8(1) of the MSA
• a municipality has all of the

functions and powers conferred by

• r assigned to it in terms of the

Constitution

• Section 8(2) of the MSA
• a municipality has the right to do

anything reasonably necessary for,

• r incidental to, the effective

performance of its functions and the exercise of its powers

The Powers and Functions of Municipalities

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❖Electricity reticulation is thus an area of Municipal competence. ❖In the matter of NCP Chlorchem (Pty) Ltd v National Energy Regulator and others (2017) 1 All SA 950 (GJ), the court held that no Act of Parliament gives the municipality the exclusive right to supply electricity to consumers within their area

• f jurisdiction and that “electricity reticulation” means only that a municipality is

entitled to set up its own electricity reticulation network and supply electricity.

Municipal Procurement Legislation

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The

Constitution

Municipal Systems Act The MFMA Municipal SCM Regs PPP Regs SCM Policy PPPFA

Municipal Procurement Legislation

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Municipal Procurement Legislation ❖ The Constitution

• Section 217 of the Constitution provides that 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 and services, it must do so in accordance with a system which is fair, equitable, transparent, competitive and cost effective.

• Municipalities are regarded as organs of state and therefore section 217 of the

Constitution applies to all Municipalities

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Municipal Procurement Legislation ❖ The MFMA

• The MFMA is the primary legislation regulating the financial management of

Municipalities.

• The MFMA was enacted to ensure the sound and sustainable management of the

financial affairs of Municipalities and other institutions in the local sphere of government including supply chain management.

• Section 112 of the MFMA requires a municipality to implement a supply chain

management policy which is “fair, equitable, transparent, competitive and cost effective.”

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Municipal Procurement Legislation ❖ Supply Chain Management Policies

• Section 111 of the MFMA-
• each Municipality must have and implement a supply chain management

policy which gives effect to the provisions of Chapter 11 (Goods and Services).

• The SCM Policy of a municipality must comply with the Municipal SCM Regs.
• The Municipal SCM Regs create the framework for the establishment and

implementation of SCM policies.

• The SCM Policy of a Municipality regulates, inter alia, the range of supply chain

management processes which a Municipality may use (tenders, quotations auctions), when each process must be used, processes and mechanisms, bid documentation requirements etc.

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Municipal Procurement Legislation ❖ PPPFA

The PPPFA provides a framework for the implementation of the preferential procurement policy contemplated in section 217 (2) of the Constitution.

• PPPFA provides the basis for the application of the local content requirements by
• rgans of state in tender procurement processes.

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Municipal Procurement Legislation ❖ PPPFA

• An organ of state, such as a Municipality is required to comply with the PPPFA and

the PPPFA Regs which includes adopting and implementing the preference point system prescribed in s2 of the PPPFA as well as various aspects relating to the evaluation and award of tenders in relation to such preference point system.

• The PPPFA Regs make provision for the Department of Trade and Industry (“DTI”) to

designate certain sectors to promote local production in line with national development and industrial policies.

• Regulation 9(1) of the PPPFA Regs prescribes, that in the case of tenders issued for

goods or services in a designated sector, such tenders must be advertised with the specific bidding condition that only bids that meet a stipulated minimum threshold

• f locally produced goods, services or works or locally manufactured goods will be

considered

The supply of goods and services to a Municipality

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The Supply of goods and services to a Municipality ❖ Goods and Services

Goods

• Electricity
• Solar panels
• Solar water geysers

Services

• Electricity metering services
• Distribution network repairs
• Debt collection services

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The Supply of goods and services to a Municipality ❖ Compliance with the procurement regulatory framework

• Where a Municipality contracts for goods or services in general, it is bound by:
• section 217 of the Constitution;
• the MFMA, chapter 11;
• the PPPFA;
• the Municipal SCM Regs; and
• the relevant Municipality’s SCM Policy.
• Depending on the nature and value of the envisaged procurement, the

Municipality would have to implement the relevant procurement process as per its SCM Policy.

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The Supply of goods and services to a Municipality ❖ Section 33 of the MFMA

In terms of section 33 of the MFMA, where a Municipality enters into a contract that imposes financial obligations on a municipality beyond the three years covered in the annual budget for that financial year, it may only do so if:

• the municipal manager, has before the municipal council meeting:

published the draft contract and an information statement summarising the Municipality's obligations under the contract; invited public comment from the local community and interested parties; and solicited the views and recommendations of National Treasury, the national department for local government and in certain instances the relevant national department e.g DoE in respect of electricity.

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The Supply of goods and services to a Municipality

• The Municipal Council must take into account:

the Municipality’s projected financial

• bligations for each

financial year of the contract; the impact of those

• bligations on future

municipal tariffs and revenue; and the comments and views

• f the community and

interested parties.

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The Supply of goods and services to a Municipality

• The Municipal Council has adopted a resolution in which:

it determines that the Municipality will secure ‘significant capital investment or will derive a significant financial economic or financial benefit’ from the contract; it approves the contract exactly as it is to e executed; and it authorises the municipal manager to sign the contract.

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The Supply of goods and services to a Municipality ❖ Deviation from a procurement process

A Municipality may in very limited circumstances deviate from the official procurement processes set out in the SCM Policy but only:

• in an emergency;
• goods or services produced or available from a single provider only;
• acquisition of special works of art, historical objects and animals for zoos; and
• exceptional cases where it is impossible or impractical to follow a procurement

process.

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The Supply of goods and services to a Municipality ❖ Unsolicited Bids

• In terms of section 113 of the MFMA read with Regulation 37 of the Municipal SCM

Regs, a Municipality is not obliged to consider an unsolicited bid.

• A Municipality may only consider an unsolicited bid if:

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The Supply of goods and services to a Municipality

• If a Municipality considers an unsolicited bid, the Municipality must make its

decision public together with:

reasons why the bid should not be open to tender; the benefits to the Municipality; and invitation to the public service providers to provide comments.

• The Municipality is then required to submit the comments and responses to National

and provisional Treasury for comment.

• The adjudication committee must consider the unsolicited bid and make an

appointment or recommendation.

The provision of municipal services by a third party on behalf of a Municipality

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The provision of Municipal services by a third party on behalf of a Municipality ❖ What is a “municipal service”?

There is no definition of the term “municipal service” in the MFMA or its Regulations. However, the MSA was amended to include the following definition:

• ‘municipal service’ means a service that a municipality in terms of its powers and

functions provides or may provide to or for the benefit of the local community irrespective of whether–

• such a service is provided, or to be provided, by the municipality through an internal

mechanism contemplated in s 76 or by engaging an external mechanism contemplated in s 76; or

• fees, charges or tariffs are levied in respect of such a service or not.

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The provision of Municipal services by a third party on behalf of a Municipality

• As noted earlier the powers and functions of Municipalities stem from section

156(1) of the Constitution read with the Part B of Schedules 4 and 5 of the Constitution.

• Electricity reticulation is regarded as a municipal service therefore if a Municipality

wishes to appoint a service provider to provide a municipal service, such as electricity reticulation on its behalf, then the process set out in Part 2 of Chapter 8

• f the MSA must be complied with.

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The provision of Municipal services by a third party on behalf of a Municipality

❖ The provision of a municipal service through an internal or external mechanism

• In terms of section 76 of the MSA, a Municipality may provide a municipal

service through an internal mechanism or an external mechanism.

• Section 78 of the MSA sets out the criteria and process for deciding on

mechanism for providing municipal services. Firstly, iro an internal mechanism, an initial assessment of financial costs and benefits, the resources and capacity available, the extent to which a re-organisation of its internal resources could be utilised and the likely impact on development, job creation and employment patterns in the municipality.

• Following the assessment above, the municipality may decide on an internal

mechanism or explore the possibility of an external mechanism.

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The provision of Municipal services by a third party on behalf of a Municipality

• If it decides to explore the possibility of providing the municipal service through

an external mechanism, it must (i) give notice to the local community of this intention, (ii) assess the different service delivery options, taking into account costs and benefits, the availability

• f

capacity, the likely impact on development, job creation and employment patterns and also the views of the local community (as well as organised labour) and (iii) conduct a feasibility study.

• At the end of this process, the Municipality must decide on an appropriate

internal or external mechanism.

• If a Municipality elects an external mechanism with a juristic entity that is not a

municipal entity or an organ of state then, the supply chain management principles set out Chapter 11 of the MFMA must be followed.

• In all instances the selection of external service delivery mechanism will entail

the conclusion of a Service Delivery Agreement.

The use of a municipal asset or infrastructure by Private Sector Parties

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The use of a municipal asset or infrastructure by Private Sector Parties

❖ The Municipal Asset Transfer Regulations apply to the transfer and disposal

• f capital assets by Municipalities as well as the granting by municipalities of

rights to use, control or manage capital assets.

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The use of a municipal asset or infrastructure by Private Sector Parties

❖ A capital asset means:

• any immovable asset such as land, property or buildings; or
• any movable asset that can be used continuously or repeatedly for more than one

year in the production or supply of goods or services, for rental to others or for administrative purposes, and from which future economic or social benefit can be derived, such as plant, machinery and equipment.

❖ On a strict interpretation of the definition, it is possible that the electricity reticulation network of the municipality may be regarded as capital asset for purposes of the Asset Transfer Regulations. ❖ If so, where a municipality grants an IPP the right to use the reticulation network for wheeling arrangements, the process set out in the Asset Transfer Regulations may apply.

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The use of a municipal asset or infrastructure by Private Sector Parties

❖ Municipality may only grant a right of use after

A public participation process has been conducted (if the asset exceeds R10m and the right is granted for longer than 3 years); The Municipal Council has approved, in principle, that the right may be granted.

❖ A right of use may only be granted in accordance with the disposal management system of the municipality irrespective of the value of the asset, the period for which the right is granted or whether granted to a private sector party or organ of state.

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The use of a municipal asset or infrastructure by Private Sector Parties

❖The disposal management system will not apply where:

• The Municipality:
• reviews , its service delivery mechanisms in terms of chapter 8 of the MSA;
• selects through a competitive bidding process a private sector party or appoints

an organ of state as the service provider for the performance of that municipal service; and

• grants that service provider the right to use, control or manage that capital asset

as an integral component of the performance of that municipal service.

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The use of a municipal asset or infrastructure by Private Sector Parties

• The Municipality:
• selects through a competitive bidding process a private sector party or organ of

state as the service provider for the performance of a commercial service; and

• grants that service provider the right to use, control or manage that capital asset

as n integral component of the performance of that commercial service.

• The right to use control or manage that capital asset is granted as part of a

reorganisation of powers or functions between a parent municipality and its municipal entity;

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The use of a municipal asset or infrastructure by Private Sector Parties

• The right to use, control or manage that capital asset is granted pursuant to a

contract with another organ of state for:

• goods or services
• provision of a municipal service; or
• procurement under a contract secured by that other organ of state.
• The right to use, control or manage that capital asset is granted to another
• rgan of state in any other circumstance not provided in the points mentioned

above, provided that the capital asset is determined by resolution of the council

• f the municipality to be surplus to the requirements of the municipality or

entity.

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The use of a municipal asset or infrastructure by Private Sector Parties

❖ Regulation 45 sets out the basic terms and conditions to be set out in a contract granting rights of use of municipal assets, including:

• the period of the right granted
• the compensation payable;
• whether the asset is shared, mechanism for sharing;
• the transfer of risk;
• a limitation on cession and on the subcontracting the right.

❖ The agreement must be made available in its entirety to the Municipal Council and may not be withheld from public scrutiny except as provided in the Promotion of Access to Information Act.

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The use of a municipal asset or infrastructure by Private Sector Parties

❖ PPP agreements are not subject to these Regulations as the transfer or disposal

• f assets associated with these initiatives are separately regulated by the MFMA

and PPP Regulations.

Municipal Public-Private Partnerships

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Municipal Public-Private Partnerships

❖ PPPs are regulated under the MFMA and PPP Regulations issued under the MFMA. ❖ A Municipality is obliged to comply with the PPP regulatory regime if a project meets the definition of a PPP. ❖ Although the MFMA does not define a PPP, the Municipal PPP Regulations, which were promulgated under the MFMA, provide a detailed definition of a PPP as follows:

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Municipal Public-Private Partnerships

❖ The term PPP is defined as follows “a commercial transaction between a municipality and a private party in terms of which the private party –

performs a municipal function for or on behalf of a Municipality, or acquires the management or use of municipal property for its own commercial purposes, or both; assumes substantial financial, technical and operational risks; receives a benefit, by way of (i) consideration payable by the Municipality or (ii) charges or fees collected by the private party from users of the service provided to them,

• r (iii) a combination of both.

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Municipal Public-Private Partnerships

❖ A ‘municipal function’ is defined in the Municipal PPP Regs and means a municipal service or any other activity within the legal competence of a Municipality. ❖ In terms of section 120 of the MFMA, a municipality may enter into a PPP agreement provided that it can demonstrate that the agreement will:

• provide value for money to the Municipality;
• will be affordable to the Municipality; and
• will transfer appropriate financial, technical and operational risk to the private

party. ❖ If the PPP involves the provision of a municipal service, Chapter 8 of the Municipal Systems Act must also be complied with.

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Municipal Public-Private Partnerships

❖ Prior to the conclusion of a PPP, the Municipality must conduct a feasibility study which, inter alia, explores the strategic and operational benefits of the PPP for the Municipality in terms of its objectives and the specific terms of the PPP. ❖ On completion of the feasibility study, the accounting officer must:

• provide the feasibility report to the municipal council for a decision in principle on

whether to proceed with the PPP;

• prior to the municipal council meeting, details of the proposed PPP must be made

public including the feasibility report and invite the local community and interested parties must be invited to submit comments;

• solicit the views of National Treasury, the department responsible for local

government, the relevant national department and any other organ of state as may be prescribed.

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Municipal Public-Private Partnerships

❖ Section 120(7) of the MFMA provides that the supply chain management provisions of the MFMA and section 33 of the MFMA apply to PPP agreements. i.e. the private party must be selected in accordance with the municipality’s SCM Policy and section 33 of the MFMA.

Municipal Financial Undertakings

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Municipal Financial Undertakings

❖ Chapter 6 of the MFMA regulates the debt that may be incurred by a municipality. A municipality may incur both short term and long term debt. ❖ Municipal debt must be Rand denominated and not affected by currency fluctuations.

Municipal Financial Undertakings

bridge shortfalls within a financial year during which debt is incurred, in expectation of specific and realistic anticipated income to be received within that financial year or to bridge capital needs within a financial year bridge capital needs within a financial year, to be repaid from specific funds to be received from enforceable allocations or long term debt ❖ Section 45 of the MFMA

• A Municipality may incur short term debt only when it is necessary to:

Municipal Financial Undertakings

capital expenditure on property, plant or equipment to be used for the purpose of achieving the objects

• f local government as set out in

section 152 of the Constitution; or for re-financing existing long-term debt.

❖ Section 46 of the MFMA

• A Municipality may incur long term debt only for the purpose of:

Municipal Financial Undertakings

❖ A Municipality may only incur short-term debt or long-term debt if:

• a resolution of the municipal council, signed by the mayor, has approved the debt

agreement; and

• the accounting officer has signed the agreement or other document which creates
• r acknowledges the debt.

❖ A Municipality may provide security for:

• any of its debt obligations,
• any debt obligations of a municipal entity under its sole control; or
• contractual obligations of the municipality undertaken in connection with capital

expenditure by other persons on property, plant or equipment to be used by the municipality or such other person for the purpose of achieving the objects of local government in terms of section 152 of the Constitution.

Municipal Financial Undertakings

❖ Forms of municipal security:

• lien, pledge, mortgage, cession or otherwise hypothecating an asset or right of the

municipality or other form of collateral;

• payment directly from money or sources that may become available and the lender
• r investor having direct access to such money/sources;
• deposit funds with the lender, investor or third party;
• specific payment mechanisms or procedures to ensure exclusive or dedicated

payment, including revenue intercepts, payments into dedicated accounts or other payment mechanisms or procedures;

• ceding as security any category of revenue or rights to future revenue;

Municipal Financial Undertakings

❖ Municipal guarantees:

• must be within limits specified in the Municipality’s approved budget;
• may be provided for the debt of a municipal entity under the Municipality’s sole

control, but only if the guarantee is authorised by the municipal council in the same manner and subject to the same conditions applicable to Municipalities incurring debt;

Municipal Financial Undertakings

❖ Municipal guarantees:

• a municipality may guarantee debt of a municipal entity under its shared control
• nly with the approval of the National Treasury and only if –
• the Municipality creates, and maintains for the duration of the guarantee, a

cash-backed reserve equal to its total potential financial exposure; or

• the Municipality purchases and maintains in effect for the duration of the

guarantee, a policy of insurance issued by a registered insurer, which covers the full amount of the Municipality’s potential financial exposure.

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