The last few weeks have unearthed a storm of corruption cases and concerns over the government’s involvement with the private sector. The Department of Education and EduSolutions, the company the won the tender to supply textbooks, have come under fire for the non-delivery of textbooks on a national scale.

The Special Investigating Unit has uncovered an extensive list of irregularities and fraud within municipalities, one of the hotspots of corruption being the rigging of tenders.

The government uses tenders to outsource its services to a private firm in an effort to reduce the management burden on the state, but the danger is that in selecting who will provide the service at what price there is huge room for corruption and kickbacks.

The SACP is at the forefront of a group raising this concern and is asking whether tenders should be used at all.

In a press statement defending its involvement, EduSolutions almost supports this query when it stated that all it was was the management agent that bought on behalf of the government from publishers, and managed distribution and deliveries.

The big question is why such a simple and procedural process needs to be outsourced in the first place?

Not all services can be stripped of their tender process and the SACP needs to be more specific when it calls for all tenders to be scrapped.

Where the government needs to provide services that are once-off in nature and require highly specialised skills (such as the building of a stadium) it would be inappropriate for the government to manage the project and it is better to employ experienced experts to meet its goals.

This also includes services in industries that constantly advance and require high levels of research and development (R&D), such as information technology maintenance, as without the incentive of private sector profits the government is unlikely to keep up the R&D levels needed.

Where services have a constant demand and require low technical skills, such as waste collection, cleaning, textbook delivery, and private security, it makes far more sense for the government to create and train internal units to provide for these needs.

Regarding the corruption concerns, this will limit the scope by which private firms can entice government decisions with underhand incentives. Keeping services inhouse will also make them cheaper to provide.

Private companies contracted to provide state services quote a price intended to cover their expenses and to clear a profit. The taxpayer is therefore not only paying for the services due to them, but also to enrich the private supplier.

The main public concern with the government taking on a larger management burden is that it will not be able to handle the demands and service provision will suffer as a result.

However, as the case of textbook delivery and many others show, tender contracting is no silver bullet either. If the funds and complex administration involved in the tendering process were instead redirected to forming expert service delivery units within the state structure, the effectiveness of service delivery may well benefit as a result.

The other concern is that the government will not have an incentive to be as efficient as private providers.

 

Pierre Heistein is the convener for UCT’s Applied Economics for Smart Decision-Making course.