Tender loophole opens doors for crooked auctioneers

Government’s price-weighted tender requirements for the disposal of assets is having the unintended effect of attracting unscrupulous auctioneers who tender low and add additional costs to both the seller and buyer’s bills after the event.

This practice is a major concern of industry’s regulator, the South African Institute of Auctioneers (SAIA), which has offered to work with Government to develop more conducive tender adjudication processes to participate in these auctions. While some departments have begun insisting on membership of the institute as a starting point, the body feels that more should be done to curb the practice,

SAIA chairperson, John Cowing, explains that hosting a successful auction requires a lot of preparation and hard work. It also requires meticulous fiduciary management and administration to ensure monies are accounted for and that the buyer and seller’s interests are accurately represented.

Auctioning challenges

While the auction process may seem straightforward, there are also strict regulations that govern the practice and need to be adhered to at all times from health and safety, to cyber security, as well as VAT legislation, the consumer protection act and any additional protection of the buyer and seller as required by law.

“In some instances we have seen these crooked auctioneers win tenders with 1% or 2% commission bids. In terms of the Public Finance Management Act’s recommended price-weighted tender requirement these auctioneers win the tender and then add all manner of charges in terms of valuation and administration fees accrued to the seller and handling fees among others that are charged to the buyers over and above the agreed purchase price. Considering the above requirements, as well as advertising and marketing of upcoming auctions, it is plain to see that such low fees cannot cover the auctioneer’s costs and should be viewed with scepticism.

“Another problem is that different asset classes may have different charges and requirements which means that you cannot always apply a one-size-fits-all policy to decide tenders. To describe every charge possible is simply impractical and for this reason SAIA recommends a watertight document be designed and approved by Government what charges are allowed and laid out upfront and allow the tender adjudicator to tally up costs of all tenderers before making final decisions. We also recommend that the credentials should include proof of experience in the required auctioneering field, professional auctioneer training and accreditation with SAIA, as well as other representative bodies involved in the disposal of distinct types of assets such as properties, vehicles, moveable and immovable assets,” says John.

He proposes a closer working relationship between SAIA, National Treasury Department and the South African Local Government Association (SALGA) in order to close any loopholes that are potentially damaging to both the seller and buyer. In the meantime the institute is eager to work with individual Government departments, state owned enterprises and municipalities to advise on tightening of tender requirements.