Government departments have seen negative results in supply chain performance over the years, for instance, the defence, correctional services, health, police and others, some of which can be traced to preferential procurement (Selomo & Govender 2016). Since the 2008 and 2009 financial year, South Africa has experienced an upward trend in irregular expenditure which over the 10-year period reached an estimated R390 billion, with irregular expenditure at national and provincial government increasing from R1 billion in 2008 and 2009 financial year to R51 billion in 2017 and 2018 (Makwetu 2019). The 2018 and 2019 findings of the Auditor-General South Africa (AGSA) revealed that irregular expenditure increased from 72% to 81%, and this could be traced to inefficient SCM systems (AGSA Consolidated General Report 2018). In the 2019 and 2020 financial year, out of all the audited entities, only 42% demonstrated good internal controls, while the rest reported poor record-keeping of documents to support transactions, increased irregular expenditure and lack of accountability (Consolidated General report on national and provincial audit outcomes, PFMA 2019-2020). Despite PPPFA being aimed at closing the inequality gap and correcting a system that previously favoured a few minorities of the population, there has been evidence of abuse and manipulation of the system by officials within government departments who seek self-interest (Hlakudi 2015). Additional examples can be found in the recent state capture reports.

Ambe and Maleka (2016) indicated that poor implementation of policies such as the PPPFA were some of the root causes of service delivery problems, leading to poor supply chain performance. According to Agyepong and Nhamo (2015), there is still a gap between the PPPFA and its implementation in the government supply chain, implying the PPPFA is either incorrectly applied or misunderstood altogether.

The study was guided by the following research questions:

A theoretical framework describes a combination of definitions, concepts and existing theories used by researchers to support a particular study. Grant and Osanloo (2014) described a theoretical framework as a blueprint that serves as a guide on which to build or support the study. The theory that justifies the PPPFA is the organisational theory as supported by previous studies of Shai, Molefinyana and Quinot (2016). The organisational theory is believed to explain how the social phenomenon occurs within organisations by focusing on the need to create diverse organisational theories in response to changes within the organisation (Christensen, Lægreid & Rovik 2020).

Procurement refers to the process of acquiring contracts concerning the provision of goods, services or engineering and construction works (Hlakudi 2015). The purchasing of goods and services required by the government and other organs of the state is referred to as public procurement (Mantzaris 2014). Procurement is a critical socio-economic function regarded by the National Treasury as the government’s commitment to the well-being of South Africans in contributing towards the economic growth of the country (Ambe & Maleka 2016).

Previously, public procurement in South Africa was an independent function in the different provinces until the National Treasury intervened to reduce inconsistencies in practices that were followed by the different provinces. This led to the development of the SCM framework, guided by the PFMA – aimed at reinforcing with the focus of creating uniformity in the procurement divisions – through setting regulations and processes that would guide the procurement process (Ambe & Ngcamphalala 2016). The centralised governance system is criticised and referred to as a system inherent of negative effects, which could hinder service delivery (Meyer & Auriacombe 2020). However, the South African Constitution remains the main guideline for what the procurement process entails.

The Act governing all practices of public financial management in South Africa is the PFMA, 1999 (Act No. 01 of 1999), which provides a regulatory framework to guide national and provincial SCM, and all state-owned enterprises, to ensure that all revenue, expenditure, assets and liabilities of those governments are managed efficiently. The Act is based on five constitutional principles as stated in the Constitution of the Republic, which requires an effective procurement system to be ‘fair, equitable, transparent, competitive and cost-effective’ (Hlakudi 2015).

The purpose of the PPPFA is to provide guidance on the implementation of preferential procurement policies (Munzhedzi 2016). This act was the first to be introduced under the custodianship of the National Treasury legislative in response to the statute for a procurement intervention (Shai et al. 2019).

It uses a point system in the awarding of government contracts, awarding points for price and Broad-Based Black Economic Empowerment (BBBEE) (Hlakudi 2015), based on the bidders’ BBBEE status level, as determined by a code of good practice issued in terms of Section 9 (1) of the BBBEE Act 53 of 2003 (Quinot 2018). Although there is guidance on how the PPPFA should be implemented, evident implementation challenges are arising from inconsistencies between the PPPFA and the BBBBE Act (Hlakudi 2015).

Despite the PPPFA providing guidance on the implementation process, organs of the state continue to face challenges in the implementation thereof. Research has revealed obstacles faced by supply chain officials in implementation of the PPPFA (Selomo & Govender 2016) and it was further noted that there were unfair procurement practices in the implementation process where preferential points were not applied, or incorrect preferential point systems and thresholds were applied (Fourie & Mazibuko 2019).

Despite legislation that guides the ethical conduct of the procurement process, corruption remains a major threat in public procurement (Fourie 2015). Another contributing factor hampering effective implementation of the PPPFA is negligence by public servants which results in adverse effects in the supply chain process (Munzhedzi 2016). Hlakudi (2015) indicated that most companies engaging with the government do so fraudulently by claiming preferential points they do not deserve. Furthermore, it has been reported that most government officials within the government departments were not familiar with the preferential procurement targets. Despite the procurement processes having improved with time, there is still a gap with respect to monitoring and evaluation of the policies (Shai et al. 2019).

As mentioned by Adediran and Windapo (2016), the adoption of preferential procurement policies as a tool for contractor development was referred to as targeted procurement. Their study further indicated that the application of targeted procurement practices created larger participation in government contracts by Small and Medium Enterprises (SMEs) improving their chances of being awarded government contracts and promoting previously disadvantaged groups. However, this led to unequal distribution of opportunities through favouring certain groups of the population over others (Van Rensburg, McConnell & Brue 2015). Therefore, this study focused on how these preference criteria impacted on supply chain performance by focusing on the implementation process.

Supply chain performance refers to a monitoring process undertaken by an organisation to determine whether the prescribed processes of a supply chain system have been followed and the desired objectives have been achieved (Mhelembe & Mafini 2019). Supply chain performance has become a critical issue in today’s competitive business environment both in public and private sectors as it is regarded as a key element for the measurement of effective SCM, and this has led to the development of several systems and frameworks as monitoring tools (Balfaqih et al. 2016). Although there are measures in place, the focus is largely on financial measures, neglecting non-financial measures such as the implementation of policies, and quality of service delivery (Rana & Sharma 2019). It is important for government departments to assess their SCM performance to determine the efficiency and effectiveness of their operations (Chandak, Chandak & Delpati 2019).

For government departments to achieve strategic competitiveness over the private sector, it is important for them to implement proper supply chain practices and be able to measure the overall supply chain performance (Chandak et al. 2019). Measuring supply chain performance is crucial in government departments and all other entities as it leads to better SCM and overall performance (Hove-Sibanda & Pooe 2018).

The public sector spends a significant amount of money on payments to suppliers and contractors responsible for the provision of goods and services (Scott 2016). In applying a preferential system as prescribed by PPPFA, suppliers who attain the highest points for BBBEE and price should be considered first in the allocation of contracts. Although this is aimed at providing fairness and balance in the selection of service providers, it increases risks in the supply chain process, including inconsistencies in the application of the PPPFA (Mhelembe & Mafini 2019).

Previous studies have revealed that a gap still exists between policies and implementation in that supply chain officials faced challenges especially in the implementation of the PPPFA (Hlakudi 2015; Munzhedzi 2016). There are concerns of clarity on the SCM regulations, which result in challenges for those assigned with implementation roles. This creates the need for supply chain performance in government departments to be measured as it contributes to a larger portion of government spending. The findings of the study revealed that the challenges in the implementation of the PPPFA had an adverse impact on supply chain performance.

The following hypotheses were formulated for the study:

In collecting data, respondents were required to indicate their level of employment as shown in Table 2.

Figure 1 depicts that an estimated 70% of respondents agreed that PPPFA was applied in their departments, while 14.6% were neutral and 15. 5% disagreed. Table 2 shows that 61.9% of the respondents were in the middle to top levels of management, while 38.1% were either clerks or junior management. This implies that officials at senior levels are more involved in the implementation of the PPPFA.

The questionnaire consisted of 29 questions on issues involved in the implementation of the PPPFA. Exploratory factor analysis was done to group the responses into clusters of highly correlated items. The principal component analysis method was used with a varimax rotation. The item ‘organisation uses the PPPFA in the evaluation of tenders’ was dropped from the analysis because it was loading on two factors, and as such was not included in the data analysis A Kaiser-Meyer-Olkin (KMO) measure of sampling adequacy of 0.854 was obtained, which is greater than 0.5, indicating that the correlations were adequate for factor analysis. The Bartlett’s Test of Sphericity was highly significant as supported by a chi-square value of 2049.741 with a p-value of less than 0.001 (p < 0.001), indicating that the null hypothesis of lack of sufficient correlation between variables was being rejected. The results from both tests were significant, and one could proceed with the analysis. The factor solution was robust because it explained 70.4% of the total variance. The factors were then made up of the constructs of the study, and the reliability of the constructs is presented in the next section. Cronbach’s alpha coefficient was used to examine the unidimensional nature of the instrument and the reliability of the whole instrument was excellent, as supported by a Cronbach’s alpha of 0.904, thus indicating that the instrument was appropriate for further data analysis.

The application of PPPFA was measured using seven questions (i.e., question 1, 2 4, 5, 6, 7 and 8 as per the questionnaire in the annexure) which were related to the respondents’ understanding and ability to apply the PPPFA in the evaluation of tenders. All the responses obtained from the questions had levels of agreement of more than 50% and a mean of at least 3.5, indicating that the respondents agreed that they had knowledge of the PPPFA and that they needed to apply it in the evaluation of tenders; 86.3% agreed that they are familiar with the PPPFA, with a mean of 3.98. In terms of whether the PPPFA is straightforward and easy to understand, 22.7% strongly agreed, and 53.6% agreed, giving an agreement level of 76.3%, as illustrated in Table 3, yielding a mean of 3.77.

Hlakudi (2015) identified some challenges in the implementation of preferential procurement, together with inconsistencies between the PPPFA and the BBBBE Act. From the survey, it was observed that the respondents were familiar with PPPFA implementation, understood how it was to be implemented, and found it straightforward and easy to understand. This, however, contradicts the findings of Selomo and Govender (2016) in the literature review, who found that SCM performance in government departments experienced challenges in the implementation of processes and procedures, as results proved participants faced no challenges in this regard. The results of this survey proved that the respondents were comfortable with the implementation of the PPPFA.

The above figure indicates that almost 70% of the respondents agreed that they had knowledge of the PPPFA and that they needed to apply it in the evaluation of tenders, while 14.6% were neutral and 15.5% disagreed. Because the responses were highly correlated, a composite variable was formed by averaging the seven items. An average mean of 3.74 was obtained, and the standard deviation was 0.96. The mean is close to four, indicating that majority of the respondents agreed that they had knowledge of the PPPFA and that they needed to apply it in the evaluation of tenders.

Majority of the respondents believed that there were no benefits derived from the implementation of the PPPFA, while 53.6% of the respondents disagreed that the PPPFA improves the tendering process, with a mean of 2.78. Another 53.6% of the respondents disagreed that the PPPFA improved the appointment of suppliers, with a mean of 2.71. In responding to whether suppliers awarded the contracts in terms of the highest points always performed to the desired expectations, 52.7% disagreed, while 14.5% were neutral and 32.7% agreed, with a mean of 2.70. The above information is summarised in Table 4.

About 61.9% of the respondents disagreed that suppliers always understood the PPPFA requirements, while 10% neither agreed nor disagreed, 28.2% agreed, and the mean was 2.47; 70% of the respondents disagreed that suppliers always met the requirements of the PPPFA, while 10.9% of the respondents were neutral, with only 19.1% agreed, giving it a mean of 2.20. As shown in Figure 2, the results indicate that most of the respondents do not see PPPFA as a benefit.

The literature reviewed revealed limitations to the supply chain performance which could be traced mainly to poor reporting, failure to comply with PPPFA requirements and progress tracking of contacts. From the results it was noted that 44.6% agreed that the implementation of the PPPFA was the cause of delays and poor supply chain performance; 14.5% of the respondents were neutral in this regard, while 40.9% disagreed on the issue, and the mean was 3.01. When respondents were asked if they always understood how PPPFA should be applied, 46.3% agreed, 5.5% were neutral, while 48.1% disagreed, and the mean was 2.95. In response to whether respondents sometimes failed to comply with the PPPFA, 35.5% of the respondents agreed while 30% neither agreed nor disagreed, and 34.6% disagreed. The proportions indicate that the respondents had mixed reactions in responding to the question as depicted in Figure 3.

Two questions were used to obtain data on subcontracting by focusing on whether respondents understood the subcontracting requirements. From the responses, 64.5% of the respondents agreed that they understood what the subcontracting requirements entailed, while 7.3% were neutral and 28.2% disagreed, with a mean of 3.41; 60.9% of the respondents agreed that the department could always identify the feasibility of subcontracting, while 7.3% were neutral, and 31.9% disagreed, with the mean being 3.33. It could be noted that most of the respondents agreed on understanding the subcontracting requirements, although almost 40% disagreement implies that SCM regulations on subcontracting should be revised to provide clarity on the sub-contracting requirements.

Supply chain performance was also assessed using seven questions (i.e., questions 18, 19, 21, 22, 23, 24, and 25 as per the questionnaire in the annexure). From the responses, 43.6% indicated that most suppliers selected according to the preferential criteria could do the work and deliver on time while 26.4% were neutral, and 30% disagreed, with a 3.11. In responding to the question on whether it was always easy to identify suppliers in the categories prescribed by the PPPFA, 53.6% of the respondents agreed while 4.5% were neutral, and 41.8% disagreed, with a mean of 3.04. In responding to the straightforwardness of the tender process, about 50% of the respondents agreed that the tender processes were straightforward and always done on a timely basis, while 7.3% of the respondents were neutral and 42.8% disagreed to the question, with a mean of 3.

The PPPFA requires that departments conduct a market analysis prior to the advertising of tenders. From the data collected, 53.7% of the respondents disagreed that their departments always conducted a market analysis while 4.5% were neutral and 41.8% agreed, with a mean 2.79, indicating that departments did not always conduct a market analysis, suggesting that tenders could be awarded at non-market-related prices, a price that is not market-related; 34.6% agreed on issues on supply chain performance, 24.6% were neutral and 40.9% disagreed. As depicted in Figure 4, most of the respondents were not entirely satisfied with the supply chain performance in relation to PPPFA.

Management levels were divided into two groups, that is, clerical or junior position and middle to top management. Independent t-test applied to these groups revealed a significant difference between junior levels and middle to top management in the application of the PPPFA, with t (66.482)-4.809, p < 0.001. The mean for junior positions (M = 3.16, SD = 1.01), was significantly lower than that of middle to top management (M = 4.07, SD = 0.77). The 95% confidence interval for the application of the PPPFA ranged from −1.28 to −0.53. The magnitude of the difference in the means was of significant, as evidenced by an eta-squared = 0.18 (η² = 0.18). Both means were close to 3, implying that both groups were neutral on the effect of preferential procurement on supply chain performance.

The univariate analysis of variance results revealed that the effect of levels of management on the application of PPPFA was statistically significant [F(4.100)] = 19.175, p < 0.001). A large effect size, η² = 0.43, was obtained, and an estimated 43% of the variation in the application of PPPFA was attributed to differences between management levels.

Supply chain performance had a statistically significant positive correlation with the application of PPPFA (r = 0.425; p < 0.001), benefits of the PPPFA (r = 0.556; p < 0.001) and sub-contracting (r = 0.537; p < 0.001). The correlations are of medium effect, large effect, and large effect respectively. Application of the PPPFA had a statistically significant positive correlation with benefits of PPPFA (r = 0.310; p < 0.001), failure to comply (r = 0.229; p < 0.05), and sub-contracting (r = 0.464; p < 0.001). The correlations were of a medium effect, low effect, and medium effect respectively. High values in the application of the PPPFA are associated with high values in the benefits of the PPPFA, failure to comply, and sub-contracting.

The regression model was significant (F [5.104] = 17.658, p < 0.001) with an adjusted coefficient of determination, R² = 0.433. Benefits of the PPPFA and sub-contracting were significant at the 5% level, while applications of the PPPFA were significant at a level of 10%, all with a positive effect. At a level of significance of 10%, supply chain performance increased by 0.138 for each increase of one unit in the application of the PPPFA (B₁ = 0.138; p = 0.094). The application of PPPFA contributes to the prediction of supply chain performance at the 10% level of significance.

The study focused on the effect of the implementation of PPPFA on supply chain performance. The findings of the study could be used to inform other government departments on how to effectively implement the PPPFA. The results could also serve as a guide for the National Treasury to review the PPPFA and related SCM regulations such as the State Information Technology Act. Continuous training should be provided to procurement officials to ensure that knowledge is aligned to developments in the PPPFA. For this to be achieved, an ongoing review and evaluation of the implementation of the PPPFA could be conducted through monitoring supply chain performance on a regular basis. Moreover, changes and updates to SCM policies should be communicated timely to ensure that all departments are up to date with any policy changes. The preferential point system could be revisited, and points not only awarded in terms of price and BBBEE but to include other factors which impact directly on performance.

Future studies could focus on other departments outside the Gauteng Province, municipalities, and other state-owned entities, as they conduct their procurement in a manner like that of government departments.