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Zambia: Proposal to subcontract public contracts to citizen-owned companies

1 December 2020
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The Zambian Government (Government) has proposed to entrench the Subcontracting Policy of 2015 (Policy) into the country’s procurement laws.

This is a part of wider reforms to the procurement laws as specified by the Public Procurement Bill of 2020 (Bill) tabled before Parliament, and currently at third reading stage.

Under the Bill, foreign bidders will be required to subcontract a percentage of the total value of all procurement of goods, works and services exceeding the prescribed thresholds, to citizen bidders and suppliers.

The exact percentage to be subcontracted is expected to be prescribed by the Minister responsible for Finance in consultation with the Zambia Public Procurement Authority.

The Bill also proposes to extend the requirement for a defined subcontracting percentage to all sectors. (The existing Policy is limited to the construction sector.)

The procurement law reforms are a culmination of various policy statements and strategies Government has previously issued and undertaken to empower local companies. These have included deliberate policies to ensure local companies create jobs for Zambian citizens and enhance local contracting capacity, and upgrade Zambian citizen-owned companies and firms, which previously have not had the desired outcome.

For instance, Government through the Road Development Agency (a statutory body that provides for the care, maintenance and construction of public roads in Zambia), adopted a sub-contracting policy that requires that 20% of the value of contracts awarded to foreign contractors be subcontracted to Zambian citizen-owned companies.

A citizen-owned company refers to a company where at least 50.1% of its equity is owned by citizens and in which citizens have significant control of the management.

This Policy is only applicable to civil and road works exceeding ZMW 30 million (approximately USD 1.5 million). Contracts below this threshold have been reserved for Zambian citizen-owned or influenced companies in line with the Citizen Economic Empowerment (Preferential Procurement) Regulations of 2011.

Further, despite the Policy being in place since 2012, and notwithstanding the 2015 revision, no formal laws have been enacted to spur its implementation. Therefore, its enforceability has been challenged and, for the most part, contraventions treated as contractual breaches.

In the few instances where there has been adherence, it has been largely by foreign contractors out of goodwill and/or dedicated public officials monitoring contractors to ensure adherence. Even then, some contractors reduce the sub-contracting rates or simply give non-technical and non-profitable parts of projects to sub-contractors.

We anticipate that the Bill, which goes further to provide for methods of sub-contracting and implementation, will provide clarity on the operation and implementation of the Policy in Zambia in a manner similar to black economic empowerment policies in South Africa. It will also empower citizen-owned companies.