| (1) | When a municipality has in terms of section 77 to decide on a mechanism to provide a municipal service in the municipality or a part of the municipality, or to review any existing mechanism— |
| (a) | it must first assess— |
| (i) | the direct and indirect costs and benefits associated with the project if the service is provided by the municipality through an internal mechanism, including the expected effect on the environment and on human health well-being and safety; |
| (ii) | the municipality's capacity and potential future capacity to furnish the skills, expertise and resources necessary for the provision of the service through an internal mechanism mentioned in section 76(a); |
| (iii) | the extent to which the re-organisation of its administration and the development of the human resource capacity within that administration as provided for in sections 51 and 68, respectively, could be utilised to provide a service through an internal mechanism mentioned in section 76(a); |
| (iv) | the likely impact on development, job creation and employment patterns in the municipality, and |
| (v) | the views of organised labour; and |
| (b) | it may take into account any developing trends in the sustainable provision of municipal services generally. |
| (2) | After having applied subsection (1), a municipality may— |
| (a) | decide on an appropriate internal mechanism to provide the service; or |
| (b) | before it takes a decision on an appropriate mechanism, explore the possibility of providing the service through an external mechanism mentioned in section 76(b). |
| (3) | If a municipality decides in terms of subsection (2)(b) to explore the possibility of providing the municipal service through an external mechanism it must— |
| (a) | give notice to the local community of its intention to explore the provision of the municipal service through an external mechanism; |
| (b) | assess the different service delivery options in terms of section 76(b), taking into account— |
| (i) | the direct and indirect costs and benefits associated with the project, including the expected effect of any service delivery mechanism on the environment and on human health, well-being and safety; |
| (ii) | the capacity and potential future capacity of prospective service providers to furnish the skills, expertise and resources necessary for the provision of the service; |
| (iii) | the views of the local community; |
| (iv) | the likely impact on development, job creation and employment patterns in the municipality, and |
| (v) | the views of organised labour; and |
| (c) | conduct or commission a feasibility study which must be taken into account and which must include— |
| (i) | a clear identification of the municipal service for which the municipality intends to consider an external mechanism; |
| (ii) | an indication of the number of years for which the provision of the municipal service through an external mechanism might be considered; |
| (iii) | the projected outputs which the provision of the municipal service through an external mechanism might be expected to produce; |
| (iv) | an assessment as to the extent to which the provision of the municipal service through an external mechanism will— |
| (aa) | provide value for money; |
| (bb) | address the needs of the poor; |
| (cc) | be affordable for the municipality and residents; and |
| (dd) | transfer appropriate technical, operational and financial risk; |
| (v) | the projected impact on the municipality's staff, assets and liabilities; |
| (vii) | the projected impact on the municipality's budgets for the period for which an external mechanism might be used, including impacts on revenue, expenditure, borrowing, debt and tariffs; and |
| (viii) | any other matter that may be prescribed. |
[Section 78(3) substituted by section 11(a) of Act No. 44 of 2003]
| (4) | After having applied subsection (3), a municipality must decide on an appropriate internal or external mechanism, taking into account the requirements of section 73(2) in achieving the best outcome. |
| (5) | When applying this section a municipality must comply with— |
| (a) | any applicable legislation relating to the appointment of a service provider other than the municipality; and |
| (b) | any additional requirements that may be prescribed by regulation. |
| (6) | The national government or relevant provincial government may, in accordance with an agreement, assist municipalities in carrying out a feasibility study referred to in subsection (3)(c), or in preparing service delivery agreements. |
[Section 78(6) inserted by section 11(b) of Act No. 44 of 2003]
