BBBEE Compliance vs Government Procurement Practices - a Contradiction in terms?

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"No government department has ever asked for a Broad Based BEE certificate, and it may be some time before they do" Wade van Rooyen of Iquad Verification Services tells SmartProcurement. . The answer to the question of why government has not asked for certificates is based on conflicting legislation which may have a serious impact on your business.

The Broad Based Black Economic Empowerment Act 53 of 2003 has as its primary objective the "increase of broad-based and effective participation of black people in the economy" (Preamble, page 2, BBBEE Act 53 of 2003).

In order to promote the purposes of the Act the Minister of Trade and Industry may issue codes of good practice that include, among other things, "qualification criteria for preferential purposes for procurement and other economic activities" (Section 9(1), page 8, BBBEE Act 53 of 2003).

"Every organ of state and public entity must take into account, and as far as reasonably possible, apply any relevant code of good practice issued in terms of the Act in ... developing and implementing a preferential procurement policy" (Section 10, page 8, BBBEE Act 53 of 2003).

At present though, all organs of state are also bound by the Preferential Procurement Policy Framework Act (no 5) of 2000 (PPPFA), which contradicts the Black Economic Empowerment Act by requiring that government departments award contracts to the tenderer who scores the highest number of points in a pre-defined system.  The points are allocated firstly to price in a 80/20 or 90/10 ratio (depending on the size of the tender) and secondly to the achievement of specific goals relating to "persons or categories of persons" who were "historically disadvantaged by unfair discrimination on the basis of race, gender, or disability" (Section 2 (d)(i), PPPFA 5 of 2000).

The result of this contradiction is a situation where government departments are required to measure themselves and their tenderers on the BBBEE scorecard, and required to implement the criteria of the PPPFA.

For the moment they are all sticking to the PPPFA which seems to have larger teeth. A change to the PPPFA is imminent, but the DTI and National Treasury responsible for submitting the changes to cabinet for approval are non-committal on the issue and seem to have other priorities.

Successful implementation of government's Broad Based BEE strategy is dependent on government departments purchasing only from companies who choose to comply with the provisions of the codes of good practice. It is therefore certain that government will have to change the PPPFA to avoid a complete failure of the strategy.   

Companies should therefore be anticipating these changes and ensuring that they are ready to provide indicators of their Broad Based status when called upon to do so.

A Broad Based score requires the achievement of pre-defined targets in seven areas that are simplistically summarised as follows:

Element

Simplistic summary

Ownership

Who owns the business?

Management Control

Who controls the business?

Employment Equity

Who works in the business?

Skills Development

Who is trained by the business?

Preferential Procurement

Who the business purchases from?

Enterprise Development

What are the business's efforts to develop enterprises external to itself?

Residual Contributions

Contributions made by the business for social causes?


The results to each of these questions are viewed as a proportion of 'black' investment to 'non-black' investment and result in a compliance level.

The key variation between the PPPFA and the Codes of Good Practice is that the Broad Based approach, favoured by the Codes, encourages business behaviours that result in the whole development of black persons, not merely a transfer of ownership of assets that benefits selected black persons. These behaviours will, in turn, facilitate skills development, reduce future unemployment associated with skills shortages, create additional demand for products from small- and micro-entities, and create employment through the growth of small- and micro-entities.

The current trend by companies affected by BEE is to look for reasons to delay its measurement and implementation in their business units. If your company falls into this category then this article has given you justification for doing so. However, companies that are lulled into indifference by those who advocate the postponement of any form of action until government get their act together face great risks.   

Complacent companies will inevitably face a day of reckoning in the future, when they are required to provide evidence of compliance. Companies that have not initiated a prior process to establish their status and the status of companies within their supply chain will at that point be at a significant disadvantage to those who have.

Wade van Rooyen - Iquad Verification Services (Pty) Ltd
Mobile: 082 850 9311
E-mail: wadevr@iquad.co.za

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