BBBEE: Generic Codes vs Sector Codes of good practice

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Chris Van Wyk.jpgThe recent gazetting of the Toursim, Construction and Forestry Codes in terms of section 9(1) of the Broad-Based Black Economic Empowerment (B-BBEE) Act, 53 of 2003, has already lead to some concerns as to the application of these codes and their status vis a vis the generic Codes of Good Practice on Broad-Based Black Economic Empowerment (“the Codes”) contained in Codes 000 to 800.

Although the Codes determine that a sector code has equal status to the Generic Codes it is clear from notices, in terms of which these sector Codes were gazetted, that the sector Code is binding on all stakeholders in that specific sector (see the paragraph on the first page of the notices that immediately precedes the Minister’s signature). One would assume that these stakeholders include the entities listed in Clause 7 of the Tourism Code (Scope of Application) and, in the case of Construction Code, those entities who derive more than 50% of their turnover from construction related activities.

In applying this provision it would appear that where a measured enterprise falls within these sectors it is obliged to tender its BEE certificate in terms of the particular sector code from the date of publishing of the notice going forward even if the organisation has already obtained a valid certificate in terms of the Generic Codes. Apart from the cost implication this could have, it could place a considerable administrative burden on a measured enterprise to undergo a further verification in terms of the new sector code. An even bigger problem is that some of the sector codes contain different thresholds compared with the Generic Code for determining the classification of an enterprise as an exempt micro enterprise (EME), qualifying small enterprise (QSE) or large enterprise.

“Although we believe this distinction to be unlawful, a court of law will have to make a ruling in this regard”, Chris van Wyk, Technical director of the Association of BEE Verification Agencies (ABVA), tells SmartProcurement.

However, in the mean time it would be possible that an entity is, for example, an EME in terms of the Generic Codes and a QSE in terms of the construction code. This has far reaching implications for that particular entity.

Although it is alleged that the Tourism sector council contemplated a transitional period to allow for the phasing-in of the new sector code, no mention of this is made in the sector code itself and it can therefore not offer any relief in this regard, says Van Wyk.

The Construction Code on the other hand makes provision for a transitional period, however, this period is akin to the transitional period provided for in the Generic Codes and is therefore merely a mechanism for measuring your construction code score with reference to ownership and management elements alone as opposed to the entire scorecard. As such the phasing-in period does not facilitate the phasing out of the use of the generic scorecard and does not offer relief either, notes Van Wyk.

Upon closer examination of the relevant provisions of the Codes and the notices in terms of which the sector codes have been gazetted, one has to consider that the issuing of a sector code must be done in terms of section 9 of the Act, read together with Statement 003 of Code 000, he advises.

“It is therefore important to note that a sector code can only be valid if it adheres to the provisions contained in the generic codes, which prescribe how sector codes should be established and aligned with the Generic Codes. Therefore, where a sector code contradicts or goes above what the Act or the Codes allow it to do it is regarded as ‘ultra vires’ or ‘outside the law’. In this regard one should consider that paragraph 4.3 of Statement 003 of Code 000 says that a sector code enjoys equal status to the Generic Code.

“It would, therefore, appear that any provision in a sector code or the notice in terms of which it is issued will be ‘outside the law’ if it purports to award a higher status to the sector code than the generic code. The indication in notices of these sector codes that these codes are now binding on all stakeholders in those sectors, implying that all entities within those sectors now have to have themselves rated in terms thereof, is outside the law,” points out Van Wyk.

“To interpret from this provision that a measured enterprise in such a sector would have to apply the sector code in evaluating all its suppliers is also problematic.

“In other words, presentations made by an organisation of its BEE status in terms of the Generic Codes should not be construed as a misrepresentation on the grounds that it is not in terms of the sector code applicable to the organisation. Further to this, a measured enterprise (irrespective of what sector it belongs to), that has been furnished with a certificate in terms of the Generic Codes by a supplier from, for example the construction sector, would be entitled to calculated its procurement spend from said supplier by reference to the generic certificate – seeing that it carries the same status as the construction code certificate,” explains Van Wyk.

“However, where a private or state tender board requires that an organisation within the tourism charter present it with a B-BBEE status in terms of the tourism Codes, it will need to comply and have itself re-rated, as it is a specific requirement of the tender. A tender board’s right to compare apples with apples will prevail, especially in the light that engagement with the tender board would be voluntary. Also, by virtue of the application of section 10 of the Act, if the tender board is state controlled, it would, in ABVA’s view, be under an obligation to require compliance with the sector code where the tender relates to a sector specific initiative.

“The phasing-in of the sector verification certificates will remain problematic for the first year as it could have a potential cost and administrative implication for organisations that have already undergone a generic verification in the current year. Those that have not yet been verified for the current year will be well advised to obtain a verification in terms of both the Generic Codes and the sector codes, especially where they would fall into different size classifications (EME, QSE or Large) if the sector code is applied. Both verifications could be performed as part of the same verification engagement and, therefore, would not materially increase cost,” concludes Van Wyk.

Chris van Wyk can be contacted on 021 949 4612 or at chris@aqrate.co.za.

Van Wyk is also the CEO of AQRate Verification Services. AQRate is the new trading name for NERA Western Cape and NERA KZN, which have been rebranded as AQRate and AQRate KZN respectively.

The re-branding follows an unbundling of shareholding at the NERA SA level, which sees these two accredited entities changing name.

“The rebranding has no effect on the organisation’s accreditation. And as a result of this rebranding, AQRate is now the only nationally accredited verification brand,” says Van Wyk.

In addition to the two accredited agencies in the group, the organisation has announced that it will be opening a Pretoria office in July this year, to be known as AQRate Gauteng, which is currently undergoing accreditation. The Limpopo office has also been rebranded as AQRate Limpopo.

“In all material respects it will be business as usual, with our continued focus on ensuring independent, credible assurance. However, we are rolling out a new division in the group which will be conducting sustainability assurance services in line with the ‘King III report’ and will soon introduce these services under the name AQRate Sustainability Assurance Services,” concluded Van Wyk.
 

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