Has the DTI gone too far on Preferential Procurement?

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SethRandall.jpgThe proposed changes to the B-BBEE codes of good practice have left the procurement fraternity hanging in the balance, says Seth Randall, Executive at Mpowered Business Solutions, in this months's SmartProcurement.

The Department of Trade and Industry’s (DTI) proposed revisions to the B-BBEE codes of good practice were released in October 2012. To the almost universal consternation of BEE practitioners and business people, the revisions marked a substantial overhaul of the original codes gazetted in 2007.

Conservative estimates project that companies without black ownership will drop at least four status levels, with the realignment of levels, and the mandated sub-minimum targets for three priority elements in the scorecard, says Randall.

“One of the more puzzling changes to the codes is the complete preclusion of non-value-adding suppliers from the Preferential Procurement calculation.”

Value-adding status is determined by a calculation summing the Total Labour Cost of an enterprise with its Net Profit Before Tax. If the resultant figure is greater than a quarter of the enterprise’s turnover, it is regarded as ‘value-adding’, and will be classified as such on its verified B-BBEE certificate.

Previously, having a non-value-adding status meant that an organisation was not eligible for the multiplier of 1.25 that is afforded to value-adding organisations. However, under the proposed changes the same organisation would be entirely excluded from the calculation, meaning that its clients would be unable to claim any spend on that supplier as part of their own ‘BEE procurement.’

“With certain industries precluded from value-adding status by the very nature and structure of their businesses, as much as 50% of the economy will no longer contribute to procurement scorecards at all,” notes Randall.

In this way, he continues, the DTI’s attempt to drive local content and entrench substantive transformation may ironically trigger the demise of the entire system, as companies whose scorecards are no longer allowed for procurement, lose the incentive to verify their compliance in the first place.

“Whether the extensive public comment on this and other matters is heeded by the DTI or not, one thing remains certain: companies who are serious about B-BBEE are going to have to work a lot harder to retain the same status level going forward.”

Without a strategic, managed approach to compliance, organisations attempting meaningful transformation will find themselves increasingly in the dark in a rapidly changing B-BBEE landscape.

This is why organisations of all sizes are turning to reliable tools designed for the proactive management of the B-BBEE process.

For over five years, Mpowered Business Solutions has provided a suite of BEE IT Systems. With its ‘Beetoolkit’, ‘Supplier Management System’, and ‘B-BBEE Scorecard Database,’ companies are able to calculate an accurate B-BBEE scorecard monthly, performing pertinent analysis that enables timely improvement before verification.

For more information, contact Mpowered on seth@mpowered.co.za 

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