Unwelcome side effects of the DTI's new B-BBEE codes

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ConsequencesAhead.jpegWhen it became obvious that not all of the sectors with specific scorecards were likely to have gazetted their new amended scorecards by 1 May 2015, the Department of Trade and Industry (dti) issued a notice extending their particular deadline to 30 October 2015.


The unintended side effect of this notice has left black-owned companies falling within these scorecards, at a distinct disadvantage, writes Jenni Lawrence, Managing Director at Grant Thornton Verification Services, in this month’s SmartProcurement.


Since their sector scorecards are still in effect, black-owned companies falling within these scorecards cannot take advantage of the more favourable scoring, which now only applies to >51% black-owned companies measured under the general scorecard.


In effect, a black-owned company who falls under scorecards for tourism, construction, transport, financial services, property, forestry, agriculture, chartered accountancy or ICT, will qualify for a maximum level 3, whilethose under the general scorecard will be entitled to an automatic level 1 or 2, depending on percentage of black ownership, explains Lawrence.
 

As long as the dti is unwilling to issue a notice giving some relief to the affected businesses, black-owned companies who are intended beneficiaries of the higher ratings will bear the brunt of this dual legislation, potentially losing business to those with higher ratings.


Although the dti has indicated that it was not the intention for companies to be rated differently, the blame has been placed squarely on the sector councils themselves, for failing to meet the required deadline.


Meanwhile, another issue causing confusion is the requirement for empowering supplier status, for black-owned Qualifying Small Enterprises (QSEs).


Under the new amended codes, a generic entity (turnover exceeding R50-million) must comply with a minimum of 3 of the 5 criteria, while Exempt Micro Enterprise (EMEs) (turnover under R10-million) and start-up enterprises are given exemption from this requirement.


QSEs are required to comply with only 1 of the criteria.


The new ‘empowering supplier status’ requirement in the amended codes is vital. Failing to meet this requirement effectively deems your BEE certificate null and void, regardless of your score.


However, there is some confusion regarding the requirements for certain QSEs - those companies with a turnover between R10- and R50-million.


Clause 5 of statement 000 in the 2003 codes says nothing about black-owned QSEs requiring empowering supplier status. 5.3.3 indicates they need only obtain an affidavit confirming annual revenue and ownership. Yet, statement 400 clause 3.3 indicates QSEs need empowering supplier status and that EMEs and start-ups are exempt from this.


Could it be that the intention of statement 400, clause 3.3, was that only QSEs with less than 51% black ownership and generics required this status?


It would make sense, in that the amended codes are specifically aimed at decreasing the BEE burden on black-owned companies in order to speed up their potential growth.


A representative within the dti this week confirmed that despite the conflicting clauses in statements 000 and 400, black-owned QSEs do require one empowering supplier status to be verified. The indication is that this will be reinforced in the much awaited verification manual, now rumoured to be due for gazetting no later than August this year.


What this means is that a >51% black-owned QSE needs one of the 5 empowering supplier status’ to be verified and the result of this verification must be confirmed on the face of their BEE certificate or affidavit.


The codes are silent as to who can validate the empowering supplier status, but it would seem logical that those accredited by SANAS or registered by IRBA to issue certificates under these codes would be the responsible parties. This was confirmed in conversation with an official within the dti’s BEE unit, says Lawrence.


Contact Jenni Lawrence of Grant Thornton on Jenni.Lawrence@za.gt.com


For more information on empowering status, please refer to the article available at this link: http://www.gt.co.za/publications/2015/03/bee-in-the-know-edition-1/#link2

 

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