Lehmann Brothers
South Africa
"It's all about the money"
BBBEE for Beginners
Notice :
This information is Copyright by Advocate Marika van der Walt (
marikav @ law.co.za) and republished with her kind permission.
For BBBEE seminars or dispute resolution please contact her directly
referencing Lehmann Brothers. (http://www.dispute.co.za)
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What does BBBEE mean?
BBBEE stands for Broad Based Black Economic Empowerment.
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Does BBBEE mean that you have to be black in order to be
awarded a contract?
No, it does not. It means that you are given a head start if you score well on a generic scorecard. You can score even if the business does not belong to black people at all.
BBBEE is an improvement on narrow based black economic empowerment where you had to be black to qualify for preference points.
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What are preference points?
A system is followed in terms of which one's tender has to score a mark out of 80 for price and one out of 20 for preference where the tender is below a certain amount. (Currently R500 000.)
Where the tender is above the threshold amount, you need to score a mark out of 90 for price and a mark out of 10 for preference.
Although the preferential procurement regulations still have to be amended, it seems as if the score out of 20 or 10 will be calculated by converting the score on the generic scorecard to a score out of 20 or 10.
This type of system is called preferential procurement.
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What is the generic scorecard?
The generic scorecard looks as follows
|
Element
|
Weighting
|
Primary Codes Reference
|
| Ownership |
20 points
|
Code 100
|
| Management Control |
10 points
|
Code 200
|
|
Employment equity (Employing black people in you company according to targets) |
10 points
|
Code 300
|
| Skills development |
20 points
|
Code 400
|
| Preferential procurement |
20 points
|
Code 500
|
| Enterprise development |
10 points
|
Code 600
|
| Residual |
10 points
|
Code 700
|
If you need to know more about how points are scored in every
category, you can click on the element. (Adobe
Reader needed for PDF) Only the first two codes have been issued
in final form, the rest are still in draft from.
Qualifying small enterprises may elect the 5 elements it will score
best on and work out a score consisting only of those elements.
In the current discussion we are dealing with enterprises which are neither Qualifying Small Enterprises nor Exempted Micro Enterprises.
According to the draft Code 500, dealing with preferential procurement, BEE Procurement Recognition Level means the percentage BEE Procurement Recognition Levels as determined by reference to the mechanism for determining that level set out in Code 000 Statement 000.
In
the case of Exempted Micro Enterprises, there will be a deemed BEE
Procurement Recognition of 100% and BEE Status of Level 4
Contributor as contemplated in the draft Code 1000 Statement 1000.
We will in due course refer you to the mechanism for determining the
levels for Qualifying Small Enterprises, as set out in Code 1000
Statement 1000.
In the
case of companies to which code 1000 do not apply, you first need to
work out your score on the generic scorecard above. You then use
your score to determine your BEE status and the BEE procurement
recognition level you'll be on.
Just remember that the BEE Status of an enterprise, must be raised
to the next highest BEE Status level to the one at which it is
evaluated, when:
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black people hold more than 50% of the exercisable voting rights and more than 50% of the economic interest in that enterprise; and
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that enterprise has achieved the full seven points under the net equity interest component of the ownership scorecard.
BEE status Qualification
(Points on Generic Scorecard)BEE procurement recognition level Level 1 Contributor > 100 points
-Level 2
Contributor> 85 but < 100 points
-Level 3 Contributor > 75 but < 85 points
-Level 4 Contributor > 65 but < 75 points
-Level 5 Contributor >55 but < 65 points
-Level 6 Contributor > 45 but < 55 points
-Level 7Contributor > 40 but <45 points
-Level 8 Contributor > 30 but < 40 points
-Non-compliant Contributor < 30 points
6. What is the function of a BEE procurement recognition level?
[The example discussed below was used by the DTI on p 9 of Chapter 1 of a document entitled THE CODES OF GOOD PRACTICE ON BROAD BASED BLACK ECONOMIC EMPOWERMENT – PHASE ONE A Guide to Interpreting the First Phase of the Codes.] ( Available from the DTI here )The procurement officer of a public sector entity is considering a tender. Assuming that pricing, quality and other factors are similar across the three potential suppliers, the final decision will be based on BEE credentials.
The BEE scorecards of three competing enterprises are as follows: •
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Company X: with a verified BEE status in terms of the Generic Scorecard, as contained in Statement 000, of 55%
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Company Y: with a verified BEE status in terms of the Generic Scorecard, as contained in Statement 000, of 78%
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Company Z: a black majority owned enterprise, with a verified BEE status in terms of the Generic Scorecard, as contained in Statement 000, is 55%
Assuming the Procurement Officer awarding this tender is working towards the achievement of a set preferential procurement target, s/he will have to identify the BEE recognition levels of the three suppliers when making this economic decision.
BEE Procurement Recognition: -
Company X As a Level Five Contributor, if the procurement officer selects company X, s/he will recognise only 80c for every R1 spent with Company X. In other words, if the officer spends R10 million with Company X in the year under measurement, his/her department will recognise R8 million of that spend when reporting on preferential procurement.
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Company Y In comparison, Company Y is a Level Three Contributor. Statement 000 provides for enhanced BEE procurement recognition levels when procuring from enterprises that are Level One, Two or Three Contributors, as per the Generic Scorecard.
This means that Company Y will enjoy enhanced procurement recognition: i.e.: for every R1 spent with Company Y by its clients, the procurer may recognise R1.10. In other words, if the officer spends R10 million with Company Y in the year under measurement, his/her department will recognise R11 million when reporting on preferential procurement.
Enhanced BEE Procurement Recognition Levels:
Company Z In addition, an inherent bonus system has been provided for in Statement 000 for procurement from enterprises which are more than 50% black-owned (or majority black-owned enterprises) in that such enterprises may be ‘promoted’ one level in terms of their BEE status, provided that the enterprise has also achieved the full seven points under the net equity interest component of the Generic Scorecard.
As a result, although Company Z, (a company in which black people hold 100% of the exercisable voting rights and 100% of the economic interest owned AND which has achieved all seven net equity interest points in accordance with Statement 100) scores 55 points on the Generic Scorecard (the same as Company X), it is promoted from a Level Five Contributor to a Level Four Contributor.
This means that the procurement officer will be able to claim R 1 for every R 1 spent with Company Z, instead of only 80c for every rand as is the case with Level Five Contributors. In other words, if the officer spends R10 million with Company X in the year under measurement, his/her department will recognise the full R10 million when reporting on preferential procurement.
Resulting Economic Behaviour
The selection of Company Y, the Level Three Contributor, will ensure that the procurement officer receives the most recognition for his/her spend through this tender. It will also act as an incentive to Company X and Company Z to implement further BEE initiatives to ensure that they will be more competitive in future tenders.Disclaimer
All due care has been taken when we compiled the information on this site, but it cannot be substituted for the personalised advice of a specialist lawyer. We accept no responsibility for any loss or damage following from any visit to this site.
Reference and Credits:
http://www.dispute.co.za,
http://www.dti.gov.na,
http://www.info.gov.za/speeches/2005/05071409151002.htm
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