Preferential Procurement Policy Framework Act – PPPFA – Summary
Government departments use the PPPFA to issue tenders. The purpose of this act is to ensure consistency and openness in the tendering process. Each tender is calculated out of a total of 100 points where the bidder who has the most amount of points wins. The calculation of the points for tenders are broken into two core sections; Pricing and Empowerment.
The old method
- PPPFA applies only to tenders worth more than R30 000.
- Uses a points system to evaluate the winning tender
- 80/20 preferential point system for tenders less then R500 000
- 90/10 preferential point system for tenders more than R500 000
The 80 or 90 points are awarded on basis of price. The bidder with the lowest price will earn maximum points for price. Bidders with a more expensive price will earn fewer price preference points.
The 20 or 10 points are awarded on basis of HDI (*) or reaching specified goals
– E.g. Ownership, management
(*) HDI – black, coloured, indian, female, disabled
Problems with Existing System
- Each organ of state used their own interpretation for HDI points and specified goals
- Some used B-BBEE certificates but most did not
- Some used only black ownership
- Some used only white women (HDIs)
- Some used local content
- Generally inconsistent
- Prone to fronting and created “tenderpreneurs”
- Harmed transformation
Win Tenders: Evaluating B-BBEE Credentials for the PPPFA – Book Now
The new method
The 90/10 and 80/20 principle still remains however instead of the 10 and 20 preference points being awarded for HDI status it is awarded solely based on a Broad Based BEE Scorecard. The threshold has also been increased from R500 000 to R1 million.
- Build up a good BEE scorecard. You are evaluated purely on the score you achieved.
- Ensure you use a verification agency accredited by SANAS or an auditor registered by IRBA. If you are unsure our consultants can assist you.
- If you are exempt an auditors letter is acceptable – however your automatic level 4 (level 3 for majority black owned organisations) may not be better than competitors. Consider improving your score to win more tenders.
- Submit all available information as proof of your B-BBEE status.
- Compare your B-BBEE status to your competitors.
For the first time all govt agencies, SOEs, organs of state will be required to take into account your good B-BBEE score based on a valid B-BBEE certificate in awarding tenders.
The full conversion of B-BBEE level to PPPFA preference points are as follows:
|Above 100 points||Level 1|
|85-100 Points ||Level 2||18||9|
|75-85 Points||Level 3||16||8|
|65-75 Points||Level 4||12||5|
|55-65 Points||Level 5||8||4|
|45-55 Points||Level 6||6||3|
|40-45 Points||Level 7||4||2|
|30-40 Points||Level 8||2||1|
|Less than 30 Points||Non-compliant||0||0|
It means that companies with a good B-BBEE level stand a better chance of winning the tender. Companies without a B-BBEE certificate will need to discount their prices to win. For tenders worth above R1 million the 90/10 rule applies, where 90% is based on price and 10% on B-BBEE level.
Broad Based Black Economic Empowerment – Summary
BEE, or more accurately B-BBEE refers to Broad Based Black Economic Empowerment is a policy of the SA government which encourages companies to help transform the country. BEE is about broad-based activities that benefit black people.
Definition: Black means African black, coloured or Indian people who are South African citizens by birth or became a South African citizen before 27th April 1994. NB the definition of coloured now also includes Chinese
BEE compliance is measured by means of a scorecard (a broad based scorecard). The scorecard is based on various elements and your company is measured out of a maximum of 100 points (in some cases it is possible to obtain more than 100 points).
The BEE Codes of Good Practice is a government document that describes how the scorecard works.
The elements on which you are rated is what make BEE broad-based. It covers various aspects of the economy, society and the company.
- Ownership – this measures the percentage of shares in the business that are owned by black people (as per the definition above)
- Management – the directors and top management of the business
- Employment equity – the employees in the business
- Skills development – this measures the amount of money spent on training of black employees
- Procurement – your suppliers and their scores
- Enterprise Development – your spend on helping other black owned enterprises
- Socio-Economic Development – your spend on assisting charitable organisations
Once you have calculated a score it gets converted to a level – so we talk about level 8 or level 7 up to level 1 companies.
|Above 100 points||Level 1|
|85-100 Points ||Level 2|
|75-85 Points||Level 3|
|65-75 Points||Level 4|
|55-65 Points||Level 5|
|45-55 Points||Level 6|
|40-45 Points||Level 7|
|30-40 Points||Level 8|
|Less than 30 Points||Non-compliant|
The codes define three types of companies;
- EME below R5million
- Exempt Micro Enterprise – a company that has an annual turnover of less than R5 million. These companies are automatically given a BEE score of 65 points (level 4), and if majority black owned, level 3
- QSE between R5million and R35million
- Qualifying Small Enterprise – an enterprise with an annual turnover of between R5 million and R35 million. The QSE will need to fill in a scorecard, but must choose only 4 of the 7 elements.
- Generic above R35million
- All companies with a turnover above R35 million per annum. They need to comply with the seven elements of broad based black economic empowerment.
|Component||Element||Points Available QSE *|
|Points Available Generic|
|Human Resources||Employment Equity||25||15|
|Indirect Empowerment||Preferential Procurement||25||20|
|Total|| ||100 * select top four elements |