|Small Black Businesses Harmed by New BEE Codes|
Small businesses and especially Black Businesses are being harmed by Sector Codes not aligned with the Amended Codes
The Amended codes have come in for a fair amount of criticism. One area where they have been praised is how they treat small businesses. A company with an annual turnover of less than R10 million is automatically level 4. If the company is 100% black owned it is level 1. This makes a black owned company very attractive to its customers. The amended codes even allow for 100% black owned companies with a turnover of less than R50m to be considered as a level 1.
However companies in a sector that have a sector code must continue to follow that sector code. None of the sector codes have been aligned with the amended codes. The sectors affected are construction, tourism, transport, forestry, accountancy, property, agriculture, finance and ICT. Any company in these sectors will still follow their sector code. For example a company in the ICT sector, with a turnover of less than R5m will have to use the ICT sector code and will be level 4 or level 3 depending on its black ownership. If its turnover is R8m it will have to follow the ICT QSE codes, and go through the verification process, only because ICT has not yet been aligned with the Amended Codes. If a 100% black owned ICT company had a turnover of R45m it would have to follow the generic ICT scorecard. If it were not in a sector it would automatically be considered a level 1 QSE.
The dti cannot want to make the process for companies in a sector code so much more difficult. We suspect that when the charters are eventually aligned, it too will allow 100% black owned businesses with a turnover below R50m per annum to be an automatic level 1. The Amended Codes which have been intending to make life easier for small businesses, especially black owned companies, is not doing so for any company in a sector, only because that sector code has been delayed.
We therefore call on the minister to ensure the alignment process happens faster than it is currently progressing.
Alternatively the minister should issue a notice allowing all companies falling into a finalised sector code to choose if they want to follow the old sector codes or the amended codes until the new sector codes have been finalized. The minister of trade and industry is entitled to issue notices in terms of the act and we believe that this is one he should issue as soon as possible. Businesses in sectors that have finalized codes should not be unfairly disadvantaged, or even advantaged compared to other businesses.
It could be quite a while for some of the sector codes to be finalized. The aforesaid ICT charter is going to be very delayed because the communications minister has yet to appoint an ICT Sector Council. Once this has been done, the council must meet, and consult with the industry and draft an amended ICT charter. This must be gazetted and the public given at least 60 days to comment. Thereafter a final sector code must be drawn up, approved by the minister and finally gazetted as an official sector code. The whole process is likely to take at least 18 months from now. In the meantime the entire ICT industry will be in limbo, and small black owned ICT businesses harmed the most. The same is applicable for most of the other sector codes.
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The PPPFA (Preferential Procurement Policy Framework Act) regulations were only recently aligned with the B-BBEE Codes. The regulations, promulgated in 2011 stated that state tenders should apply the 80:20 or 90:10 rules (depending on value of tender). 90% of the evaluation was to be made on the basis of the price offered by the vendor, and 10% was to be based on the valid B-BBEE level achieved.
When the regulations were originally published (which we supported), we were very concerned about the wording. We had wanted the regulations to refer generically to the codes and use the codes as the overriding rules. For example the regulations had stated that any company with a turnover of less than R5million was an EME, and level 4. We disputed this – some companies have to follow various sector codes and not all companies with a turnover of less than R5m are indeed level 4. For example a company in the tourism industry is only an EME if its turnover is less than R2.5m.
At that time we pointed this out as a critical error in the regulations “Government Procurement Act – critical mistake.” In the end the minister did issue a guide stating that sector codes may have a different threshold.
We now fast forward to the amended codes issued on 11th October 2013: The codes are now in effect and a company can elect to use them or follow the older codes until October 2014. Many companies that have a turnover of less than R10m will want to follow the amended codes, especially black owned businesses. They would be allowed to issue a sworn affidavit stating their turnover and then be given an automatic level 4, or level 1 (if 100% black owned) or level 2 (if at least 51% black owned). Black owned QSEs are also allowed to issue a sworn affidavit instead of building up a scorecard and issue a certificate.
Unfortunately the PPPFA Regulations have not kept up. The PPPFA Regulations and Guidelines still refer to an EME as being below R5, not R10m as per the amended codes. A company with a turnover of say R8m should be able to submit its BEE affidavit as proof of its BEE status as an EME. However the PPPFA Regulations do not allow this, only because they have not yet been updated.
We would very much like to see the original PPPFA regulations stating that BEE certificates and level supplied as per the B-BBEE codes without “hard-coding”, or specifying the actual turnover values. Had they done so these problems would have been avoided.
In the meantime we call upon the minister of finance to urgently issue regulations allowing businesses to use the amended codes for submitting tenders if they elect to do so. In any event October 2014 is not that far away, and PPPFA Regulations need to be updated for that date at the very worst.
Unless the Amended codes themselves are delayed…but that’s an article for a future newsletter.
|Implementing the Amended B-BBEE Codes of Good Practice|
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12 February 2014
In this issue
- Small Black Businesses Harmed by New BEE Codes
- Status of the PPPFAes
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