Fronting, the sector codes and winning tenders – EconoBEE Newsletter – 16 March 2011

EconoBEE - BEE Points = Business

In today’s newsletter we cover the good news that cabinet has approved changes to the PPPFA to be reconciled with the B-BBEE act.
We are awaiting details, but it appears to be good news, in that government procurement will soon become more consistent, and follow the codes and not some arbitrary decision by a procurement officer in a municipality.

Fronting, the sector codes and their implementation.
So far four sector codes have been gazetted – tourism, construction, transport and forestry – all in 2009. The law is clear – the sector codes apply from the day they were gazetted as a final sector code. In 2010 we expected to start seeing companies in those sectors being verified against the sector code, but more often than not the verification agency used the generic codes. As required by the minister we always report breaches to the dti and SANAS. Some agencies and companies acknowledged their errors and tried to make amends. However many companies, and verification agencies ignored the issue.

We have received confirmation from SANAS, the dti, and even the sector councils that the sector codes should be used for companies in the relevant sectors. It should be pointed out that the B-BBEE codes do not make it mandatory to undergo verification. What they do say is if you wish to produce a valid certificate for your customer, it must bear the SANAS logo and be produced by an accredited agency. The codes state that any certificate that bears the SANAS logo that is not produced in accordance with the codes is therefore misrepresenting that entity’s BEE situation. Deliberate misrepresentation constitutes fronting and may be fraud.

One would expect that SANAS, the dti, and the sector councils would be concerned about sector code fronting, but regretfully they have shown no interest. It begins to appear as if the sector codes are being ignored, with the willful knowledge of the minister, dti and SANAS. The sector councils are virtually non-functional. The government has wasted many millions of Rands in setting up sector codes, and they currently serve no purpose.

Our many complaints of non-compliance to SANAS has resulted in SANAS taking no appreciable action against any offending verification agency. They have not withdrawn one certificate, or declared any invalid. Latest reports are that SANAS have asked the director general of the dti for a decision as to how to proceed with complaints against agencies using the wrong codes. This, four years after SANAS was appointed by the minister to administer verification agencies. The dti also show no real interest in rejecting certificates as invalid.

This means that if you are part of a sector code and do not feel like following the sector code (as invariably the sector codes are more stringent than the generic codes), you can appoint (some) verification agencies to give you a certificate based on the generic codes, and improve your score – you are virtually free to do what you wish as the dti and SANAS will not take any action, and certainly will not issue an instruction to withdraw the certificate. We do not subscribe to this view. That said, many companies will choose a different agency with less scruples to do their verification. Some agencies have spent lots of money to obtain their extension of scope to perform verifications for the sector codes, while some lesser agencies, without the extension are simply accepting business and using the generic codes. Many of the good agencies are too terrified to speak out against this form of corruption.

Companies that take this shortcut ARE fronting, because they well know their scorecard is based on an invalid code of practice. Fronting is fraud. Those companies are gaining an unfair advantage over you, getting business they do not deserve to win. Help us speak out against crime, fraud and fronting.

Alignments in Government Act forces BEE Compliance

The cabinet has approved their intention to amend the Preferential Procurement Policy Framework Act (PPPFA) and bring it into alignment with the Broad Based Black Economic Empowerment Act (BBBEE).

22 February 2011 stated by Jimmy Manyi Cabinet Spokesperson
Cabinet noted the internal work in progress by the Minister of Finance, Mr Pravin Gordhan to align the Preferential Procurement Policy Framework Act to the Broad-Based Black Economic Empowerment Codes of Good Practice.” and

2 March 2011 stated by Jimmy Manyi Cabinet Spokesperson
approved that the revised Preferential Procurement Regulations, after legal refinement, be promulgated in terms of section 5(1) of the Preferential Procurement Policy Framework Act (PPPFA) as soon as possible and on a date to be determined by the Minister of Finance. The contents of the revised regulations will be discussed with the Parliamentary Standing Committee on Finance and Appropriations as well as the National Economic, Development and Labour Council (NEDLAC).

The PPPFA is the government tender act and must be used when issuing any tender. The act uses two key benchmarks in awarding a tender – 90/10 for large tenders and 80/20 for smaller tenders. The later points are awarded for a BEE status where an Ownership status was widely used. In August 2009 a draft of the proposed alignments was published. This draft will likely form the basis for the final revisions and eventual gazetting of the revised PPPFA.

The Impact
The alignment of the PPPFA and BBBEE acts will instantly disqualify any companies from earning the available “tender points” without a valid BBBEE status. An Ownership status of 100% for example will yield no points for a tender. An Exempt Micro Enterprise on the other hand will earn some of the available “tender points” because of their BEE Exemption. The remaining 90 or 80 points will likely remain unchanged. These points are based on various items including price, quality and availability.

Salient Features and points to remember
The level of compliance achieved will be used to evaluate the tender, so it is important for a company wishing to tender to not only get a certificate, but one that shows a high level of compliance. Many companies already doing business with government do not have a certificate. Those companies will need to urgently start evaluating their businesses to find ways to earn points, and increase those points if they want to increase their chances of winning the business.

A good scorecard takes time to build up, because it consists of the 7 elements of empowerment – ownership, management control, employment equity, skills development, preferential procurement, enterprise development and socio-economic development. A company that in future wants to increase its chances of winning government business will have to try to increase its score on the seven elements.

The worst action a company can take if they haven’t prepared is to ask a verification agency to issue a certificate. This is the last step of the process – the first step is understanding how BEE works and then building up a strategy and evaluating the points already earned. Then finding ways to increase points, preparing for verification and then only appointing an accredited BEE verification agency. This is not a once-off activity. It is an on-going process. The most successful companies have spent many years building up their BEE scorecard and are now ready to take advantage of true empowerment principles and start winning tenders.

The current status of the regulations are not yet public because they are still being reviewed by the state law advisers.

More information and the best starting point is to attend a training session on BEE. EconoBEE is holding a series of practical seminars in Johannesburg and Durban at the end of this month.


Comply with BBBEE and win Tenders

24th March 2011- Johannesburg and 31st March 2011 – Durban for a full day practical BEE Seminar – Practical Guide to BEE.

The price of the course is R3249 incl VAT per delegate which includes manuals, notes and practical information. This cost also includes tea/coffee and lunch.

Please contact our office on 011 483 1190 or email for more information. Online bookings are available from Alternatively please download our booking form and fax it to 011 483 1195.

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While there is demand for a B-BBEE Scorecard someone will be taking advantage, shouldn’t that someone be you…

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EconoBEE Newsletter
16 March 2011

In this issue

  • Fronting, the sector codes and their implementation
  • Alignments in Government Act forces BEE Compliance

In other news

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EconoBEE is an expert BEE consultancy. EconoBEE helps businesses Become BEE Compliant, prepare for verification, earn maximum BEE Points and ensure that they achieve the BEE Level they need to get more business.

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