LISA STEYN – Jun 24 2011 00:00 – Mail and Guardian
The revised preferential procurement regulations, published in the Government Gazette this month, have received a muted reaction — which is in sharp contrast to when they were released for comment in 2009.
They were highly contested and drew 150 formal comments. The regulations will come into effect in December.
“Everyone was looking for transformation in the way we procure good and services but, for us, the outcome was very disappointing,” Ajay Lalu, the managing director of Black Lite Consulting, told the Mail & Guardian. Lalu said it was unlikely there would be significant changes because nothing had been changed fundamentally.
“There was a call for alignment to take place and it was hoped that this would create opportunities for black SMMEs [small, medium-sized and micro enterprises]. But all they have done is left the status quo pretty much as it is.” What was new, he said, was that the link to broad-based BEE was now explicit.
But Kganki Matabane, the executive director of transformation policy and internal operations at Business Unity South Africa (Busa), said the regulations went a long way in aligning the Preferential Policy Framework Act with the Codes of Good Practice on Black Economic Empowerment, issued in terms of the Broad-based Black Economic Empowerment Act.
“They will promote uniformity throughout the public sector procurement system, as they are applicable to almost the entire public sector,” Matabane said.
“They are also likely to result in job creation due to the fact that they encourage local content and local manufacturing.”
Previously bidders for tenders scored a maximum of 80 or 90 points for price, and 20 or 10 points for black ownership and for promoting reconstruction and development programme goals. The threshold value for the distinction between the 80/20 and 90/10 point system was R500?000. This has now been increased to R1-million to stimulate the development of small enterprises.
Keith Levenstein, the chief executive officer of EconoBEE, said that it was never really clear how these empowerment issues were discussed or evaluated in the current dispensation. “Some tenders were based on who owned the company, who managed it or who was director. Sometimes it was about who would benefit the most out of it,” he said. “The biggest issue was the lack of consistency.”
The points for price would remain unchanged but the BBBEE status level of contribution would now become the be-all and end-all, Levenstein said. All bidders for a tender would have to submit BEE rating certificates, issued by either verification agencies accredited by the South African Accreditation System (currently there are 75) or by registered auditors approved by the Independent Regulatory Board for Auditors.
The new dispensation, Levenstein said, would make life easier for the procurement of tenders. Companies could no longer get away with using the generic sector codes andif a company had a level-one scorecard it would automatically get the full 10 points. But those with poor scorecards, even if black-owned, could be at a disadvantage.
Matabane said the new regulations would encourage a move from the narrow-based BEE to broad-based. “They incorporate all the seven elements of the BBBEE Codes compared to the old regulations, which only looked at ownership when measuring compliance.” To obtain a good score companies had to look at ownership, management control, employment equity, skills development, preferential procurement, enterprise development and contribution to social causes.
Levenstein said he expected many businesses would come to the party only at the last minute when it would be too late to obtain a good scorecard. Black-owned companies that might have been at an advantage before the changes would face difficulties if the owners were not involved in the business.
But fronting and fraud could now be avoided as ownership of a company would be carefully evaluated. The new dispensation would allow for more effective self-regulation.
Levenstein said that a lot of money was at stake and it was likely that companies would challenge the scorecards of others. Suspected offenders would be reported to the department of trade and industry and they would be investigated. “We are no longer playing games. If one company has one point more than another it could win massive tenders over the other.”
The revised regulations will also apply to public entities, which were previously exempt, and small companies will still automatically receive a good BEE scorecard. But Lalu said there was still a lot of room for interpretation when it came to the evaluation of scorecards and that remained a key challenge.
“I shudder sometimes when I hear the word transformation,” said Kosta Bubich, the managing director of Development Consulting South Africa. “We don’t know what we are transforming and the government doesn’t either, or at least they haven’t spelled it out.”
Bubich said that all too often something looked good on paper but it turned out differently in practice. The regulations were more rigid and the government had tried to be more prescriptive, he said, but it was still open to subjectivity.
“The more legislation that is in place, the more people try to circumvent it,” he said. “People comment and nothing happens. We in the private sector are too complacent. We need to stand up and be counted.”