State Owned Enterprises to Follow B-BBEE Codes

Original publish date – Tue, 08 Jan 2013 14:14:36 +0000, Keith

The 7th of December 2012 was a landmark day in terms of B-BBEE legislation. State owned enterprises, such as Eskom, Telkom, ACSA, Transnet – business listed on schedules 2 and 3 of the PFMA, are now required to follow the revised PPPFA regulations that take into account the B-BBEE status of supplies for tender purposes.

In June 2011 the finance minister gazetted revised regulations for the PPPFA (preferential procurement policy framework act) which government and all state owned enterprises must follow when they do any procurement or issue tenders. The new regulations of the PPPFA,(sometimes known as the tender act) uses the well known 80/20 or 90/10 rules whereby 90% of the tender is evaluated via the price quoted, and 10% is based solely on the verified B-BBEE status of the tenderer.

Therefore 10% (or 20% in the case of smaller tenders below R1million) of the tender evaluation is based on a valid B-BBEE certificate. The higher the BEE level, the better the chance of winning the tender.

The regulations came into affect on 7th December 2011. This applied to all organs of state and state owned enterprises. It meant that for procurement purposes, government were given a rigid and objective approach to evaluating all tenders received. Unfortunately, on the same day, the minister of finance issued an exemption notice whereby all state owned enterprises could choose not to follow the 80/20 rule and the apply the BEE status of tenderers. This exemption applied to all state owned enterprise, but not government departments. The exemption was for a year, ending December 2012. Treasury has not issued any new documentation around the exemption which implies that as of now, all tenders issued by, for example PRASA, ESKOM, ACSA and all other state owned enterprises has to strictly follow the new PPPFA regulations.

Until now it can be said that government has not applied B-BBEE principles in its own activities – nearly 6 years after the codes were gazetted. From now on all spheres of government will have to apply the new regulations in their adjudication of your tenders.

In practice, many SEOs did somewhat follow BEE principles. For example the following tender issued by ACSA gives a pre-qualification criteria. It includes the statement “Bidders must be a minimum Level 4 B-BBEE Contributor verified in accordance with the Codes of Good Practice for B-BBEE”. At the time that the tender was issued, pre-December 2012, ACSA was allowed to pre-qualify tenders in this way. The new regulations do not allow for the exclusion of anyone who does not have a valid B-BBEE certificate or specified level. However, the new regulations do take into account the status achieved if any. So even if a company does not have a valid BEE certificate, it could still win the tender if the price quoted is markedly below that of the competition that has a valid BEE certificate.

Recently Saatchi and Saatchi lost the ESKOM account because they did not have at least 50% black ownership. If the tender had been issued post December 2012, ESKOM would not have been able to use black ownership as a pre-qualification criterion.

A good BEE level will be essential to win the tender.  Without a good level the only way to win the tender will be to discount prices by up to 11% for large tenders, and up to 22% for small tenders. Black ownership is not a per-requisite, though without black ownership a company may struggle to obtain a high score. The target for black ownership is 25%, not 50%. From now on for businesses wanting to do business with government or state owned enterprises, a BEE certificate alone is not enough – it has to show a high verified level.

The good news is it is still very easy to comply and to reach good B-BBEE levels.


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