What’s good for your customers is good for you – EconoBEE Newsletter – 22 January 2013

EconoBEE - BEE Points = Business

Help your customer with a good scorecard!

Nowadays every business has been asked for a scorecard. Some respond happily with a good score, others provide excuses as to why nothing has happened, worse though are the ones who deliberately offer incorrect information.

Why must you become compliant – because it is good for your customers and your customers are good for your business. While satisfying customer requirements you want to make sure the elements where you earn points are effective and make business sense. If you are spending countless hours trying to implement B-BBEE you will find it tedious and ineffective compared to other companies who are finding ways to merge the inroads they are making to B-BBEE with running their business effectively.

Activities that are not expensive or time consuming are easier to implement, quicker and become more sustainable. Examples of this would be training your staff with the skills they require to operate successfully in your business, selecting good compliant suppliers and even searching for business opportunities with black owned businesses as Enterprise Development.

Ultimately it is not just a matter of becoming compliant – a good BEE level is better for your customers which is even better for your business. A well designed B-BBEE strategy helps grow your business.

Avoid the BEE Distraction – While you are spending time on BEE you are not working on your own business. Our team is trained to handle all aspects of BEE compliance. Your BEE distraction is another day at the office for us. Through our managed service we will make your BEE problems a strength.

Latest developments in BEE

The dti has been hard at work over the past couple of months. In addition to the draft codes, the following has happened:

  1. The FSC (Financial Sector code) has been gazetted. This is now final and must be followed by all entities in the financial sector as a code of good practice. It applies to all in the financial sector: banks, leasing companies, insurance companies, re-insurance, financial brokers, insurance brokers and more. These businesses will use the FSC to produce their next certificate.
  2. The Agricultural Sector code has been gazetted. This code must be used by all in the agricultural sector and all businesses in the produce business It includes the traditional farmers, but also chicken and egg, meat producers etc. It applies to first tier producers, so bakeries would not follow the charter, but the producer of grain would.
  3. The B-BBEE Amendment bill was presented to parliament in November 2012 by the minister. It should be finalized sometime in the first half of 2013.
  4. Status of the draft codes: They are still in draft format meaning they do not apply in any way whatsoever. We expect another draft before finalization, and this could take many months if not years.
  5. IRBA/SANAS: More and more SANAS agencies are either obtaining dual accreditation or are aligning themselves with IRBA approved auditors and relinquishing their SANAS accreditation completely. It must be emphasised that certificates produced by agencies regulated by either IRBA or SANAS remain valid. This is true as long as the agency performed their job in line with the codes and regulations. We still see mistakes, and areas of controversy and inconsistency between agencies resulting in hugely different scores.
  6. The exemption granted to State Owned Enterprises by the minister of finance in December 2011 to not follow B-BBEE principles in their tenders and procurement has now lapsed. All tenders by government and its agencies must follow the new PPPFA regulations to take into account proper B-BBEE principles.

State Owned Enterprises to Follow B-BBEE Codes

The 7th of December 2012 was a landmark day in terms of B-BBEE legislation. State owned enterprises, such as Eskom, Telkom, ACSA, Transnet – entities 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 suppliers 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 then 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 pre-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, just supplying 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.

Has BEE Worked?

BEE, the abbreviation for B-BBEE stands for broad-based black economic empowerment. To know if it has worked, and to understand its effectiveness we should look at its objective, history and evolution.

The B-BBEE Act was passed by parliament in 2003 and signed into law by President Mbeki in 2004. The preamble to the act is quite instructive:

” WHEREAS under apartheid race was used to control access to South Africa`s productive resources and access to skills;

WHEREAS South Africa’s economy still excludes the vast majority of its people from ownership of productive assets and the possession of advanced skills;

WHEREAS South Africa’s economy performs below its potential because of the low level of income earned and generated by the majority of its people;

AND WHEREAS, unless further steps are taken to increase the effective participation of the majority of South Africans in the economy, the stability and prosperity of the economy in the future may be undermined to the detriment of all South Africans, irrespective of race:”

The act is interesting in that it sets no legal requirements to become BEE compliant and sets no legislative penalty for not being compliant. Section 10 of the act states:

10. Every organ of state and public entity must take into account and, as far as is reasonably possible, apply any relevant code of good practice issued in terms of this Act in-

(a) determining qualification criteria for the issuing of licences, concessions or other authorisations in terms of any law;

(b) developing and implementing a preferential procurement policy:

(c) determining qualification criteria for the sale of state-owned enterprises; and

(d) developing criteria for entering into partnerships with the private sector

This states that government MUST take into account, and far as is reasonably possible, APPLY the act and codes. It does not state how this should be done, and it does not emphasise the importance of applying the act.

The question to be answered in this article is “Has BEE worked?” The emphasis is on the past tense – “worked”.  A good analogy to use is an engineer develops a new synthetic oil for your car and needs to know if it works. The first step would be to use the oil in your engine. We could never know if the oil works if it remains in the tin. The engineers theory shows it works, but if it is not poured into the engine, and used regularly, and evaluated six months later, it would be impossible to know if the oil is any good. The same goes with BEE.

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EconoBEE Newsletter
22 January 2013

In this issue

  • Latest developments in BEE
  • State Owned Enterprises to Follow B-BBEE Codes
  • Has BEE Worked?

In other news

About EconoBEE

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.

Our services include BEE Management Systems, Training, EME Pack, Complete Managed Services; consulting and advisory and Procurement Solutions.

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BEE Points = Happy Customers = Sustainable Business

Gavin and the EconoBEE Team

Executive summary of B-BBEE

Turnover below R5 million per annum – automatic BEE status

Turnover above R5 million per annum – you need a BEE Scorecard. Our workshops, scorecard tools, procurement manager or a complete managed services will be best for you.

Your time on your business, our time on your BEE status


Through our managed service avoid the BEE distraction and let our consultants implement Broad-Based Black Economic Empowerment for you.

10 Strategic Steps to B-BBEE!

We have prepared an easy to follow guide “B-BBEE in 5 Minutes” and “Crash Course to BEE Verification” which explains BEE in a simple step by step approach.

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