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B-BBEE Procurement, Transformation and Verification

B-BBEE Procument Transformation

Section 217 of the Constitution of the Republic of South Africa states that when an organ of state in the national, provincial or local sphere of government, or any other institution identified in national legislation, contracts for goods or services, it must do so in accordance with a system which is fair, equitable, transparent, competitive and cost-effective. Furthermore, it stipulates the need to implement a procurement policy that will provide for categories of preference in the allocation of contracts; and the protection or advancement of persons, or categories of persons disadvantaged by unfair discrimination.

The Preferential Procurement Policy Framework Act (PPPFA) was enacted as a result of the aforementioned Section of the Constitution. The PPPFA stipulates that when government assesses contracts, it must take into account a preference point system which prescribes functionality, price and reconstruction development programme (RDP) goals.

The preference point system determines that:

For contracts below R500 000, 80 points will be allocated for price and functionality and the remaining 20 points for RDP goals. For contracts above R500 000, 90 points will be allocated for price and functionality and 20 points for RDP goals.

In December 2006, when the B-BBEE Codes of Good Practice were approved for gazetting, Cabinet directed the dti and National Treasury to amend the PPPFA, so as to advance the objectives of the B-BBEE Act and its related strategy, as these two pieces of legislation were not appropriately aligned.

The abovementioned process led to the amendment of the Preferential Procurement Regulations as interim measures to align themselves to the B-BBEE Codes of Good Practice.

Although the BEE Act does not place a legal onus on the private sector to comply with its provisions, it does, however, place a legal onus on organs of state to contribute to BEE, including among other aspects, when developing and implementing a preferential procurement policy.

In addition to achieving the 20 points allocated to the preferential procurement element of the Codes of Good Practice, government entities must procure goods and services from companies with a good BEE status. This has a trickle-down effect which applies pressure on all suppliers and service providers to meet these standards. The impact that this cascading implementation has on procurement in general is the increase in market access for black companies.

The (interim measures) draft regulations proposed the 80/20 preference point system for the procurement of goods and services with a rand value of R1 million, and a 90/10 preference point system for the procurement of goods and services with a rand value of above R1 million, to strengthen the contribution of small, medium and micro-sized enterprises (SMMEs).

Furthermore, the draft proposed the allocation of point systems on the following basis:

With regard to the 80/20 principle, 20 points are allocated to a bidder in respect of its B-BBEE status level, as contemplated in the draft. Further, with regard to the 90/10 principle, 10 points are allocated in respect of the bidder's B-BBEE status level.

In addition, the draft Regulations recommend how to address the objectives of the Industrial Policy Action Plan, especially those aimed at promoting the procurement of domestically-produced goods and services. The draft Regulations stipulate that the dti is able to designate specific industries of critical and/or strategic importance, for tenders in which it is indicated that only locally-manufactured products with a prescribed minimum threshold for local content will be considered.

Where the dti is yet to designate an industry on organ of state, it may, as a specific tendering condition, prescribe the minimum local content of a product based on thorough research that includes strategic sourcing methodologies, ongoing industry analysis and local manufacturing capacity. In such cases, a two-stage bidding process may be followed.

B-BBEE Verification

The BEE Verification process evolved since the release of the B-BBEE Strategy in 2003 and the promulgation of the Broad-based BEE Act, which set the scene for the regulation of the BEE measurement/verification industry. The gazetting of the B-BBEE Codes firmly moved the industry from a self-regulated one to a BEE verification industry.

the dti appointed the South African National Accreditation System (SANAS) to conduct the accreditation of Verification Agencies.

Standards of the B-BBEE Verification Industry

The role of B-BBEE Verification Agencies is to assess, verify and validate disclosed and undisclosed B-BBEE-related information on measured entities. The standards for performing B-BBEE measurement are fundamental to confirming that the information on which the certificate is based, has been tested for validity and accuracy.
B-BBEE Verification should, therefore, be based on key measurement principles and standards. The methodologies followed by Verification Agencies, in the performance of verification, should demonstrate a clear understanding and knowledge of the B-BBEE Framework and Codes of Good Practice.

In view of the above, the dti, published the Verification Manual, Gazette No. 810, on 18 July 2008, with the intention of putting in place universal, transparent and coherent standards applicable to the verification industry. The Verification Manual prescribes minimum standards and methodologies that Verification Agencies should apply when conducting B-BBEE verification. To qualify for accreditation, Verification Agencies should conform to, among other pre-requisites, the minimum requirements of the Verification Manual and ensure that the necessary standards are maintained and upheld even beyond accreditation.

B-BBEE Verification Certificates

In the interest of harmonising accreditation and verifications practices, the dti has put in place a process of phasing out certificates issued by non-accredited Verification Agencies. A phase-out approach was favoured, to ensure that further uncertainty was not perpetuated by a sudden withdrawal of non-accredited Verification Agencies from the market.
Consequently, as from 1 February 2010, only certificates issued by Verification Agencies that are accredited, or Agencies that are not yet accredited but which have received a valid pre-assessment letter from SANAS, will be accepted in the market. These certificates will be valid for a period of twelve (12) months. The Minister of Trade and Industry issued a Government Gazette Notice, No. 354 of 2009 to this effect.