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B-BBEE Procurement, Transformation and Verification

B-BBEE Procurement and 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.

In December 2006, when the Broad-Based Black Economic Empowerment (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 No 53 of 2003 as Amended by Act 46 of 2013 (BEE Act) and its related strategy, as these two pieces of legislation were not appropriately aligned.

The above mentioned process led to the amendment of the Preferential Procurement Regulations to align themselves to the B-BBEE Codes of Good Practice.

2011 PREFERENTIAL PROCUREMENT REGULATIONS

The current Preferential Procurement Regulations stipulates 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).

With regards to the 80/20 principle, 20 points are allocated to a bidder in respect of its B-BBEE status level.

With regards to the 90/10 principle, 10 points are allocated in respect of the bidder's B-BBEE status level.

2017 PREFERENTIAL PROCUREMENT REGULATIONS

As of 20 January 2017, the amended Preferential Procurement Regulations have been gazetted by National Treasury

Effective date of the Regulations is 01 April 2017

Key Amendments:

  • 80/20 preference point system from R30 000 and up to R50 million
  • 90/10 preference point system above R50 million
  • Certain concepts and definitions have been aligned to the B-BBEE Act No 46 of 2013
  • If an organ of state decides to apply pre-qualifying criteria to advance certain designated groups, that organ of state must advertise the tender with a specific tendering condition that only one or more of the following tenderers may respond-
    • a tenderer having a stipulated minimum B-BBEE status level of contributor;
    • an Exempted Micro Enterprise (EME) or Qualifying Small Enterprise (QSE);
    • a tenderer subcontracting a minimum of 30% to-
      • an EME or QSE which is at least 51% owned by black people;
      • an EME or QSE which is at least 51% owned by black people who are youth;
      • an EME or QSE which is at least 51% owned by black people who are women;
      • an EME or QSE which is at least 51% owned by black people with disabilities;
      • an EME or QSE which is 51% owned by black people living in rural or underdeveloped areas or townships;
      • a cooperative which is at least 51% owned by black people;
      • an EME or QSE which is at least 51% owned by black people who are military veterans;
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 B-BBEE, 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 B-BBEE 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.

In addition, the Preferential Procurement 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 Preferential Procurement 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.

Wherethe 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.

The Broad-Based Black Economic Empowerment Act No 53 of 2003 as Amended by Act 46 of 2013, Section 10 states the following:

(1) Every organ of state and public entity must 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 respect of economic activity in terms of any law;
(b) Developing and implementing a preferential procurement policy;
(c) Determining qualification criteria for the sale of state-owned enterprises;
(d) Developing criteria for entering into partnerships with the private sector; and
(e) Determining criteria for the awarding of incentives, grants and investment schemes in support of Broad Based Black Economic Empowerment.

(2) (a) The Minister may, after consultation with the relevant organ of state or public entity, exempt the organ of state or public entity from a requirement contained in subsection (1) or allow for deviation therefrom if particular objectively verifiable facts or circumstances applicable to the organ of state or public entity necessitate an exemption or deviation."

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. In 2010 a request was made by the IRBA to be given authority to accredit their members. The Minster of Trade and Industry issued a gazette notice in September 2011 granting approval for IRBA to accredit its members to conduct B-BBEE verifications. The IRBA was responsible for the Auditing profession and a Memorandum of Agreement was entered into between the dti and IRBA.

The agreement made provision for the assistance and guidance to be provided to IRBA on technical issues within the Codes and the Act. It allows for collaboration all issues relating to the implementation and transformation in terms of the B-BBEE Act no. 53 of 2003 as amended and the 2007 Codes of Good Practice.

The promulgation of the B-BBEE Amendment Act No. 46 of 2013 (The Act) requires the Minister of Trade & Industry to appoint a body for the accreditation of rating agencies or authorisation of B-BBEE Verification Professionals. In view of the above provision, the B-BBEE Unit is developing professional standards for rating agencies and B-BBEE Verification Professionals in order govern the B-BBEE Verification industry. Furthermore, the B-BBEE Unit is in the process of developing standards and policies for the establishment of the B-BBEE Verification Professional Regulator.

On the 4th of March 2016, the IRBA had issued a communique to its members indicating that they will be withdrawing from the regulation of B-BBEE assurance services. The withdrawal of the IRBA from the B-BBEE Verification Industry which became effective from the 01 April 2016 had required the dti to accommodate the exit

The exit was planned to take place on the 30 September 2016, in which case B-BBEE Approved Register Auditors will not be able to participate in the B-BBEE Verification Industry and undertake new B-BBEE Verifications

However, a further notice has been issued by the IRBA on the 2nd August 2016 stating the following "With respect to assurance engagements that have been entered into prior to 30 September 2016, a transitional period of three (3) months (to 31 December 2016) will be allowed for the sign off of the verification certificates for these engagements."

As of 31 December 2016, B-BBEE Approved Registered Auditors within the B-BBEE Verification Industry are no longer able to conduct B-BBEE Verifications - Unless Accreditation is received from SANAS

If B-BBEE Approved Registered Auditors choose to continue operating post 31 December 2016 in the B-BBEE Verification industry, those B-BBEE Certificates will no longer be valid under Section 10 of the B-BBEE Act No 46 of 2013

In terms of Statement 005, SANAS was appointed as the Accreditation Body with the IRBA being Approved Regulatory Body, in view of this with the exit of IRBA, SANAS continues in its mandate under this Statement.

The current Statement 005 is in the process of being amended to introduce new concepts of the B-BBEE Verification Professional Regulator and remove the IRBA as the Approved Regulatory Body.

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

B-BBEE Verification Certificates must be issued in accordance with Section 7 of Statement 005, Gazette Number 34612.