CONSTRUCTION

Working with amended BEE codes

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With the original B-BBEE Codes released in 2007, the BEE Act now allows various industry sectors to issue their own sector codes, writes Keith Levenstein, CEO of BEE advisory firm EconoBEE.

Nine sectors, including construction, have their own codes and the Construction Sector Codes were issued in June 2009.

This implies that anyone in the construction sector must follow the construction codes. The construction codes apply to any business involved in “construction related activities”. This would amongst others include contractors and specialists such as roofing contractors, painters, electricians, plumbers and architects.
In general, the construction codes, like all sector codes, are similar to the codes of good practice, with minor adjustments to the weightings or targets, and some definitions

In October 2013 the dti minister issued the Amended Codes of Good Practice. This will replace the existing codes and comes into effect on 1st May 2015. After that date, all verifications will follow the Amended Codes. But the Amended codes do not replace the Construction Codes.

Rather, the intention is to also amend the Construction Codes so that all businesses follow their version of the Amended Codes as from 1st May 2015. The problem is it is a long and arduous process for the sector councils to produce a revised sector code.

There are many role players, each of whom wants to give their opinion to the revised Construction Codes. The Construction Sector Council is working feverishly on re-writing their sector code. Once it is finished and sent to the minister it must be gazetted as adraft code and all interested persons will have the opportunity of commenting.

All comments must be collated and the codes must then be re-written and more consultation will take place. Eventually it must be presented to the minister for final approval and finally gazetted as a sector code.

The dti’s intention as at August 2014 is to issue the draft in about September 2014. We doubt that this deadline will be met. Even if it is, the public comment process will take us to the end of 2014. The re-writing process and additional consultation is going to take many more months.

The dti has announced that the sector codes will become applicable from the day they are finally issued. This makes it difficult for construction companies to become compliant next year.

Right now we do not know what the construction codes will look like, but construction companies must undertake the required activities in order to be awarded points – a very unfairsituation. What we are sure of is the eventual Construction codes will be similar to the Amended Codes, with the minor differences as mentioned above.

We are not even sure that the construction codes will be ready by May 2015. Although the minister has notmade an official announcement the rumours are, and it is logical that the dti will require that all construction companies to follow the Amended Codes ifConstruction is not ready.

The best that a construction company can do is to understand and implement the Amended Codes in preparation for the Construction Sector Codes to be released.

Summary of the Amended Codes

The Amended Codes look fairly similar to the 2007 codes, although some weightings, targets and names of some elements have been changed. However there are some major changes to approach and strategy that will be required. Instead of 7 elements, we now use 5 as follows:

Ownership - (25 points)

This has not changed significantly. The targets are still 25%, and weighting is 25 points.

Management Control  - (19 points)

The codes previously included 2 elements: management control and employment equity. Both elements have beenconsolidated into a single element, but with substantially the same indicators. Previously management control and employment equity were worth 29 points combined. The new combined element is only worth 19 points.

Skills Development - (25 points)

Skills has increased from 15 points to 25 showing the importance of skills development in the economy. Some targets have increased: Target spend is now 6% of payroll, instead of 3%.

Enterprise and Supplier Development (E and SD) - (44 points)

The current codes speak of two elements: Preferential Procurement and also Enterprise Development. The newelement Enterprise and Supplier Development (E and SD) is a simple combination of both elements. The two previously were worth 35 points. This has now increased to 44 points.

Socio-economic Development: (5 points)

The last of the five elements is unchanged at 5 points.

Total: 118 points

New Points to Levels Table

The minister has also changed the points to levels table as follows.

Level Amended Codes Current Codes

1 ≥100 ≥100

2 ≥95 but <100 ≥85 but <100

3 ≥90 but <95 ≥75 but <85

4 ≥80 but <90 ≥65 but <75

5 ≥75 but <80 ≥55 but <65

6 ≥70 but <75 ≥45 but <55

7 ≥55 but <70 ≥40 but <45

8 ≥40 but <55 ≥30 but <40

Non-Compliant <40 <30

In addition, the minister has exempted all businesses outside of the sector codes with an annual turnover of less than R10-million (previously R5-million) from all forms of BEE. Any organisation, no matter its ownership is automatically level 4. Furthermore, any business that is 100% black owned and has an annual turnover of less than R50-million is automatically level 1. If that business is more than 51% black owned and less than 100% it is level 2.

A QSE (qualifying small enterprise) which is currently any organization/business with a turnover of between R5-million and R35-million and follows a far more lenient scorecard has been adjusted to R10-million to R50-million. However, other than for black owned businesses, it still has to follow the entire scorecard with very few allowances or easieraspects to its scorecard than the generic.

Priority Elements

The minister has also defined three of the five elements as priority elements with additional targets.

  • 40% on ownership’s net value
  • 40% of the skills development score
  • 40% of the Enterprise and supplier development score

If a generic business does not achieve all three targets (two targets for QSEs), it drops one level.

Keith Levenstein

 

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