Opinion

Confusion with BEE tender legislation

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In terms of government tenders, the PPPFA (Preferential Procurement Policy Framework Act) regulations were only recently aligned with the B-BBEE Codes, writes EconoBEE's Charles Smith.

Promulgated in 2011, the regulations stated that state tenders should apply the 80:20 or 90:10 rules (depending on value of tender), 90% of the evaluation was to be made on the basis of the price offered by the vendor, and 10% was to be based on the valid B-BBEE level achieved.

When the regulations were originally published (which we supported), we were concerned about the wording. We had wanted the regulations to refer generically to the codes and use the codes as the overriding rules.

For example, the regulations had stated the any company with a turnover of less than R5-million was an EME, and level 4. We disputed this – some companies have to follow various sector codes and not all companies with a turnover of less than R5 million are indeed level 4. For example, a company in the tourism industry is only an EME if its turnover is less than R2.5-million.

At the time we pointed this out as a critical error in the regulations. In the end the minister issued a guide stating that sector codes may have a different threshold.

We now fast forward to the amended codes issued on 11th October 2013. The codes are now in effect and a company can elect to use them or follow the older codes until October 2014. Many companies that have a turnover of less than R10-million will want to follow the amended codes, especially black-owned businesses.

They would be allowed to issue a sworn affidavit stating their turnover and then being given an automatic level 4, but level 1 (if 100% black owned) or level 2 (if at least 51% black-owned). Black-owned QSEs are also allowed to issue a sworn affidavit instead of building up a scorecard and issue a certificate.

Unfortunately, the PPPFA Regulations have not kept up. The PPPFA Regulations and Guidelines still refer to an EME as being below R5 million, not R10 million as per the amended codes.  A company with a turnover of say R8 million should be able to submit its BEE affidavit as proof of its BEE status as an EME. However the PPPFA Regulations do not allow this, only because they have not yet been updated.

We would like to have seen the original PPPFA regulations stating that BEE certificates and level supplied as per the B-BBEE codes without “hard-coding”, or specifying the actual turnover values. Had they done so, these problems would have been avoided.

In the meantime, we call upon the minister of finance to urgently issue regulations allowing businesses to use the amended codes for submitting tenders if they elect to do so. In any event, October 2014 is not that far away, and PPPFA Regulations need to be updated for that date at the very worst, unless the amended codes themselves are delayed.

Charles Smith EconoBEE

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