Procurement

The B-BBEE arena is complex. As things stand at the time of writing

this article, there are ten separate sets of Codes in terms of which

organisations can qualify to be measured. Each set of Codes has

specific criteria, Weighting Points and targets, yet all align principally

with the 2013 Codes of Good Practice (Generic Codes).

Why were the Codes of Good Practice established as a measurement benchmark?

In 2007 the first set of B-BBEE Codes of Good Practice (Old Codes) was published. The intent was to measure transformational milestones of

organisations against specific criteria. Before the implementation of the Old Codes, organisations merely gave an undertaking to transform, with

no benchmark to measure their progress. At that time the primary measurement focus of Narrow-Based Black Economic Empowerment was

placed on Ownership. Although, many believe that the Generic Codes, which are the basis of measuring B-BBEE today, have in effect reverted

focus to narrow-based empowerment.

The more stringent Generic Codes came into effect in 2013. They introduced Sub-minimum Requirements, Priority Elements and the Discounting

Principle. The amendments to the Codes aimed to encourage development and procurement from smaller ‘Black’-owned businesses.

When is an organisation measured on the Generic Codes?

Unless an organisation generates more than 50% of their annual income from a specific sector with a gazetted Sector Code, they are measured

on the Generic Codes, as illustrated hereunder

> All organisations are measured on the Generic Code of Good Practice unless 50% of

annual turnover qualifies them to be measured on a Sector Code of Good Practice.

> Both Management Control and Skills Development include demographic sub-race

targets based on national EAP targets.

> Start-ups can present an Affidavit or CIPC Certificate. However, when tendering for

contracts that exceed R10m must be measured on the scorecard applicable to the tender

amount. For example a tender valued at R25m would be measured on a QSE Scorecard

and a tender valued at R50m would be measured on a Large Enterprise Scorecard.

> 40% Sub-minimum Requirement applies.

> Discounting Principle applies.

> Bonus Points applicable for Skills Development, as well as Enterprise & Supplier

Development.

> Enhanced Recognition for QSEs that are more than 51% ‘Black’-owned, which provides

that such organisations only have to present an Affidavit to confirm their ownership and

annual turnover.

> Gazette #42496, published on 31st May 2019 clarifies that Enhanced Recognition only

applies to QSEs that achieve 'Black' Ownership by applying the Flow-Through Principle.

> An EME may choose to be verified on a QSE Scorecard.

> Enhanced Recognition for EMEs, which provides that such organisations only have to

present an Affidavit or CIPC Certificate to confirm their ownership andannual turnover.

> Gazette #42496, published on 31st May 2019 clarifies that Enhanced Recognition only

applies to EMEs that achieve 'Black' Ownership by applying the Flow-Through Principle.

Why were Sector Codes of Good

Practice established?

Sector-specific Codes were established to drive transformation

through particular sectors, taking each sector’s unique needs and

challenges into account.

How is a Sector Code established?

The process of establishing Sector Codes followed the

implementation of the Old Codes in 2007. The process is set out in

Statement 003, as amended on 6th May 2015. Establishing a Sector

Code begins with Sector Charter Councils negotiating with their

sector through industry associations and other relevant parties, like

communities and labour, under the guidance of the government,

on how to drive transformation through a specific sector. This

negotiation initiates a Sector Charter that, through processes,

is gazetted in terms of section 12 of the B-BBEE Act (The Act).

Primarily, a Sector Charter expresses a sector’s commitment to

transform, but it is not as yet legally binding for organisations

operating in that sector.

What is the role of Sector Charter

Councils?

Sector-specific councils were established to evaluate and monitor

the sector they represent. Their mandate, in terms of Sector Codes,

is to identify specific gaps in their sector, then use the Generic

Codes as a base to create particular criteria and targets to drive

transformation through their sector. In effect, Sector Codes take a

holistic view of the expectations of the Generic Codes, then adapt

them to a specific sector’s needs by creating a scorecard that will

expedite transformation based on the challenges identified in the

sector.

What is the basis for the establishment of

a Sector Code?

Statement 003 of the Generic Codes states that all Sector Codes

must align with and address the same elements contained in the

Generic Codes. Such alignment includes using the same definitions

and the application of similar calculation methodologies. In doing

this, specific elements, targets, points available and thresholds may

differ from Sector Code to Sector Code. By way of example, the

Amended Construction Sector Code does not have an Enterprise

Development element; and the Marketing, Advertising and

Communications Sector Code introduced Responsible Marketing as

part of its criteria.

How does a Sector Charter become a

binding Sector Code of Good Practice?

There are specific processes in line with legislation that must be

followed for a Sector Code to become legally binding. By way of

example, a Sector Charter Council negotiates the Sector Charter

that is then processed and gazetted to become a binding Sector

Code of Good Practice.

For a Sector Charter to become legally binding, it must be

gazetted in terms of Section 9 of The Act, which includes a public

commentary period. On the gazetting of a Sector Charter, it is

elevated to a Sector Code of Good Practice. It then holds the

same status as the Generic Codes, which subsequently makes it

legally binding to organs-of-state in that sector and all participating

organisations representing that sector, irrespective of whether they

are public or private organisations.

Can an organisation choose the Code on

which they are measured?

An organisation may not choose the Code on which they are

measured; they are obligated to be measured on the Code for

which they qualify based on their annual turnover. If an organisation

is measured on an incorrect Code, the Certificate presented will

be deemed invalid. For example, a hotel chain may not present a

B-BBEE Certificate measured on the Generic Codes as it should be

measured on the Amended Tourism Sector Code.

It is incumbent on an organisation receiving a B-BBEE Certificate to

ascertain, at least at face value, whether the organisation providing

a B-BBEE Certificate has been measured on the correct Code and

that it is presented in the correct format. Further, it is imperative

that the B-BBEE Certificate or Affidavit makes sense and contains

the required information. Organisations are therefore well advised

to familiarise themselves with the criteria applicable to each Sector

Code. Specific focus should be on financial thresholds and whether

a SANAS B-BBEE Certificate, a CIPC Certificate or an Affidavit is

required to verify their status, as well as what status outcomes can

be expected.

This segment highlights ‘Cross-Sector Procurement’ and provides

a holistic snapshot of an array of acceptable outcomes for each

Sector Code with useful references, relevant turnover thresholds, as

well as Weighting and Bonus Points applicable to each.

Procuring Across Sectors

Which scorecard are suppliers measured

against Sector-by-Sector?

Confusion often reigns when a B-BBEE Certificate is presented

across a sector. For example, ABC Construction is an organisation

measured on the Amended Construction Sector Code. They book

accommodation at the XYZ Hotel. The B-BBEE Certificate presented

for the accommodation must be measured on the Amended

Tourism Sector Code and abide by that criteria. ABC Construction

must know on which Code the XYZ Hotel qualifies to be measured.

Furthermore, they must be comfortable that the B-BBEE Certificate

or Affidavit submitted is at least feasible in terms of the turnover

threshold, targets and the Weighting Points available on the

Amended Tourism Sector Code.

Therefore it is imperative that those driving procurement have a

broad knowledge of all Codes to ensure an accurate evaluation of

their overall Preferential Procurement Recognition level. In this case,

it would be critical that the procurement spend with XYZ Hotel

contributes to ABC Construction’s procurement targets. See page

44 for an overview on Preferential Procurement.

To successfully navigate ‘Cross-Sector Procurement’ in a way

that benefits an organisation’s scorecard, there is a vast amount

of information that needs to be taken into account. The reason is

that the impact of incorrectly evaluating or accepting a B-BBEE

Certificate measured on an incorrect Code only becomes

apparent at the time of verification. To say the least, managing an

organisation’s Preferential Procurement mandate is possibly the

most complex and impactful of all measured elements on a

B-BBEE Scorecard.

The previous Chartered Accountancy

Sector Code was repealed, and the

amended version is currently in draft.

How should those representing this

sector be measured?

The previous Chartered Accountancy Sector Code was repealed

on 17th February 2016. The amended Sector Code is currently in

draft format for public comment. Until amendments to this Sector

Code are gazetted, qualifying organisations must be measured on

the Generic Codes. Organisations must bear in mind that, once this

Sector Code is gazetted, generally there is no transition period. It

becomes effective from the date of final publication.

The Amended Transport Sector Code,

which incorporates multiple Sub-sector

Codes, is currently in draft. How should

those representing this sector be

measured?

The Transport Sector Code contains multiple sub-sectors, for

example Forwarding & Clearing and Road Freight among others.

Until such time as this sector code is either repealed or amended,

the provisions in the 2009 Transport Sector Code of Good Practice

remain applicable.

Once again, organisations must bear in mind that, upon the

gazetting of a Sector Code, there is generally no transition period. It

becomes effective from the date of publication.

Managing Preferential Procurement

Would it be safe to only procure from

organisations with a Status Level 1 to

secure optimum Preferential Procurement

Recognition?

An organisation with a Status Level 1 in any sector has undoubtedly

shown a requisite commitment to B-BBEE and transformation based

on the criteria laid out in the Code on which they are measured.

However, due to the way the Preferential Procurement Scorecard

was designed, particularly for Large Enterprises, there is no

guarantee that an organisation with a Status Level 1 will be valuable

on a Preferential Procurement Scorecard. The reason for this is that

the various procurement evaluation criteria encourage procurement

from suppliers that have ‘Black’ and ‘Black’ Women Ownership. See

page 48 for scenarios outlining this issue.

Can any verification agency issue a

B-BBEE Certificate on any of the Sector

Codes?

Firstly, all B-BBEE Certificates must be issued by SANAS accredited

verification agencies. However, a verification agency must have

specific accreditation to measure an organisation on a particular

Sector Code. A verification agency should not engage in work in a

sector for which they have no accreditation

What criteria allows a supplier to present a B-BBEE Certificate

issued by a verification agency?

Generally, a Large Enterprise and a QSE with less than 51% ‘Black’ Ownership must have a SANAS accredited

B-BBEE Certificate verified by an accredited verification agency. There are sector specific deviations such as

the Transport Sector Code previously mentioned, and the Construction Sector Code which require a SANAS

accredited B-BBEE Certificate for QSEs and certain EMEs, as outlined on page 36.

What criteria allows a supplier to present an Affidavit or CIPC

Certificate?

Any EME or QSE that has more than 51% ‘Black’ Ownership largely receives Enhanced Recognition.

Gazette #42496, published on 31st May 2019 clarifies that Enhanced Recognition only applies to EMEs and

QSEs that achieve ‘Black’ Ownership by applying the Flow-Through Principle. Such recognition allows for the

following:

> An EME must present either an Affidavit or a CIPC Certificate to confirm their Ownership

and financial status.

> A QSE with more than 51% ‘Black’ Ownership must present an Affidavit confirming their Ownership and

financial status.

Generically EMEs are only required to present an Affidavit or a CIPC Certificate. However, there are deviations to

this requirement as outlined by The B-BBEE Commission’s Practice Guide 1 of 2018 - Determining the validity

of a B-BBEE Verification Certificate, CIPC B-BBEE Certificate and Affidavit.

The of good practice Sector

The Sector Codes of Good Practice are issued in terms of Section 9(1) of the B-BBEE Act as

amended feature as follows:

> AgriBEE Sector Code;

> Construction Sector Code;

> Defence Sector Code;

> Forest Sector Code;

> Financial Sector Code;

> Information, Communication & Technology Sector Code (ICT);

> Marketing, Advertising & Communication Sector Code (MAC);

> Property Sector Code;

> Tourism Sector Code.

These Sector Codes appear in table format and include the following information for each:

> Scorecard measurement elements;

> Threshold qualification criteria;

> Certification requirements;

> Weighting Points;

> Bonus Points; and

> Special features.

The Sector Codes illustrated within this issue are the gazetted ones at the time of going to

print. It excludes the Chartered Accountancy, Transport and Liquid Chemical Sector Codes that

remain in draft format.

Visit www.tfmmagazine.co.za to request a download of the TFM Magazine B1SA ‘Cross-Sector

Procurement’ A1 poster to use for cross reference purposes at a glance. The tables highlighted

in this segment will be updated as and when gazettes are issued and will appear on the TFM

Magazine website.

> All organisations are measured on the Generic Code of Good Practice unless 50% of annual

turnover qualifies them to be measured on a Sector Code of Good Practice.

> Both Management Control and Skills Development include demographic sub-race targets based on

national EAP targets.

> Start-ups can present an Affidavit or CIPC Certificate. However, when tendering for contracts that

exceed R10m must be measured on the scorecard applicable to the tender amount. For example

a tender valued at R25m would be measured on a QSE Scorecard and a tender valued at R50m

would be measured on a Large Enterprise Scorecard.

> 40% Sub-minimum Requirement applies.

> Discounting Principle applies.

> Bonus Points applicable for Skills Development, as well as Enterprise & Supplier Development.

> Enterprise Development Bonus Points for graduation to Supplier Development appear under

Enterprise Development.

Enhanced Recognition for QSEs that are more than 51% ‘Black’-owned, which provides that such

organisations only have to present an Affidavit to confirm their Ownership and annual turnover.

> An EME may choose to be verified on a QSE Scorecard.

> Enhanced Recognition for EMEs, which provides that such organisations only have to present an

Affidavit or CIPC Certificate to confirm their ownership and annual turnover

All organisations are measured on the Generic Code of Good

Practice unless 50% of annual turnover qualifies them to be

measured on a Sector Code of Good Practice.

> Broken up into two scorecards:

° Construction Material Suppliers are organisations which

conduct the following activities: manufacturing, creation or

the supply of building material and equipment used in

construction, for example, cement, concrete, bricks,

electrical equipment and steel. This category includes

organisations that provide plant hire for construction

-related activities.

° A BEP is defined as a Built Environment Professional.

Organisations that fall into this category conduct the

following activities: Planning, design and costing of

construction projects in the built environment. This is in

addition to project management and design of the

construction value chain, including the environment,

energy, industrial, property, transport, as well as

infrastructure. Included in the BEP category are, however

not limited to, consulting engineering practices, architects,

quantity surveyors and town planners

> There is no Enterprise Development on this scorecard.

> Both Management Control and Skills Development include

demographic sub-race targets based on national EAP

targets.

> Start-ups tendering for contracts that exceed R50m must be

measured on a Large Enterprise Scorecard.

> 40% Sub-minimum Requirement applies.

> Discounting Principle applies.

> Bonus Points applicable for Ownership, Skills

Development, Management Control and Socio-Economic

Development.

> Socio Economic Development targets

differ for large entities.

> Target for annual value of all

Qualifying Socio-Economic

Contributions by the Measured

Entities is 1.25% NPAT.

> The Target for the portion of Qualifying

Socio-Economic Contributions in

above spend on Communities with

Limited Services is 30% of 1.25%

or 0.375% NPAT

> The Target for annual value of

contributions towards Structured SED

Projects by the Measured Entity is

1.25% NPAT.

> Enhanced Recognition for QSEs that

are more than 51% ‘Black’-owned.

> It is compulsory that a QSE complies

with Skills Development. Not doing

so will result in the discounting of one

Status Level.

> All QSEs must be verified by a SANAS

accredited verification agency,

irrespective of ‘Black’ Ownership.

> QSEs that are at least 51% ‘Black’-

owned are entitled to enhance their

Status Level if they score full points

(excluding Bonus Points) for Skills

Development, and Preferential

Procurement and Supplier

Development, on a QSE Scorecard.

> For Larger EMEs 40% compliance to

QSE Skills Development targets to

avoid discounting.

> Larger EMEs must be verified by a

SANAS accredited verification agency.

> A smaller EME may choose to be

verified on a QSE Scorecard.

> Enhanced Recognition for EMEs that

are less than 100% ‘Black’-owned,

provides that such organisations only

have to present an Affidavit or CIPC

Certificate to confirm their ownership

status and annual turnover.

> Subject to a SANAS accredited

verification process EMEs - both

smaller and larger - are entitled to

enhance their Status Level

providing they score full points for

Skills Development on a QSE

Scorecard. This, however, excludes

Bonus Points.

All organisations are measured on the Generic Code of Good Practice unless 50% of annual

turnover qualifies them to be measured on a Sector Code of Good Practice.

> Both Management Control and Skills Development include demographic sub-race targets based on

national EAP targets.

> Start-ups can present an Affidavit or CIPC Certificate. However, when tendering for contracts that

exceed R5m must be measured on the scorecard applicable to the tender amount. For example a

tender valued at R25m would be measured on a QSE Scorecard and a tender valued at R50m

would be measured on a Large Enterprise Scorecard.

> 40% Sub-minimum Requirement applies.

> Discounting Principle applies.

> Bonus Points applicable for Skills Development, as well as Enterprise & Supplier Development.

> Enterprise Development bonus points for graduation to Supplier Development appear under

Enterprise Development.

> Introduces sub-element Enterprise & Supplier Development Fund.

> Introduces Localisation as an element .

Enhanced Recognition for QSEs that are more than 51% ‘Black’-owned, which provides that such

organisations only have to present an Affidavit to confirm their Ownership and annual turnover.

> An EME may choose to be verified on a QSE Scorecard.

> Enhanced Recognition for EMEs, which provides that such organisations only have to present an

Affidavit or CIPC Certificate to confirm their ownership and annual turnover.

All organisations are measured on the Generic Code of Good Practice unless 50% of annual turnover

qualifies them to be measured on a Sector Code of Good Practice.

> Both Management Control and Skills Development include demographic sub-race targets based on

national EAP targets.

> Start-ups can present an Affidavit or CIPC Certificate. However, when tendering for contracts that exceed

R10m must be measured on the scorecard applicable to the tender amount. For example a tender valued

at R25m would be measured on a QSE Scorecard and a tender valued at R50m would be measured on a

Large Enterprise Scorecard.

> 40% Sub-Minimum requirement applies.

> Discounting Principle applies.

> Enterprise Development Bonus Points for graduation to Supplier Development appear under

Enterprise Development.

> Bonus Points applicable to Ownership, Skills Development, Socio-Economic Development as well as

Enterprise & Supplier Development.

> Enhanced Recognition for QSEs that are more than 51% ‘Black’-owned, which provides that such

organisations only have to present an Affidavit to confirm their ownership and annual turnover.

> Bonus Points applicable to Skills Development and Enterprise & Supplier Development

> Bonus Points applicable to Ownership, Skills Development, Socio-Economic Development as well as

Enterprise & Supplier Development.

> An EME may choose to be verified on a QSE Scorecard.

> Enhanced Recognition for EMEs, which provides that such organisations only have to present an Affidavit

or CIPC Certificate to confirm their ownership and annual turnover.

All organisations are measured on the Generic

Code of Good Practice unless 50% of annual

turnover qualifies them to be measured on a

Sector Code of Good Practice.

> Both Management Control and Skills

Development include demographic sub-race

targets based on national EAP targets.

> Start-ups can present an Affidavit or CIPC

Certificate. However, when tendering for

contracts that exceed R10m must be measured

on the scorecard applicable to the tender

amount. For example a tender valued at R25m

would be measured on a QSE Scorecard and a

tender valued at R50m would be measured on

a Large Enterprise Scorecard

> 40% Sub-minimum Requirement applies.

> Discounting Principle applies.

> Bonus Points applicable for Ownership,

Skills Development, Supplier and

Enterprise Development as well as

Socio-Economic Development (and

Empowerment Financing where applicable)

> Enterprise Development Bonus Points for

graduation to Supplier Development

appear under Enterprise Development.

> Introduces Empowerment Financing.

> Introduces Access to Funding. The Large Enterprise

Scorecard has four separate

classification criteria.

> Combines Procurement

and ESD.

> Enhanced Recognition for

QSEs, that are more than

51% ‘Black’-owned

which provides that such

organisations only have to

present an Affidavit

to confirm their Ownership

and annual turnover.

> An EME may choose to be

verified on a QSE Scorecard.

> Enhanced Recognition for

EMEs, which provides that

such organisations only

have to present an Affidavit

or CIPC Certificate to

confirm their ownership and

annual turnover

All organisations are measured on the Generic Code of Good Practice unless 50% of annual turnover

qualifies them to be measured on a Sector Code of Good Practice.

> Both Management Control and Skills Development include demographic sub-race targets based on

national EAP targets.

> Start-ups can present an Affidavit or CIPC Certificate. However, when tendering for contracts that

exceed R10m must be measured on the scorecard applicable to the tender amount. For example a

tender valued at R25m would be measured on a QSE Scorecard and a tender valued at R50m would

be measured on a Large Enterprise Scorecard.

> 40% Sub-minimum Requirement applies.

> Discounting Principle applies.

> Bonus Points applicable for Skills Development, as well as Enterprise & Supplier Development.

> Enterprise Development Bonus Points for graduation to Supplier Development appear under

Enterprise Development

Has a different qualification scale for each B-BBEE recognition level compared to all the other

sectors. The ICT QSEs are measured on the same recognition table as the other sectors – Generic

Codes clause 8.2.

Enhanced Recognition for QSEs that are more than 51% ‘Black’-owned, which provides that such

organisations only have to present an Affidavit to confirm their ownership and annual turnover.

> QSEs and EMEs that are more than 75% ‘Black’-owned are automatically elevated to Status Level 1.

An EME may choose to be verified on a QSE Scorecard.

> Enhanced Recognition for EMEs that are more than 51% ‘Black’-owned, which provides that such

organisations only have to present an Affidavit or CIPC Certificate to confirm their ownership and

annual turnover.

> EMEs that are more than 75% ‘Black’-owned are automatically elevated to Status Level 1.

All organisations are measured on the Generic Code of Good Practice unless 50% of annual turnover

qualifies them to be measured on a Sector Code of Good Practice.

> Both Management Control and Skills Development include demographic sub-race targets based on

national EAP targets.

> Start-ups can present an Affidavit or CIPC Certificate. However, when tendering for contracts that

exceed R10m must be measured on the scorecard applicable to the tender amount. For example a

tender valued at R25m would be measured on a QSE Scorecard and a tender valued at R50m would

be measured on a Large Enterprise Scorecard.

> 40% Sub-minimum Requirement applies.

> Discounting Principle applies.

> Bonus Points applicable for Skills Development, as well as Enterprise & Supplier Development.

> Enterprise Development Bonus Points for graduation to Supplier Development appear under

Enterprise Development.

> There are two separate thresholds:

° Marketing, Advertising, Communications and Research

° Public Relations

> Responsible Marketing has been incorporated into this scorecard.

> Calculations for Preferential Procurement Recognition differ from the Generic Codes.

Enhanced Recognition for QSEs that are more than 51% ‘Black’-owned, which provides that such

organisations only have to present an Affidavit to confirm their ownership and annual turnover.

> An EME may choose to be verified on a QSE Scorecard.

> Enhanced Recognition for EMEs, which provides that such organisations only have to present an

Affidavit or CIPC Certificate to confirm their ownership and annual turnover.

All organisations are measured on the Generic Code of Good Practice unless 50% of annual turnover

qualifies them to be measured on a Sector Code of Good Practice.

> Both Employment Equity and Skills Development include demographic sub-race targets based on national

EAP targets.

> Start-ups can present an Affidavit or CIPC Certificate. However, when tendering for contracts that exceed

R10m must be measured on the scorecard applicable to the tender amount. For example a tender valued

at R25m would be measured on a QSE Scorecard and a tender valued at R50m would be measured on a

Large Enterprise Scorecard.

> 40% Sub-minimum Requirement applies.

> Discounting Principle applies.

> The scorecard splits industries into various categories and thresholds.

> Whilst the points remain the same for all measured on this Sector Code, there are different targets for

Property Owning Companies.

> The two Bonus Points allocated to management control apply to Estate Agents, Property Brokers and

Valuation.

> Due to the nature of trade, some organisations may be exempt from an indicator on this scorecard.

> Calculations for Preferential Procurement Recognition differ from the Generic Codes.

Bonus points applicable for Ownership, Management Control, Skills Development and Enterprise &

Supplier Development.

Enhanced Recognition for QSEs that are more than 51% ‘Black’-owned, which provides that such

organisations only have to present an Affidavit to confirm their ownership and annual turnover.

> Bonus points applicable for Employment Equity and Skills Development

> Bonus points applicable for Ownership, Management Control, Skills Development and Enterprise &

Supplier Development.

> An EME may choose to be verified on a QSE Scorecard.

> Enhanced Recognition for EMEs, which provides that such organisations only have to present an Affidavit or CIPC Certificate

to confirm their ownership and annual turnover

> All organisations are measured on the Generic Code of Good Practice unless 50% of annual

turnover qualifies them to be measured on a Sector Code of Good Practice.

> Both Management Control and Skills Development include demographic sub-race targets

based on national EAP targets.

> Start-ups tendering for contracts that exceed R5m must be measured on the scorecard applicable

to the tender amount. For example a tender valued at R25m would be measured on a QSE

Scorecard and a tender valued at R50m would be measured on a Large Enterprise Scorecard.

> 40% Sub-minimum Requirement applies.

> Discounting Principle applies.

> Enterprise Development Bonus Points for graduation to Supplier Development appear under

Enterprise Development.

Enhanced Recognition for QSEs that are more than 51% ‘Black’-owned, which provides that such

organisations only have to present an Affidavit to confirm their ownership and annual turnover.

> Bonus Points applicable for Management Control, Skills Development, Enterprise & Supplier

Development as well as Socio-Economic Development

> An EME may choose to be verified on a QSE Scorecard.

> Enhanced Recognition for EMEs, which provides that such organisations only have to present an

Affidavit or CIPC Certificate to confirm their ownership and annual turnover.

BEEBUCKS

A CURRENCY BUILT ON RECOGNITION

Preferential Procurement Recognition

Achieving a favourable score and Status Level on a B-BBEE Certificate is critical as it aligns with an associated

Preferential Procurement Recognition level. It is this percentage of recognition for every Rand spent, which determines

a supplier’s actual transformational value to their customer’s B-BBEE Scorecard.

On the Generic Codes, an organisation’s B-BBEE Certificate is made up of points earned from Ownership,

Management Control, Skills Development, Enterprise and Supplier Development - the latter incorporating Preferential

Procurement, Enterprise Development and Supplier Development, as well as Socio-Economic Development.

Preferential Procurement recognition is based on the overall performance on the B-BBEE Scorecard. The overall

scorecard total of an organisation allocates a specific Status Level to them and an associated Preferential

Procurement Recognition percentage for each Rand spent. Essentially, Preferential Procurement Recognition is BEE

Bucks, which are similar to a ‘crypto-currency’ or common incentive programme, but in this case it only exists on a

Preferential Procurement Scorecard. As in any currency trading, the outcome can be positive or negative. In terms of

Preferential Procurement, a negative or positive outcome is determined by the percentage Preferential Procurement

recognition allocated to an organisation based on their Status Level, as well as the overall amount a customer

spends with a specific supplier. The percentage of ‘crypto-currency’, affectionately referred to as BEE Bucks, is either

earned or lost for each Rand spent by a customer. Although BEE Bucks are not tangible, they become the crux of an

organisation’s evidence at the time of their B-BBEE verification.

BEE Bucks are earned as follows:

1 A customer pays a supplier invoice.

2 The invoice total, excluding VAT, is multiplied by the Preferential Procurement Recognition percentage achieved

by the supplier, based on their Status Level.

3 The percentage total is the amount converted into recognised spend, or ‘BEE Bucks’.

4 The total ‘BEE Bucks’ earned from each supplier is the total that contributes to the Preferential Procurement

Scorecard of the customer.

5 The ‘BEE Bucks’ are cashed in by the customer when they convert the ‘BEE Bucks’ into the evidence required

at the next verification

The Supply Chain Economy

As customers seek to optimise the value of their supply chain and claim the maximum points available, procurement managers should carefully

consider the construct of their Preferential Procurement Scorecard and their transformation objective versus their supply chain objectives. The

conventional risk-managed approach to supply chain management will see customers reducing the number of suppliers in their supply chain

- so-called ‘quality over quantity’. The challenge here is that it introduces traditional supply chain efficiencies, but reduces the number of suppliers

that could possibly contribute to transformation objectives. The customer spends more on each supplier. However, the consequence of this is

that the B-BBEE targets for EMEs and QSEs become more of a challenge. These targets together make up 30% of the TMPS.

Even a progressive transformation approach, where the customer opts to procure from suppliers who have a Status Level 1 only, will not achieve

the desired Preferential Procurement outcome. This is evident from the scenarios illustrated. Procuring from suppliers with a Status Level 1

without at least 51% ‘Black’ Ownership or 30% ‘Black’ Women Ownership will simply not meet scorecard objectives, where 40% of TMPS is

required on more than 51% ‘Black’-owned suppliers and 12% of TMPS with 30% ‘Black’ Women-owned suppliers. The only way in which the

customer can achieve their Preferential Procurement targets on their scorecard is by ensuring their supply chain supports such outcomes.

Historically, chasing a higher Status Level would have secured a supplier B-BBEE procurement value to their customers. However, as B-BBEE

has evolved, it is imperative that suppliers take a holistic view of B-BBEE, which includes the criteria that will optimise their customer’s Preferential

Procurement scores above and beyond their Preferential Procurement Recognition status.

As with most things, there are two sides to procurement - as each organisation doing business plays the role of both the customer and the

supplier. All suppliers want is to add value to their customers, so they become a preferred supplier, and the customers, specifically in the South

African business arena, want to increase profit margins and achieve their B-BBEE targets.

As the supplier, it is vital to ensure a good Status Level that will provide a healthy return on ‘BEE Bucks’. Similarly, Ownership structures should

support a supplier’s bid for business. For example, if an organisation is considering entering into a 45% ‘Black’ Ownership transaction, rather

consider 51% or strive for 30% to include ‘Black’ Women.

As the customer, it is equally vital to do leg work to ensure procurement targets are met. Choose suppliers wisely and ensure that B-BBEE

Certificates presented are indeed valid and measured on the specific Code that a supplier qualifies to be measured.