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THE

BEECHAMBER

THE PREMIUM FOR THIRD -PARTY The task of managing an organisation today has evolved from FACILITATION

2021

Amended General B-BBEE Codes of Good Practice

Enterprise & Supplier Development

THE PREMIUM FOR THIRD -PARTY The task of managing an organisation today has evolved from FACILITATION

The task of managing an organisation today has evolved from

FACILITATION

that of 20 years ago. It not only encompasses feeding the

bottom line through sales and providing services to satisfy

customer needs, but it includes strategising against external

micro forces. To incorporate all the facets of doing business

today, many use the PESTEL Analysis. It is a strategic framework

that evaluates the external environment of a business by

breaking down the opportunities and risks into Political,

Economic, Social, Technological, Environmental, and Legal

factors. The Analysis, which experts advise organisations to

do twice a year, is a practical framework in Corporate Strategy

Planning that identifies the pros and cons of a business strategy.

B-BBEE holistically links to each measurement of the PESTEL

Analysis. The reason for this is that doing business in South

Africa today is intrinsically geared towards inclusion and creating

opportunities for ‘Black’ People and ‘Black’-owned organisations

in line with legislation. As being B-BBEE compliant is not a legal

requirement, those choosing not to incorporate it into

their Corporate Strategy do so at their peril, as it is more often

than not a prerequisite to gaining and retaining business.

In short, a favourable Status Level and the accompanying

Preferential Procurement Recognition gives organisations

leverage, particularly for government tenders, incentives,

licenses and concessions.

Enter Enterprise & Supplier Development, which falls into

the Economic category of the PESTEL Analysis. As a Priority

Element on the B-BBEE Scorecard, it has the most potential

to transform the economy. The three sub-elements, namely

Preferential Procurement, Enterprise Development and Supplier

Development, are all geared towards diversifying procurement,

developing and growing the footprint of ‘Black’ suppliers where

the focus is to invite more people to participate in the economy.

B-BBEE Verification evidence

Although the objective of Enterprise & Supplier Development is

clear, implementation thereof and the desired outcome, more

often than not, need clarity. Thus, the B-BBEE Commission

issued a Practice Guide to direct and uniform the interpretationand application of this element. It, among other things, clarifies

the process, application, qualification criteria and targets to

meet requirements. The Practice Guide addresses one core

issue: intermediaries, otherwise known as third-parties, which

pose a risk to organisations claiming Enterprise & Supplier

Development points.

It goes without saying that implementing an Enterprise

Development or Supplier Development programme is not a cut

and dry process. Hence many organisations secure the services

of a third party to develop and implement its programme,

which the Codes allow. Third parties in this sphere of business

are professionals who specialise in Enterprise Development

and Supplier Development. Their role is to strategise, then

implement programmes on behalf of organisations. A shortfall

to using third-party intervention is the misconception that once

funds are transferred or in any way benefit the third party,

the claim concludes. However, this is not the case. Simply

transferring funds to be fed onward does not absolve an

organisation of its responsibility to make sure that the ultimate

benefit reaches the Beneficiary. Furthermore, an organisation,

at the time of its B-BBEE Verification, must provide evidence

that it met, or had a plan in place to meet, the objectives of

sustainability as well as operational and financial independence

of the ultimate Beneficiary, which will require an organisation to: > Verify a Beneficiary’s Status Level through sufficient

and appropriate evidence such as an Affidavit, B-BBEE

Certificate or CIPC B-BBEE Certificate for EMEs;

> Obtain confirmation that the Beneficiary is a ‘Black’ Person

as defined, therefore qualifies for redress;

> Supply the agreement between the parties; > Provide evidence that the contribution was made to

the Beneficiary. Supporting documents include written

confirmation of the support from the Beneficiary, invoices

and a proof of payment; and

> Supply a letter from the Beneficiary confirming and

acknowledging the value and nature of the assistance received.

A Beneficiary must only supply acknowledgement of support

once the support has been received and not beforehand. According to the B-BBEE Commission, an organisation must

confirm their intent by providing evidence that:

> The assessment as to the needs of the Beneficiary was

done; and

> There is an agreement in place confirming support that must

incorporate:

o The clear objectives of the intervention;

o Priority interventions;

o Key performance indicators; and

o A concise implementation plan that includes identified

milestones.

Third-party loan facilitation

Measuring an Enterprise Development or a Supplier Development

loan contribution is done over the duration the Beneficiary

receives the benefit. The benefit factor for standard loans and

interest-free loans stands at 50% and 70% respectively under the

Generic Codes.

Many organisations provide such loans to support their

Beneficiaries and, in doing so, use a third party to facilitate

the transaction. However, the unintended consequence of

this is that an organisation can only claim a fraction of the

overall contribution.

To illustrate the shortfall, let’s unpack the case of

Stella Inc and Keba Financial Services using two scenarios:

> Stella Inc is a Large Enterprise with a Status Level 2 and

125% Preferential Procurement Recognition.

> Keba Financial Services is a Large Enterprise with a Status

Level 4 and 100% Preferential Procurement Recognition.

The following are three Supplier Development Beneficiaries of Stella Inc:

> iPad Corporation is an EME with a Status Level 2 and 125%

Preferential Procurement Recognition.

> ABC Traders is a QSE with a Status Level 1 and 135%

Preferential Procurement Recognition.

> XYZ Enterprises is an EME with a Status Level 1 and 135%

Preferential Procurement Recognition.

The financial year-end of Stella Inc is 28th February 2022. It has a

Supplier Development target of R6m to invest in exchange for 10

Weighting Points. Stella Inc engages Keba Financial Services to

facilitate the R6m across the three suppliers mentioned above.

The funds are paid to Keba Financial Services to manage the

disbursements. Stella Inc was advised that it made business

sense to funnel the funds to Keba Financial Services, who duly

disbursed the R2m in November 2021, December 2021 and

January 2022 to each of the three nominated Beneficiaries. Scenario one illustrates the shortfalls organisations face when

they do not fully comprehend how to calculate and recognise

an Enterprise Development or Supplier Development claim.

Hence, many organisations fall into the same trap as Stella Inc,

which pays a premium for compliance.

When choosing the third-party route, the process must be a

measured one. Therefore, the following are pointers to mitigate

the risk of paying a premium for compliance.

> A benefit only counts once the support or contribution

reaches the Beneficiary; thus, the money trail is essential.

> Contributions must be made within an organisation’s

Financial Period, otherwise referred to as the

Measurement Period.

> Considerations when using an intermediary or

third-party facilitator:

o The flow of money to the ultimate Beneficiary;

o Expenses towards developing Beneficiaries so the

claimable percentage becomes 100% in contrast to 70%.

o A Term Sheet must include the repayment plan and

feature in the initial Beneficiary agreement.

o Bear in mind the claim ceiling of 50% for interest and

non-interest bearing loans.

o Grantor direct costs incurred in supporting a

Beneficiary is claimable at 100%

Over the past year I have been engaging with organisations

to either develop or overhaul their Enterprise & Supplier

Development Strategies that reap a Return on Investment. It is

important for organisations to look at a Beneficiary and visualise

the desired outcome. From the outcome work backwards to

where they are now. Then plot the strategy that will secure that

Return on Investment.


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