The days of frantically finding a suitable black partner to do business with the government may be on their way out.

Paul Janisch – Siyakha Consulting

Black economic empowerment has always found its ultimate implementation to be lacking because of government's own procurement regulations.  There always seemed to be an ideological difference of opinion between the DTI who championed BEE and Treasury who are responsible for the Preferential Procurement Policy Framework Act (PPPFA).  It is for this reason that the PPPFA regulations that are still in practice were published in 2001, predating BEE by two years.  These regulations award preference points for criteria like historically disadvantaged individual ownership and other RDP goals.

The problem seems to be routed in the constitution, specifically section 217 which requires that when an organ of state contracts for goods or services, it must do so in accordance with a system which is fair, equitable, transparent, competitive and cost-effective.  This section precludes the government from targeting black companies at the expense of other types of companies - a practice that black economic empowerment actively encourages.

At the same time the private sector has been living with the reality of a BEE scorecard for the last five or six years as a business tool; a tool that has not been acceptable within government procurement regulations.  It seems that the only compromise that was available was that government starts basing its preference points on the bidder's BEE scorecard.  This is exactly what the regulations set out to achieve.

The draft regulations were published by the DTI on their website, to little or no fanfare. Comments may be submitted to Treasury before the 14^th of September, 2009.  They are a dramatic departure from current government procurement practices and if accepted will take a while to be properly implemented. 

Some of the more significant features are:

•               The 80:20 rule is extended to all contracts below R1million; 90:10 for contracts above R1million

•               Preference points (80 or 10 points depending on the financial value of the contract) are awarded on the basis of a BEE score – with different sliding scales for the 90:10 and 80:20 rules

•               Historically Disadvantaged Individual (HDI) status and RDP goals are no longer used in determining preference points

•               Bidders will not be disqualified or regarded as non-responsive for being a non-compliant B-BBEE contributor.  Under such circumstances bidders will score no points for their B-BBEE status

•               Only BEE scorecards issued by SANAS-accredited verification agencies (subject to a few qualifications) will be accepted

•               Local manufacturing – for specific industries (identified by the DTI) where the award of bids to local manufacturers are of critical importance, such bids may be advertised with a specific bidding condition that only local manufacturing products will be considered. 

•               A tax clearance certificate is still required to do business with the government

•               Subcontractors to successful bidders are encouraged to match the BEE score of the winning bidder

The preference points offered in government procurement are largely misunderstood.  There is an untrue perception that if no preference points are awarded then a bid is disqualified.  Bid committees are in fact legally required to evaluate the preference and other points separately, the two sections are then added together and the bidder with the highest number of points is supposed to win the bid.  The new regulations are at pains to reinforce this fact.  What the new regulations do do is make the preference points available to a wider group than previously.  A BEE scorecard is well within the reach of almost every entity operating within South Africa, the higher the score the greater the number of preference points will be awarded.

There is a grey area when it comes to new companies entering South Africa and scorecards.  Technically these companies would be regarded as start-ups and would automatically be level 4 contributors (65-75 points) for the first year of operation.  The B-BBEE codes of good practice state that start-up companies are required to submit a BEE scorecard when they do business with the government.  It is not clear as to how this scorecard is to be produced.

The new regulations are still in draft form but it is unlikely that they won't be accepted.  The long term benefits to South Africa's ultimate economic success and transformation stand a better chance of success if the regulations are gazetted and implemented. 

Siyakha Consulting is hosting a breakfast presentation about government procurement and the new regulations.  The cost is R225 per person and they  will be hosted on the following dates

Johannesburg (max 25 people) :   4 September 2009 (fully booked – an additional event has been arranged for  10 September)

Cape Town (max 10 people) :       11  September 2009

Durban (max 15 people) :             17 September 2009

To book please contact Karen Bekker on either Karen.Bekker@britishchamber.co.za or (+2711) 482 8833