BBBEE – Advisory – IT Systems – Outsource BBBEE IT Systems

Chartered Institute of Purchasing and Supply Africa

Draft Amendments to the BEE Codes

BBBEE – Advisory – IT Systems – Outsource BBBEE IT Systems

Current status

The DTI released the draft amendments to the BEE Codes in October, which are out for public comment for a 60 day period, ending December 5th 2012

The DTI has assured us that their aim is to take the public comments into account, and will do during December and January

We do not expect these amended Codes to be gazetted under 9(1) of the BEE Act before mid 2013, and a 1 year transition period will be implemented giving companies time to adapt their BEE strategy to align with the changes

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Principles of the changes

The current seven Scorecard elements will be reduced to five elements; Management Control is combined with Employment Equity, and Enterprise Development with Preferential Procurement.

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Principles of the changes

Three of the Scorecard components are now Priority elements: Ownership, Skills Development, Enterprise and Supplier Development

QSEs have to comply with Ownership and one other Priority element

Generics have to comply with ALL Priority elements

A 40% minimum requirement (threshold) applies to all Priority elements, in some measurement categories

Companies not meeting the Priority elements threshold…

– …will drop one level if they’re a QSE

– … will drop two levels if they’re a Generic

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Qualification limits have been increased

EMEs (Exempt Micro Enterprises) – businesses with annual turnover of less than R 10 Million (previously R 5 million)

> EMEs with more than 50% Black Ownership are automatically Level 2

> EMEs with more than 100% Black Ownership are automatically Level 1

QSEs (Qualifying Small Enterprises) – businesses with annual turnover of more than R 10 Million but less than R 50 Million (previously R 5 million and R 35 million)

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Some further principles

Broader base of Black ownership

Demographically represented executive and management structures (African, Indian and Colored targets)

Training and development of employees and unemployed people

Increasing local content from part-Black owned companies

Developing the upstream supply chain, with less focus on downstream development

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Level One Contributor 100 points on the

Generic Scorecard

100 points on the

Generic Scorecard

Level One Contributor 135%

Level Two Contributor 85 but <100

points on the

Generic Scorecard

95 but <100 points

on the Generic

Scorecard

Level Two Contributor 125%

Level Three Contributor 75 but <85 on the

Generic Scorecard

90 but <95 on the

Generic Scorecard

Level Three Contributor 110%

Level Four Contributor 65 but <75 on the

Generic Scorecard

80 but <90 on the

Generic Scorecard

Level Four Contributor 100%

Level Five Contributor 55 but <65 on the

Generic Scorecard

75 but <80 on the

Generic Scorecard

Level Five Contributor 80%

Level Six Contributor 45 but <55 on the

Generic Scorecard

70 but <75 on the

Generic Scorecard

Level Six Contributor 60%

Level Seven Contributor 40 but <45 on the

Generic Scorecard

55 but <70 on the on

Generic Scorecard

Level Seven Contributor 50%

Level Eight Contributor 30 but <40 on the

Generic Scorecard

40 but <55 on the

Generic Scorecard

Level Eight Contributor 10%

Non-Compliant Contributor <30 on the Generic

Scorecard

<40 on the Generic

Scorecard

Non-Compliant

Contributor

0%

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Enterprise and Supplier Development

ED and Procurement merged into one element worth 40 points

Annual values apply i.e. no more ‘Cumulative’ confusion; only spend with Value Adding suppliers will be recognised

Some measurement categories have a 40% threshold requirement

The ‘Enhanced Recognition’ requirements change

The Benefit Factor Matrix has changed, lowered some of the factor percentages

Early payments: will likely be limited to 50% BO SMME companies and a company can only recognise up to 15% of the total available E&SD (40) points

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Enterprise Development

2.2 Enterprise and Supplier Development

2.2.1 Annual value of all Supplier Development Contributions made by the Measured Entity as a

percentage of the target 10

2%

of NPAT

2.2.2 Annual value of Enterprise Development Contributions and Sector Specific Programmes made by

the Measured Entity as a percentage of the target 5

1%

of NPAT

2.3 Bonus points for the following (during measured period)

2.3.1 New venture created (to become a value adding supplier) 1

2.3.2 Graduation from Enterprise Development to Supplier Development beneficiary 1

2.3.3 Jobs created by supported supplier from Enterprise Development to Supplier Development (a

multiplier of 1.25) 1

“Enterprise Development Contributions involves Enterprise Development Contributions to Exempted Micro-Enterprises or Qualifying Small Enterprises which are more than 50% black-owned or black-women owned”

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Enterprise Development

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Preferential Procurement

Criteria Weighting

points

Compliance

targets

2.1 Preferential Procurement

2.1.1 B-BBEE Procurement Spend from all Value-Adding Suppliers based on the B-BBEE Procurement

Recognition Levels as a percentage of Total Measured Procurement Spend 8 80%

2.1.2

B-BBEE Procurement Spend from Value-Adding Qualifying Small Enterprises or Exempted Micro

Enterprises based on the applicable B-BBEE Procurement Recognition Levels as a percentage of

Total Measured Procurement Spend

4 30%

2.1.2.1 B-BBEE Procurement Spend from Value-Adding Suppliers that are more than 50% black owned;

and 9 40%

2.1.2.2 B-BBEE Procurement Spend from Value-Adding Suppliers that are more than 30% black women

owned 4 12%

Changes to the ‘Permissible Exclusions’… IMPORTS no longer excluded Only “Value Adding” suppliers qualify in procurement. Definition is likely to change

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Some of the requirements

Companies are encouraged to procure goods and services from:

– Black Owned QSE / EME companies that have a minimum 3 year contract with your company – a multiplier of 1,2 times is applicable

– Black Owned QSE / EME companies that are defined as “new” companies – a multiplier of 1,25 times is applicable

– “New enterprise”: means an early stage business that is typically 3 years old or less

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So what ?

Procurement teams essentially have influence over 40% of a company’s

overall BEE compliance.

Procurement professionals will face further challenges to best practice, including procuring from many smaller companies, rather than fewer, more strategic entities (as a result of the ED requirements, and the points allocations for procuring from BO and BWO companies)

Although the definition of “Value Adding Supplier” will likely change, the

principle is to encourage increased local procurement from BEE compliant companies

The compliance targets that YOUR COMPANY sets for suppliers to achieve will need to be revised, as their (and your company) compliance levels will likely drop 2 – 4 levels !!

It may be a good time to focus on driving transformation within supply chains rather than BEE compliance

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So what ?

Understand the principles of the proposed change, and gradually

start adapting, especially with regards to the nature of

Enterprise Development

We strongly encourage procurement professionals to understand the draft amendments to the Preferential Procurement scorecard, and to

make suggestions to the DTI on the definition of “Value Add Suppliers”, or to make suggestions on how to achieve the objective of increased local content without the “VAS” principle

CIPS and its members MUST take a view on this and engage the DTI, as you are the professionals that should be guiding the DTI on this matter !!! Please do not be apathetic about the 60 day comment period.

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Don’t forget: https://cips.bbbeescorecards.co.za

BBBEE – Advisory – IT Systems – Outsource BBBEE IT Systems

For your information

Bruce Rowe (bruce@mpowered.co.za)

MANAGE BEE COMPLIANCE

– www.beetoolkit.co.za

AUTOMATE PREFERENTIAL PROCUREMENT

– www.suppliermanagement.co.za