overview of the salient features of the … workshops/sanas convened bbbee work… · eme & qse...

OVERVIEW OF THE SALIENT FEATURES OF

THE AMENDED CONSTRUCTION SECTOR CODE

Presented by

Thabo Masombuka & Sthembiso CelePresented to

THE SANAS/DTI convened

CONSTRUCTION/AGRIBEE/FINANCIAL SERVICES

BBBEE WORKSHOP

MAY 20181

THE CHRONOLOGICAL ARRANGEMENT OF THE

AMENDED CONSTRUCTION SECTOR CODE

INDEX AND CONTENT

Preamble (1)

Legacy & Industry Commitment (1.1)

Premise of departure (1.2)

Strategic Objectives (1.4)

Monitoring & Compliance (1.5)

Objectives Of the Statement (1.6)

Key Measurement Principles (2)

Scope Of Application (3)

Priority Elements, Sub-Minimums & Discounting (4)

EME & QSE Eligibilities (5)

Start-Up Enterprises (6)

Measurement of Large Enterprises (7)

Large & QSE Scorecards (8)

Enhanced Recognitions (9)

Effective Date & Transition (10)

Verification Of Construction Entities (11)

Adjustment Of Thresholds (12)

Duration Of Sector Codes (13)

STATEMENT CSC 100 – Ownership

STATEMENT CSC 200 – Management Control

STATEMENT CSC 300 – SKILLS DEVELOPMENT

STATEMENT CSC 400 – ESD

STATEMENT CSC 500 – SED

2CSCC - CBE Presentation (August 2017)

• The Old Sector Code – Gazette 32305 (Vol 528) 5 June 2009

32 pages long

Seven Elements of the Scorecard

Differentiates between BEPs and Contractors only

Sets out objectives & monitoring

Contractor EMEs up to R 5million

BEP EMEs up to R1.5 million

Notable Changes – Gazette 41287 • Now over 85 pages long

• 5 Elements of the Scorecard

• Expands the Scope of Application – Include Manufacturers

• Enhancement & Discounting also applicable to EMEs

• Elaborative and detailed in the measurement principles & weighting points

• Places and emphasis on Monitoring & Compliance

THE OLD COMPARED TO THE NEW : A COMPARATIVE ANALYSIS

OVERVIEW & BRIEF BACKGROUND

WHY CONSTRUCTION SECTOR TRANSFORMATION

PREAMBLE - Recognizes the historical Legacy

Despite significant progress since the establishment of a demographic government in 1994, South African society is characterized by racially based income and social service inequalities. Consequently, the vast majority of South Africans remain excluded from ownership, control and management of productive assets and from access to training in strategic critical skills.

Align with the Broad-Based Black Economic Empowerment Act (No. 53 of 2003) establishes a legislative framework for the promotion of B-BBEE, provides for the gazetting of transformation charters and empowers the Minister of Trade and Industry to issue codes of good practice;

The National Development Plan aims to eliminate poverty and reduce inequality by 2030.According to the plan, South Africa can realize these goals by drawing on the energies of all itspeople, growing an inclusive economy, building capabilities, enhancing the capacity of thestate, and promoting leadership and partnerships throughout society;

4CSCC - CBE Presentation (August 2017)

OVERVIEW & BRIEF BACKGROUND

The ACSC seeks to support the objectives of the Act as amended from time to time and the

objectives of the National Development Plan.

Believes that positive and proactive response through the implementation of the

Construction Sector Code would address inequalities in the Construction Sector, unlock the

sector’s potential and enhance its growth. As such the Construction Sector Code supports:

The introduction of Economically Active Population (EAP) targets which aims to address the

unequal representation of race sub-groups participating in the industry;

The continued research by the CSCC on how to create a Construction Sector that benefits

the economy at large through supporting and building capacity in small enterprises including

black professional service providers;

The set aside of minimum levels of procurement spend from Suppliers that are at least 51%

Black Owned or 35% Black Women Owned or 51% Black Designated Groups owned and

standardize industry-wide preferential procurement methodologies;

5

THE SALIENT FEATURES

MONITORING AND COMPLIANCE

PAR 1.5.4 - will be compulsory for all Verification Agencies issuing certificates for

companies governed by the Construction Sector Code to annually provide the

independently verified scorecard and associated details of the Measured Entity in

a prescribed format to the Construction Sector Charter Council. The CSCC will use

this information to assess the performance of the sector and to provide accurate

and reliable state of the industry reports to the line Minister and the DTI.

Verification agencies must ensure that the confidentiality obligations with their

clients do not prohibit them from providing such information

Para - 1.5.6 The CSCC shall, within 12 months of gazette, issue PRACTICE NOTES

approved by the Minister of Trade and Industry on the measurement of

LOCALIZATION, LOCAL CONTENT & EQUITY EQUIVALENTS

6

THE SALIENT FEATURES

SCOPE OF APPLICATION

PAR 3.2.1 Where a Measured Entity operates in more than one sector or sub-sector (e.g. Contractor or BEP), whether it requires a single entity verification or a consolidated verification for it as a group; it will be required to report in terms of :

a) The scorecard for the sector or sub-sector in which the majority of its core activities (measured in terms of annual Revenue) are located, and,

b) Should the majority of its core activities be in the construction field, the measured Entity may be evaluated in terms of the Revised Construction Sector scorecard should these activities conform to those described in the definitions of a Contractor or BEP in these codes.

7

POST GAZETTE FREQUENTLY RAISED AREAS

Since the gazette of the Amended Construction Sector Codes (ACSC), the following are the areas of the Sector Codes that are FREQUENTLY ENQUIRED ABOUT.

1. MEASUREMENT AND STATUS OF EMEs and QSEs – Nominal Fees & applicable rates. (STATEMENT CSC 000)

2. SKILLS DEVELOPMENT related exclusions & Inclusions (STATEMENT CSC300)

3. SCOPE OF APPLICATION related matters (STATEMENT CSC000)

4. MEASUREMENT OF BEP OWNERSHIP & RESTRICTIONS

5. Requirements for PROFESSIONAL REGISTRATION

MEASUREMENT OF EMEs & QSEs

SPECIAL DISPENSATION FOR CONSTRUCTION EMEs

9

EME STATUS LEVEL THRESHOLD

Contractors R0 – R 10 million Annual Revenue

BEPs R 0 – R 6 million Annual Revenue

EMEs with BLACK OWNERSHIP using MFTP

Black Ownership BBBEE level Contribution

< 30% Level 5

> 30% but less than 51% Level 4

> 50% but less than 100% Level 2

If 100% Level 1

Enhancement Levels In accordance with 4.3

EFFECTIVE DATE AND TRANSITIONAL ARRANGEMENTS

New Provisions & Insertions

The Old 2009 Construction Sector Codeprovided for a twelve (12) months transitionalperiod for phasing in and implementation.

The revised construction sector code will makeNO provisions for a transitional period. Thismeans that once gazetted, then the Newlyrevised Construction sector Code will applyand be effective immediately.

However, CSME that have valid B-BBEEcertificates issued in terms of the AmendedGeneric Codes of Good Practice may elect toretain their measurement under the AmendedGeneric Codes until the current scorecardexpires, thereafter the Amended ConstructionSector Codes must be used, irrespective of thefinancial period used in the previous audit.

Implications / Rationale

When the Amended Construction SectorCodes are published, Measured Entities mayelect to re-do the audit carried out for theircurrent valid scorecard that was done underthe provisions of Amended Generic Codes ofGood Practice; under the provisions andprinciples of the Amended ConstructionSector Codes.

This audit will be done for the same financial period as their current scorecard, but under the measurement principles of the Amended Construction Sector Codes.

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MEASUREMENT OF EMEs and QSEs


As a matter of PRINCIPLE, the ACSC does not promote the use of an AFFIDAVIT as a suitable evidence of BLACK OWNERSHIP and EME status.

However, an exception exist in the following circumstances ;

EMEs whose total annual revenue is less (<) than R1.8 million (For BEPs) and R3 million (For Contractors & Manufacturers /Suppliers) and DO NOTelect for enhancement.

NO BLACK OWNED QSE AFFIDAVIT is applicable in the ACSC


This is meant to ensure that, amongst other things :

Fraud and circumvention is prevented and mitigated pro-actively,

To provide end user (procurementpractitioners) with a significantdegree of comfort about thecompliance in respect of theenhancement and/or discounting.

11

VERIFICATION OF CONSTRUCTION ENTERPRISES AND THE

ENHANCEMENT PRINCIPLES


Verification shall be performed by B-BBEE verification professionals or rating agencies accredited by SANAS or when applicable a B-BBEE Verification Professional Regulator appointed by the Minister of Trade and Industry for the accreditation of verification agencies or the authorization of B-BBEE verification professionals.

In view of the fact that EME’s and QSE’s are expected to be verified for compliance with the 40% Skills Development element in order to maintain their levels as provided for under paragraph 3.6.3 above, small black-owned emerging companies have access to B-BBEE verification agencies that will limit their fee for this service at a nominal value.


The CSCC in consultation with and as approved by the dti will post such nominal fees on the website.

Agencies that are prepared to perform thisservice, will post their contact details on theConstruction Sector Charter Council web-site.In addition, Large Enterprises will beencouraged to fund this nominal fee for smallbusinesses as part of their SupplierDevelopment programmes.

This has already been included in the Supplier Development Contribution clause 10.10.5

12

Item

APPLICABLE EME CATEGORIES COST IMPLICATIONRelevant Provisions & Documents

Required Site Visit Required

01

EMEs whose total annual revenue is less (<) than R1.8 million (For BEPs) and R3 million (For Contractors & Manufacturers /Suppliers) and DO NOT elect for enhancement.

No cost implications -Customized AFFIDAVIT acceptable form of EME confirmation.

Par 3.6.2.4.1.(A) and (B) of Statement CSC000 – Page 09 Proof Of Turnover (POT) CICP Incorporation Docs (ID)

NO

02 EMEs whose total annual revenue is less (<) than R1.8 million (For BEPs) and R3 million (For Contractors & Manufacturers/Suppliers) and DO elect for enhancement.

Recommended Fees not to exceed R700.00 (All related costs & VAT exclusive)

Par 3.6.2.4.1.(A) and (B) of Statement CSC000 (An EXCEPTION paragraph) read with 4.3.1.2 & 4.3.1.3

Proof Of Turnover (POT) CIPC Incorporation Docs (ID) A Training Declaration Form

(TDF) signed by the Owner of the ME confirming :

Invoices, receipts etc. EMP201s / Proof of Salaries & Wages

Attendance Register with beneficiary contact details (confirming that its Black beneficiaries)

Certified copies of IDs of the attendees

NO

(HOWEVER, Reasonable

steps of verifying the accuracy &

correctness of the

information is needed)

13

NOMINAL FEES

VERIFICATION OF CONSTRUCTION ENTERPRISES (CATEGORIES OF EXEMPTED MICRO ENTERPRISES (EMEs)

AND QUALIFYING SMALL ENTERPRISES (QSEs))

Issued in accordance with the provisions of paragraph 11.2 – STATEMENT CSC000; GENERAL PRINCIPLES AND THE LARGE ENTERPRISES

03 EMEs whose annual revenue is more (>) than R1.8 million (For BEPs) and R 3 million (For Contractors & Manufacturers/Suppliers) that DO NOT elect to supply proof of Skills Development and DO NOT elect for enhancement. (Meaning does not comply with the QSE Skills Dev element paragraph 3.6.2.3 will be discounted by ONE level).


Par 3.6.2.4 of Statement CSC000 –Page 09

Proof Of Turnover (POT) CIPC Incorporation Documents

(ID)

NO

(HOWEVER Reasonable


correctness of the


04 EMEs whose annual revenue is more (>) than R1.8 million (For BEPs) and R 3 million (For Contractors & Manufacturers/Suppliers) that DO elect to supply proof of Skills Development and DO NOT elect for enhancement. (Meaning they comply with the QSE Skills Dev element paragraph 3.6.2.3 will not be discounted by ONE level).

Recommended prescribed fee not to exceed R1200.00 (All related costs & VAT exclusive)

Par 3.6.2.4.1.(A) and (B) of Statement CSC000 (An EXCEPTION paragraph) read with 4.3.1.2 & 4.3.1.3





NO

(HOWEVER Reasonable


correctness of the


14

NOMINAL FEES



Issued in accordance with the provisions of paragraph 11.2 – STATEMENT CSC000; GENERAL PRINCIPLES AND THE LARGE

ENTERPRISES

05 EMEs whose annual revenue is more (>) than R1.8 million (For BEPs) and R 3 million (For Contractors & Manufacturers/Suppliers) that DO elect to provide proof of Skills Development and DO elect for enhancement. (Meaning they wish to be measured against paragraph 4.3.1 and may be enhanced by one or two levels).


Par 4.3.1, 4.3.1.1 Or 4.3.1.2 OR 4.3.1.3 of Statement CSC000 (read with the provisions of 4.3.2 - page 10





NO

(HOWEVER Reasonable


correctness of the


15

NOMINAL FEES



Issued in accordance with the provisions of paragraph 11.2 – STATEMENT CSC000; GENERAL PRINCIPLES AND THE LARGE

ENTERPRISES

GUIDELINES FOR THE UPTAKE OF VERIFICATION AGENCIES RECOMMENDED BY

THE CSCC IN ACCORDANCE WITH PARAGRAPH 11.2 OF THE ACSC

1.This is to confirm that as the representative of__________________________________(Name of Verification Agency) submit and consent that the above Verification Agency (The VA), be enlisted in the CSCC list of recommended Verification Service Providers to conduct the EME and QSE measurement of enhancement BBBEE level Status in accordance with the provisions of 4.3.1.2 (In respect of EMEs) and 5.3.4 (In respect of QSEs).2.I confirm, that l am aware that the CSCC & the DTI have approved and published prescribed recommended Nominal Fees that are applicable to certain categories of EMEs and QSEs that we undertake to charge for our services. In particular, l confirm that:2.1_____________________________ (The VA) has been accredited and approved by SANAS to render verification of the construction sector scope of measurement.

2.2The VA undertake to render services diligently and professionally to ensure the qualitative outcome of the verification process in accordance with the standards set out by SANAS.

2.3The VA is aware and mindful of the fact that pursuant to the measurement of the enhancement recognition status, and depending on thenature of the documents that are required, we may or may not have to undertake an on-site visit to the Measured Entity seeking such enhancement to further verify the suitable evidence of their spend will be required.

3.The VA further confirms that the VA will co-operate with the CSCC in ensuring that there is an accurate, consistent and reliable application of the provisions of the Amended Construction Sector Code (ACSC) as expected of us in terms of our accreditation conditions with SANAS.

4.We confirm that on request by the CSCC, we shall provide the copies of the Measured Entity’s Verification Certificate and/or Report or Customised Affidavit (as the case may be applicable) which copies will be used for purposes of annual reporting and data, in line with the provisions of 1.5.4 under Monitoring & Evaluation of Statement CSC000 of the ACSC and the relevant provisions of the BBBEE Amendment Act of 2014.

Thus done and signed at __________________(place) on this_____ day of _________________ 2018.By ____________________________(Full name and surname)Principal place of business ____________________________(Including province)

Signature ______________________

16

SKILLS DEVELOPMENT RELATED MATTERS

Rational for Skills Development Measurement must ;

Contribute to the achievement of the country’s economic growth and social development goals that will enrich the creation of decent work and sustainable livelihoods.

Promote the development of an industrial skills base in critical sectors of production and value-added manufacturing, which are largely labour-intensive industries.

Support Professional, Vocational, Technical and Academic Learning programmes, achieved by means of professional placements, work-integrated learning, Apprenticeships, Learnerships and Internships, that meet the criteria needs for economic growth and development.

Strengthen the skills and human resource base by encouraging the support of skills development initiatives with an emphasis on skills development and career pathing for all working people in order to support employment creation.

Recognisable Skills Development Expenditure includes any Legitimate Training Expenses incurred for any Learning Programme offered by a Measured Entity to Black People.

Skills Development Expenditure arising from Informal training or Category F and G Learning Programmes under the Learning Programmes Matrix cannot in aggregate represent more than 35% of the total value of Skills Development Expenditure.

17

SKILLS DEVELOPMENT RELATED MATTERS

SOME AREAS OF CONFUSION

JUNIOR MANAGEMENT CATEGORY IN 2.1.2.3 Where a Measured Entity does not distinguish between Junior, Middle & Senior Management – then the

weighting points are allocated to the Black Management category (3.7 of Statement CSC300)

SALARIES & WAGES Salaries OR Wages - Paid to Employees of the ME participating as a LEARNER only constitute SD

expenditure ONLY if the Learning Programme is a category B, C, or D

EXCLUDED SECTORAL MANDATORY TRAINING Limited to Site, project or safety inductions, toolbox talk, Operator re-certification.

WSP/ATR REPORTING REQUIREMENTS

Therefore, to the extent that WSPs and ATRs are already a requirement of legal reporting in the SETAs and Department of labour, IT IS NOT necessary for EMEs and QSEs in this sector code to submit these, unless they fall within the applicable thresholds.

CRITERIA FOR OFFICE BASED EMPLOYEES

When measuring Management Control and Skills Development elements, reliance is to be placed on the Measured Entity’s Human resource plan, payroll and role designation for purposes of determining on-site from office based employees. The same applies to learners enrolled by the Measured Entity.

18CSCC – SANAS BBBEE WORKSHOP – APRIL 2018

LEGITIMATE SD TRAINING EXPENSES


Legitimate Training Expenses include but is not necessarily limited to: 6.1.1 Costs of training materials; 6.1.2 Costs of trainers; 6.1.3 Costs of training facilities including

costs of catering; 6.1.4 Scholarships and bursaries; 6.1.5 Course fees; 6.1.6 Accommodation and travel; and 6.1.7 Administration costs such as the

organization of training including, where appropriate, the cost of the Measured Entity of employing a Skills Development facilitator or a training manager.

6.1.8 Funding and support of research at tertiary institutions aimed at improving performance of the Construction Sector.


19

OWNERSHIP AND CONTROL


Compared to the Old Codes – the new targets for black ownership are at :


The Generic Codes of Good Practice sets the Ownership target at 25.1% - The sector specific needs for ownership is increased from 30% to 35% as a way of radical economic transformation.

Emphasis has been placed on the enhancement of BLACK WOMEN and BLACK YOUTH – Including Employees through the Broad Based Ownership Employee Schemes.

20

Measurement Target

Voting Rights / Economic Interests

32.5 % Immediately

35.00 % (After 4 years)

Black Women 10.00%

Employees 10.00% ring Fenced

OWNERSHIP MEASUREMENT OF BEPs


New requirements for BEP Ownership recognition is that at least MORE than 50% of the total ownership of the Measured Entity must be held by INDIVIDUALS who :

Are Professionally registered with any of the statutory professional councils in the BEP environment in South Africa; and at the same time,

Members of the Executive Management of the Measured Entity;


Therefore when measuring the black ownership of any BEP, where the measured entity does not meet the requirements of 3.1.3.1 above, only 50% of the black ownership of those owners who do not meet the requirement of 3.1.3.1 may be included in the total measurement of black ownership in the measured entity.

For the avoidance of doubt, Executive Management in this context is defined as “Top Management” in terms of the Employment Equity Regulations and include the ‘Executive Directors’ and ‘Other Executive Management’ of the Measured Entity.

21

BEP OWNERSHIP FAQs

Query / Question Asked CSCC Provided Answer

BEP OWNERSHIP MEASUREMENT APPLICATION

Does the 50% limitation on the black ownership per clause 3.1.3.2

of CSC100 apply only to the Economic Interest / Total Ownership

(per 2.2.1 and 2.2.2) of these individuals, or also to their respective

Voting Rights (per 2.1.1 and 2.1.2) in the Measured Entity?

Would the limitation above affect the measurement of any of the

other Ownership indicators (Designated Groups, Black New

Entrants, Net Value etc) ?

Another

Whether Ownership held by family Trust or BBBEE ownership scheme with multiple beneficiaries, qualify in terms of professional registration and executive management members and if the family trust has minors as beneficiaries and; (as minors and still in school, they cannot be registered or part of executive management. Does this force the beneficiaries to go into the same career field of study so they can register, even if they do not want to be in that career) -the BBBEE scheme, for employees, has 50 employees as beneficiaries (not all BBBEE scheme beneficiaries can be part of executive management especially if they are all from the same company)

It is important to note that the BEP Ownership measurement

provisions in the Amended Construction Sector Code (ACSC) are

instructive in relation to the requirements. This means that :

More than 50% of the Measured Entity’s ownership must

either be in the hands of individuals (any person, irrespective

of race or nationality) who MUST be BOTH professionally

registered by the registration councils listed in the CSCC

website) AND Members of the Executive Management.

Clause 3.1.3.1

Where the above is not met, paragraph 3.1.3.2 refers to

calculating the black ownership in terms of the ownership

element in relation to economic interest in the ownership

scorecard. Hence it applies to 2.1.1 and 2.2.1 and 2.4.1. Also

note, for 2.4.1 the modified flow-through principle is not

applicable.

The limitation above does NOT affect the measurement of

any of the ownership indicators in the categories of the

designated group

Please note that a STEP – by – STEP guide on interpreting

Black Ownership of BEPs is attached for your ease of

reference.22

http://3.1.3.2/

STEP – BY – STEP GUIDE GENERAL PRINCIPLES

For purposes of measuring paragraph 3.1.3 of the BEP Ownership element, the following principles must always be understood, :

Ownership MUST vest in the hands of the actual individuals in the BEPs.

The 50% recognition imposed by this clause does not relate to black ownership only. Emphasis is placed on ownership by professionals in South

African Registration Councils.

Therefore, it doesn’t matter if the ownership is held by white or Blacks who are non-South Africans

Steps Measurement Enquiry Applicable Answer

Step 1Determine whether the Measured Entity is a Built Environmental Professional (BEP) as defined in the

ACSC.

If the answer is YES, then clause 3.1.3.1 become

applicable & you then proceed to Step 2

If the answer is NO, then clause 3.1.3 is not applicable

and the Measured Entity is measured in terms of the

provisions of the ownership element in the ACSC.

Step 2Where it is established that the Measured

Entity is in fact a BEP

Ascertain whether more than 50% of the ownership is

in the measured entity in the hands of Registered

Professionals.

If the answer is YES, then the Modified Flow-Through

principle (MFTP) may NOT apply) – Then go to step 3

But if the answer is NO, then go to Step 5

NOTE - If ownership is held in a holding company or a

trust, you measure the ownership of registered

professionals in the holding company or trust and

apply the ownership factor to determine effective

ownership held by registered professionals in the

measured entity.

E.g Where Registered Professionals hold 26% in the

holding company and the holding company owns 51%

in the Measured Entity, then the ownership held by

professionals in the Measured Entity is 26% x 51% =

13.3%

Step 3Whether the Registered Professionals as measured in step 2 (the 13% as per the example above) make up more than

50% of the executive management team of the Measured Entity

If the answer is YES, then go to step 4

But if the answer is NO, then go to step 5

Step 4Where the ownership and executive management requirements are met, so include full ownership by black people under the black ownership element. The calculation of the

ownership may be in terms of the normal provisions of the ownership element, allowing for the Modified Flow-Through principle and exclusions as applicable.

Step 5

Where the ownership and executive management criteria is not me, then measure the effective ownership held by black people in terms of the normal provisions without applying

the Modified Flow-Through principle or exclusion principle and only account for 50% of what is measured under the ownership element. The provision for bonus points may not be

applied. 23

END

Q&A

24CSCC – SANAS BBBEE WORKSHOP – APRIL 2018