Paul Janisch

Riding shotgun with Transnet – nice day for a white wedding

At first I didn't pay much attention to this FM article.

The Passenger Rail Agency of SA (Prasa) has said it will force its winning bidder to accept a BEE partner chosen by the agency. It says such a measure would help it to prevent politically connected empowerment partners from benefiting from infrastructure development. The policy is mooted in place of the company selecting its own BEE partner, as has been the practice.

This is nothing new to parastatals. I've twice done work for a major power supplier and have been told that 30% of the business must be allocated to a nominated black business in a similar field. In one case the black business owners didn't even bother to come and meet us or find out what the project was about. They placed two contractors on the job who became our responsibility. The contractors were eager, capable and a pleasure to work with but it's very likely that they were paid a miniscule amount for their efforts. Their employers, however got paid very well for nothing. Admittedly we were completely remiss for not insisting that they do get involved.

There is a sort of mutually assured destruction in this relationship – the primary contractor is forced into this relationship and cannot be sure that the other party will perform and so they will do all the work, even at a discounted rate, without the involvement of the other party. They won't complain to the major power utility about this relationship for fear that they do not get any work from said utility in future. And the smaller partner is aware of this.

Whether this partnering results in a shotgun wedding or not is of little consequence to me (read the article to get the context). I would like to postulate a possible rationale behind this policy. This is pure speculation but fits in comfortably with my love of conspiracy theories. The heroes of my theory are the Black Business Council. A body that commands such respect and stature that they find it unnecessary to have even a Facebook page. Some have speculated that this organisation is racist, and others welcome it. I believe that it has arisen as a vehicle for a series of suspects (usual or otherwise) to grab a slice of the private sector because the public sector pie is not quite what it was.

There is a challenge facing our BBC heroes in getting access to the private sector's benevolence Unfortunately they have made it very clear where they stand and who they support. The Reuel Khoza saga (who should be awarded the highest accolade South Africa can award a citizen) allowed the BBC to take a different tack to other organisations. Their leader (I'm sorry, I meant spokesman) Sandile Zungu made the following statement

The spokesman for the BBC, Sandile Zungu, said the council was not convinced of the wisdom of choosing to use the medium of the Nedbank annual report, a publicly-listed company, to launch a full frontal assault on political leadership, in government or elsewhere. "We believe that the grave reservations that Nedbank may harbour about how our country is led, could have been raised more constructively in its regular engagements with the Registrar of Banks and Treasury, and perhaps through the associations that it is ultimately affiliated to," Zungu said.

In other words the BBC is really saying that business should really be polite about our inept government who squanders their tax money on everything but the welfare of South Africans. You can't really blame Zungrabber for saying this – he is known to be really tight with the über-married one; he's not going to go against his meal ticket. But in so doing it is possible that the private sector is not going to embrace the BBC that overtly. So how do you go about ensuring that you carry on hogging the honeypot? Simple – you get your parastatal buddies to force you onto winning bidders for tenders.

It's almost too simple.

As a postscript – I wonder what is going to happen to Zungrabber once showerhead is no longer head honcho of the great party of the struggle (but little else).

Come on Billy – sing us to sleep 

Bills, bills, bills (or what I really think of the new B-BBEE Bill)

Commenting on a bill like the new BEE bill could either be knee-jerk as an immediate response or knee-jerk after much deliberation. I chose the latter route. The first thing I realised was that you can't look at the amendments without looking at the original act. And so I was going to laboriously combine the two and then comment; but what with the babysitting and all sorts of other responsibilities that accompany being a new parent, I hadn't done it. I was saved at the last minute by Sakkie O'Neil who had gone through the painstaking process of combining the two together and compiling a series of comments and quotes in the same document. I suppose I have Sakkie to thank for this post – and I have included the entire bill (without Sakkie's permission) below my comments. 

The new B-BBEE bill and what I think.

The DTI's press release on the gazetting of the bill told us that the gazetting of the Amendment Bill is the culmination of the recommendations done by the Presidential B-BBEE Advisory Council. This made me take a deep breath because I know that this so-called council is incapable of understanding anything as simple as the empowerment of people. The majority of the people sitting on the council have never run a business but are business people by virtue of BEE benevolence. Oh yes and they are now going to be paid to continue their useless work (section 8). It's therefore completely understandable that the main focus of this bill is going to be on fronting – because that's all this lot have debated over the last two years. They've also appointed subcommittees who are manned by people like (the now very disgraced) Andile Tlhoaéle, who is a member of the Presidential BEE Advisory Council Sub-committee on Instruments to Promote BEE, Verification and Charters. So then why not start with fronting.

Fronting

Blah, blah, blah. Like fronting is the scourge that they claim it is, have you ever tried to alert the DTI about fronting. They do nothing. But I digress.

It appears from the definition that fronting might include any misrepresentation on a scorecard, but then the specifics tend towards BEE transactions. I believe that fronting is broader than mere transactions when read within the context of the entire act.

There are penalties for fronting

1. The state may cancel contracts if a misrepresentation is found (I wonder if they'll ever pick-up on the fact that Chancellor House is a patent front) – section 14
2. It as an offence to misrepresent the B-BBEE status of an enterprise. This carries the penalty of a fine or ten years imprisonment or both if you are convicted. In other words you don't need to be doing business with the state to be found guilty of an offence under the act. However if you are found guilty then the state can blacklist you – section 20.

Broadened ambit of the bill

The allocation of licences, concessions, incentives etc. must take any relevant code of good practice into account. It's broader than the previous act.

Sectoral charters

There is a greater emphasis on sectoral charters (section 10). In fact it's now clear that if your company falls within the scope of a charter you have to apply it. This practice has been in operation for a while now, but at least there's clarity. BUT if you operate in a sector where there is a sectoral code the you have to report annually on your compliance to the sector council (assuming that they've actually instituted one). Understand that a failure to comply with this requirement now renders you in breach of the act and you could find yourself facing 12 months imprisonment or a fine of 10% of turnover (section 20 see below). This begs two questions:

1. What happened to the voluntary nature of BEE – this effectively makes the whole process mandatory, or maybe it's just that you have to report that is mandatory. This requirement comes from the EE Act, which now attempts to criminalise almost everything.
2. Can we expect more charters, because those companies that are subject to the DTI's generic codes don't need to comply with this requirement.

Transformation policy

Section 12A allows an organ of state (subject to probably very lax conditions) to develop their own transformation policies that will take precedence of codes gazetted under section 9. The effect of this is that it gives the Mining Charter the same status as a code. In other words the Mining Charter and other charters that are gazetted under acts different to the BEE Act are given full code status in terms of the Act. It's a clever provision but very worrying. What this means is that each organ of state can create its own procurement policy (as per section10.1.b) and then require a verification in terms of this code. So if you are doing business with say the DPW, Transnet and Tshwane Municipality you could find yourself complying with three different scorecards to placate these procurement policies. Again – this will push up the cost of compliance to unimaginable levels.

B-BBEE Act über alles

Go to section 23 and take a look at how the BEE Act effectively places itself over and above any other act where there might be a discrepancy. What we have here is the DTI saying fuck you to Treasury, because the one act that this bill seriously compromises is the PPPFA and other PPPFA-related policies. I don't know enough about constitutional law but I am quite sure that the constitution would not allow one piece of legislation to run roughshod over other pieces of legislation. I would suggest that at least this section is fundamentally unconstitutional – and if were Treasury I would block this section.

That's it

There's a bit more in the bill and you can read it below. It's not a good piece of legislation – it pushes up the cost of compliance substantially. As it stands BEE is not in fact broken – it's working very well but it would seem that this news is not filtering to either the DTI or the BEE Council. The bill is an agenda not an attempt to assist in the overall transformation of the economy.  

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9 January 2004

It is hereby notified that the President has assented to the following Act, which is hereby published for general information:–

No. 53 of 2003:

Broad-Based Black Economic Empowerment Act, 2003

To establish a legislative framework for the promotion of black economic empowerment; to empower the Minister to issue codes of good practice and to publish transformation charters; to establish the Black Economic Empowerment Advisory Council; and to provide for matters connected therewith.

PREAMBLE

WHEREAS under apartheid race was used to control access to South Africa's productive resources and access to skills;

WHEREAS South Africa's economy still excludes the vast majority of its people from ownership of productive assets and the possession of advanced skills;

WHEREAS South Africa's economy performs below its potential because of the low level of income earned and generated by the majority of its people;

AND WHEREAS, unless further steps are taken to increase the effective participation of the majority of South Africans in the economy, the stability and prosperity of the economy in the future may be undermined to the detriment of all South Africans, irrespective of race;

AND IN ORDER TO-

          promote the achievement of the constitutional right to equality, increase broad-based and effective participation of black people in the economy and promote a higher growth rate, increased employment and more equitable income distribution; and

          establish a national policy on broad-based black economic empowerment so as to promote the economic unity of the nation, protect the common market, and promote equal opportunity and equal access to government services.

1. Definitions

In this Act, unless the context indicates otherwise-

"B-BBEE transaction"

means any transaction, practice, scheme or other initiative which affects, or may affect, the B-BBEE compliance of any person;

"black people"

is a generic term which means Africans, Coloureds and Indians who are citizens of the Republic of South Africa by birth or descent or who became citizens of the Republic of South Africa by naturalisation –

1. Before 27 April 1994; or
2. on or after 27 April 1994 and who would have been entitled to acquire citizenship by naturalisation prior to that date but were precluded from doing so by Apartheid policies;

"broad-based black economic empowerment"

means the sustainable economic empowerment of all black people, including in particular women, workers, youth, people with disabilities and people living in rural areas through diverse but integrated socio-economic strategies that include, but are not limited to-

a)        increasing the number of black people that manage, own and control enterprises and productive assets;

b)        facilitating ownership and management of enterprises and productive assets by communities, workers, co-operatives and other collective enterprises;

c)        human resource and skills development;

d)        achieving equitable representation in all occupational categories and levels in the workforce;

e)        preferential procurement, including the promotion of local content procurement; and

f)          investment in enterprises that are owned or managed by black people;

"B-BBEE Verification Professional"

means a person registered by the verification agency regulator and/or the South African National Accreditation System to conduct B-BBEE verification;

"Codes"

means the codes of good practice issued by the Minister in terms of Section 9 of the Act;

"Commission"

means the B-BBEE Commission established in terms of section 15 of the Act;

"Council"

means the Black Economic Empowerment Advisory Council established by section 4;

 

"Department"

means the Department of Trade and Industry

 

"Fronting B-BBEE Practice"

means a transaction, arrangement or conduct that directly or indirectly undermines or frustrates the achievement of the objectives of the Act or the implementation of any of the provisions of the Act, including but not limited to practices in connection with a B-BBEE transaction –

1. in terms of which black persons who are appointed to an enterprise are discouraged or inhibited from substantially participating in the core activities of that enterprise;
2. in terms of which the economic benefits received as a result of the B-BBEE status of an enterprise do not flow to black people in the ratio specified in the relevant legal documentation;
3. involving the conclusion of a legal relationship with a black person for the purpose of that enterprise achieving a certain level of B-BBEE compliance without granting that black person the economic benefits that would reasonably be expected to be associated with the status or position held by that black person;
4. involving the conclusion of an agreement with another enterprise in order to achieve and enhance B-BBEE status in circumstances in which –
   1. there are significant limitations on the identity of suppliers, service providers, clients or customers;
   2. the maintenance of business operations in a context reasonably considered to be improbable having regard to resources;
   3. the terms and conditions were not negotiated at arms length on a fair and reasonable basis;

"knowing", "knowingly" or "knows"

when used with respect to a person, and in relation to a particular matter, means that the person either –

1. had actual knowledge of that matter; or
2. was in a position in which the person reasonably ought to have –
   1. had actual knowledge;
   2. investigated the matter to an extent that would have provided the person with actual knowledge; or
   3. taken other measures which, if taken, would reasonably be expected to have provided the person with actual knowledge of the matter;

"Local content"

means locally produced goods, services or works or locally manufactured goods which satisfy a stipulated minimum threshold for local production and content;

"members"

means members of the Council;

"Minister"

means the Minister of Trade and Industry;

"organ of state"

means-

a)        a national or provincial department as defined in the Public Finance Management Act 1999 (Act No. 1 of 1999);

b)        a municipality as contemplated in the Constitution;

c)        Parliament;

d)        a provincial legislature: and

e)        a constitutional institution listed in Schedule 1 to the Public Finance Management Act, 1999 (Act No.1 of 1999);

"prescribe"

means prescribe by regulation;

"public entity"

means a public entity listed in Schedule 2 or 3 to the Public Finance Management Act. 1999 (Act No. 1 of 1999);

"Sector Charters"

Means sectoral transformation charters referred to in section 9 of the Act;

"strategy"

rneans a strategy for broad-based black economic empowerment issued in terms of section 11; and

"this Act"

includes any code of good practice or regulation made under this Act.

"Verification Professional Regulator"

means the Independent Regulatory Board of Auditors, a statutory body established in terms of section 3 of the Auditing Profession Act, 2005 (Act No 26 of 2005).

2. 0bjectives of Act

The objectives of this Act are to facilitate broad-based black economic empowerment by-

a)        promoting economic transformation in order to enable meaningful participation of black people in the economy;

b)        achieving a substantial change in the racial composition of ownership and management structures and in the skilled occupations of existing and new enterprises;

c)        increasing the extent to which communities, workers, cooperatives and other collective enterprises own and manage existing and new enterprises and increasing their access to economic activities, infrastructure and skills training;

d)        increasing the extent to which black women own and manage existing and new enterprises, and increasing their access to economic activities, infrastructure and skills training;

e)        promoting investment programmes that lead to broad-based and meaningful participation in the economy by black people in order to achieve sustainable development and general prosperity;

f)          empowering rural and local communities by enabling access to economic activities, land, infrastructure, ownership and skills; and

g)        promoting access to finance for black economic empowerment start-ups, micro and medium enterprises and black entrepreneurs, including the informal black business sector.

h)    increasing effective black owned and managed enterprises, including SMMEs, and their access to financial and non-financial support.

3. Interpretation of Act

Any person applying this Act must interpret its provisions so as-

a)        to give effect to its objectives; and

b)        to comply with the Constitution.

4. Establishment of Black Economic Empowerment Advisory Council

The Black Economic Empowerment Advisory Council is hereby established.

5. Functions of Council

The Council must-

a)        advise government on black economic empowerment;

b)        review progress in achieving black economic empowerment;

c)        advise on draft codes of good practice which the Minister intends publishing for comment in terms of section 9(5);

d)        advise on the development, amendment or replacement of the strategy referred to in section 11;

e)        if requested to do so, advise on draft transformation charters; and

f)          facilitate partnerships between organs of state and the private sector that will advance the objectives of this Act.

6. Composition of Council and appointment of members

1)        The Council consists of-

a)        the President, who is the chairperson of the Council;

b)        the Minister, with the Minister's Director-General as an alternate;

c)        three other Cabinet Ministers, appointed by the President, with their respective Directors-General as alternates;

d)        no fewer than 10 and no more than 15 other members appointed by the President.

2)        When appointing members in terms of subsection (1)(d), the President shall have regard to the need for the Council-

a)        to have appropriate expertise;

b)        to represent different relevant constituencies including trade unions. business, community-based organisations and academics.

3)        In appointing members in terms of subsection (1)(d), the President shall follow an appropriate consultative process.

4)        The President shall appoint a Cabinet Minister who is also a member of the Council to act as chairperson of the Council in the President's absence.

7. Constitution and rules of Council

1)        The Minister must establish a constitution for the Council.

2)        The Minister may amend the constitution of the Council from time to time, after consultation with the Council.

3)        The Council may, by resolution, and after consultation with the Minister, make rules to further regulate the proceedings of the Council.

8. Remuneration and reimbursement of expenses

Council members may will not be remunerated for their services in accordance with the provisions of the National Treasury Regulations and, but will be reimbursed for expenses incurred by them in carrying out their duties, as determined by the Minister, with the concurrence of the Minister of Finance.

9. Codes of good practice

1)        In order to promote the purposes of the Act, the Minister may by notice in the Gazette issue Codes of Good Practice on black economic empowerment that may include--

a)        the further interpretation and definition of broad-based black economic empowerment and the interpretation and definition of different categories of black empowerment entities;

b)        qualification criteria for preferential purposes for procurement and other economic activities;

c)        indicators to measure broad-based black economic empowerment;

d)        the weighting to be attached to broad-based black economic empowerment indicators referred to in paragraph (c);

e)        guidelines for stakeholders in the relevant sectors of the economy to draw up transformation charters and sector codes of practice for their sector; and

f)    indicators to measure local content; and

f) g)         any other matter necessary to achieve the objectives of this Act.

2)        A strategy issued by the Minister in terms of section 11 must be taken into account in preparing any code of good practice.

3)        A code of good practice issued in terms of subsection (1) may specify-

a)        targets consistent with the objectives of this Act; and

b)        the period within which those targets must be achieved.

4)        In order to promote the achievement of equality of women, as provided for in section 9(2) of the Constitution, a code of good practice issued in terms of subsection (1) and any targets specified in a code of good practice in terms of subsection (3), may distinguish between black men and black women.

5)        The Minister must, before issuing, replacing or amending a code of good practice in terms of subsection (1)-

a)        publish the draft code of good practice or amendment in the Gazette for public comment; and

b)        grant interested persons a period of at least 60 days to comment on the draft code of good practice or amendment, as the case may be.

6)    A code of good practice remains in effect until amended, substituted or repealed in terms of this Act.

10. Status of codes of good practice

1)     Every organ of state and public entity must take into account as far as is reasonably possible, and apply any relevant code of good practice issued in terms of this Act in-

a)        determining qualification criteria for the issuing of licences, concessions or authorizations in respect of economic activity in terms of any law;

b)        developing and implementing a preferential procurement policy;

c)        determining qualification criteria for the sale of state-owned enterprises; and

d)        developing criteria for entering into partnerships with the private sector; and

e)    determining criteria for the awarding of incentives, grants, and investment schemes in support of broad-based black economic empowerment.

 

2)        Subject to section 12A, an enterprise in a sector in respect of which the Minister has issued a sector code in terms of section 9 may only be measured for compliance with the requirements of broad-based black economic empowerment in accordance with that code.

    

3)        Enterprises operating in a sector in respect of which the Minister has issued a sector code in terms of section 9, must report annually on their compliance with B-BBEE to the Sector Council.

 

11. Strategy for broad-based black economic empowerment

 

 

1)        The Minister-

a)        must issue a strategy for broad-based black economic empowerment;

b)        may change or replace a strategy issued in terms of this section.

 

2)        A strategy in terms of this section must-

a)       provide for an integrated co-ordinated and uniform approach to broad-based black economic empowerment by all organs of state, public entities, the private sector, non-governmental organizations, local communities and other stakeholders;

b)      develop a plan for financing broad-based black economic empowerment, including the creation of incentive schemes to support effective black owned and managed enterprises;

c)      provide a system for organs of state, public entities and other enterprises to prepare broad-based black economic empowerment plans and to report on compliance with those plans; and

d)      be consistent with this Act.

12. Transformation charters

 The Minister must publish in the Gazette for general information and promote a transformation charter for a particular sector of the economy, if the Minister is satisfied that the charter-

a)        has been developed by major stakeholders in that sector; and

b)        advances the objectives of this Act.

12A. Transformation policy

1. If requested to do so, the Minister may permit organs of state or public entities to determine their own transformation policies, if the Minister is satisfied that this will advance the objectives of B-BBEE and the strategic imperatives in the South African economy.
2. An organ of state or a public entity must apply any transformation policy made in terms of this section as if it were a Code.
3. In the event of any conflict between a Code issued in terms of section 9 and a transformation policy made in terms of this section, the transformation policy prevails.

13. Support services and funding of Council

 

 1)        The Department of Trade and Industry must provide the Council with the necessary support services and funding out of money appropriated by Parliament for that purpose.

 

2)        The funds referred to in subsection (1), must be utilised for-

a)        the establishment and operating costs of the Council; and

b)        the development and implementation of a communication plan on broad-based black economic empowerment.

14. Regulations

The Minister may make regulations with regard to any matter that it is necessary to prescribe in order to ensure the proper implementation of this Act.

15. Short title and commencement

 

 

This Act is called the Broad-Based Black Economic Empowerment Act, 2003, and comes into operation on a date to be determined by the President by proclamation in the Gazette.

14 Cancellation of Contract or authorisation

Any contract or authorisation awarded on account of false information furnished by or on behalf of an enterprise in respect of its B-BBEE status may be cancelled at the sole discretion of the organ of state or public entity without prejudice to any other remedies that the organ of state or public entity may have.

15 Establishment and status of B-BBEE Commission

1. The B-BBEE Commission is hereby established as a juristic person to function as an organ of state within the public administration but as an institution outside the public service.
2. The Commission is headed by a Commissioner appointed by the Minister.
3. The Commission -
   1. has jurisdiction throughout the Republic;
   2. is independent. and subject only to-
      1. the Constitution and the law: and
      2. any policy statement. directive or request issued to it by the Minister in terms of this Act;
   3. must be impartial and perform its functions without fear, favour, or prejudice: and
   4. must exercise the functions assigned to it in terms of this Act or any other law, or by the Minister. in-
      1. the most cost-effective and efficient manner; and
      2. in accordance with the values and principles mentioned in section 195 of the Constitution.
4. Each organ of state must assist the Commission to maintain its independence and impartiality, and to exercise its authority and perform its functions effectively.

16 Appointment of Commissioner

1)     The Minister must appoint a person with suitable qualifications and experience to be the Commissioner for a term of five years.

 

2)     The Minister may re-appoint a person as Commissioner at the expiry of that person's office.

 

3)     The Commissioner, who is the Chief Executive Officer of the Commission, is responsible for the general administration of the Commission and for carrying out any functions assigned to it in terms of this Act, and must-

(a)     perform the functions that are conferred on the Commissioner by or in terms of this Act;

(b)     manage and direct the activities of the Commission: and

(c)    supervise the Commission's staff.

4)     The Minister must, in consultation with the Minister of Finance, determine the Commissioner's remuneration, allowances, benefits, and other terms and conditions of employment.

5)     The Commissioner, on one month's written notice addressed to the Minister, may resign as Commissioner.

6)     The Minister may remove the Commissioner from office for -

(a) serious misconduct or permanent incapacity:

(b) engaging in any activity that may undermine the integrity of the Commission;

(c) any other legitimate ground that justifies the removal of the Commissioner.

17 Functions of B-BBEE Commission:

1)     The functions of the Commission are-

(a)     to oversee supervise and promote adherence with this Act in the interest of the public:

(b)     to strengthen and foster collaboration between the public and private sector in order to promote and safeguard the objectives of B-BBEE;

(c)     to receive and investigate complaints relating to B-BBEE in accordance with the provisions of this Act;

(d)     to promote advocacy access to opportunities and educational programmes and initiatives of B-BBEE:

(e)     to maintain a registry of major B-BBEE transactions above a threshold determined by the Minister from time to time;

(f)     to receive and analyse reports as prescribed concerning B-BBEE compliance from organs of state, public entities and private sector enterprises;

(g)     to promote good governance and accountability by creating an effective and efficient environment for the promotion and implementation of B-BBEE: and

(h)     subject to this Act, to exercise such other powers as may be conferred on the Commission in writing by the Minister.

2)     Notwithstanding the provisions of any law, but subject to the approval of the Minister, the Commissioner may enter into an agreement with any other person, body of persons or organ of state, including but not limited to a special investigating unit established under the Special Investigating Units and Special Tribunals Act 1996 (Act No. 74 of 1996), to perform any of its duties and functions under this Act.

18 Investigation by Commission

1)     Subject to the provisions of this Act, the Commission has the power, on its own initiative or on receipt of a complaint in the prescribed form, to investigate any B-BBEE transaction which exceeds a value determined from time to time by the Minister.

2)    The Commission may not investigate any matter that constitutes an administrative action, as defined in the Promotion of Administrative Justice Act, 2000 (Act No 3 of 2000) or may be reviewed on any ground permissible in law.

3)     The format and the procedure to be followed in conducting any investigation must be determined by the Commission with due regard to the circumstances of each case and may include the holding of a formal inquiry.

4)     For the purposes of conducting an investigation, the Commission may exercise the powers conferred upon the Companies and Intellectual Property Commission by sections 176 to 179 of the Companies Act, 2008 (Act No 71 of 2008) read with the changes required by the context.

5)     Without limiting the jurisdiction of the Commission, the Commission may make a finding as to whether any B-BBEE transaction involves fronting practices.

6)     The Commission may institute proceedings in a court to restrain the commission of any breach of this Act, including any fronting B-BBEE practice, or to obtain appropriate remedial relief.

7)     If the Commission is of the view that any matter it has investigated may involve the commission of a criminal offence, it must refer the matter to the National Prosecuting Authority or an appropriate division of the South African Police Services.

8)     The Commission may refer to -

(a)     the South African Revenue Service, any concerns regarding behaviour or conduct that may be prohibited or regulated in terms of legislation within the jurisdiction of that Service;

(b)     the Independent Regulatory Board for Auditors, any concerns regarding behaviour or conduct by a B-BBEE Verification Professional; or

(c)     any other regulatory authority any concerns regarding behaviour or conduct that may be prohibited or regulated in terms of legislation within the jurisdiction of that regulatory authority.

19 Finances

1)     The Commission is financed from-

(a)     money that is appropriated by Parliament for the Commission:

(b)     money received from any other source.

2)     The Commissioner is the accounting authority of the Commission for purposes of the Public Finance Management Act. 1999 (Act No 1 of 1999).

3)     The Auditor General must audit the B-BBEE Commission's financial records each year.

20 Offences and Penalties

1)     A person is guilty of an offence if that person knowingly-

(a)     misrepresents or attempts to misrepresent the B-BBEE status of an enterprise;

(b)    provides false information or misrepresents information to the Verification Personnel in order to secure a particular B-BBEE status or any benefit associated with the compliance with this Act:

(c)     provides false information or misrepresents information relevant to assessing the B-BBBEE status of an enterprise, to any organ of state or public entity.

2)     A B-BBEE Verification Professional or any procurement officer or other official of an organ of state or public entity who becomes aware of the commission of, or any attempt to commit, any offence in terms of subsection (1 ) and fails to report it to an appropriate law enforcement agency, is guilty of an offence.

3)    Any person convicted of an offence in terms of this Act, is liable:-

(a)     in case of a contravention of sub-section (1), to a fine or to imprisonment for a period not exceeding 10 years or to both a fine and imprisonment: or

(b)     in any other case to a fine or to imprisonment for a period not exceeding 12 months or to both a fine and imprisonment:

(c)    in the case of an enterprise, to a fine of up to 10% of that enterprise's annual turnover.

4)     In addition, any person and/or entity convicted of an offence under subsections (1) or (3) of section 20, shall be banned from contracting or transacting any business with any organ of state and/or public entity, and shall be entered into the National Treasury register of tender defaulters.

21 Monitoring, Evaluation, and Reporting

1)     All spheres of government public entities, and organs of state must report on their compliance with B-BBEE in their audited annual financial statements and annual reports under the Public Finance Management Act, 1999 (Act No.1 of 1999).

2)     All public companies listed on the Johannesburg Stock Exchange must provide to the Commission -

(a)     the report on their compliance with B-BBEE that is contained in their sustainability reports:

(b)     any other prescribed information.

3)     All Sectoral Education and Training Authorities must report on skills development spending and programmes to the Commission.

22 B-BBEE Verification Professional Regulator

The B-BBEE verification professional shall be regulated by the B-BBEE verification agency regulator established in the Audit Profession Act. 2005 (Act No. 26 of 2005) as amended from time to time.

23 Interpretation of this Act

1)     If any conflict relating to the matters dealt with in this Act arises between this Act and the provisions of any other law save the Constitution and/or any Act expressly amending this Act, the provisions of this Act will prevail.

2)     Any person who is measuring B-BBEE compliance in terms of this Act must do so in a manner in which substance takes precedence over legal form.

24 Regulations

1)     The Minister may make regulations, guidelines and practice notes with regard to any matter that is required by this Act or that it is necessary to prescribe in order to ensure proper implementation of this Act

2)     Without limitation to sub-section (1), the Minister may make regulations in respect of-

(a)     the conduct of investigations by the Commission;

(b)     the information that any organ of state, public entity or private enterprise is required to provide to the Commission and the form and period of such reporting.

25 Short title and commencement

This Act is called the Broad-Based Black Economic Empowerment Act, 2003, and comes into operation on a date to be determined by the President by proclamation in the Gazette.

Short title and commencement

This Act is called the Broad-Based Black Economic Empowerment Amendment Act, 2011 and comes into operation on the date fixed by the President by proclamation in the Gazette.

 

B-BBEE Alignment (dis) Awareness Campaign

Broad- Based Black Economic Empowerment (B-BBEE) & Preferential Procurement Policy Framework Act (PPPFA) Regulations, 2011 ALIGNMENT AWARENESS CAMPAIGN

Amajuba District Municipality hereby invites all business entities with its area of jurisdiction to the information session in which the KZN Treasury will clarify the alignment of B-BBEE and PPPFA Regulations.

As from the 7th of December 2011 business entities will not be able to trade with government if they had not undergone the verification process. It is important for business entities to understand the verification process and be verified in terms of B-BBEE Act.

via amajuba.gov.za

The italicised sentence is the problem.  This is not the case at all, if it were the case then government would not be able to import anything, which includes the jets that Zuma plans to buy.  What this sentence should say is "if you want preference points then you are going to need a BEE certificate."

The messengers need training more than the suppliers.  In case you wanted to know, the Amajuba District Municipality has its offices in Newcastle.

The complex nature of government procurement and a course that explains it all

You might have noticed this weekend's Business Times' article on Dennis Worral and his little issue with doing business (or more correctly, his ATTEMPT) at doing business with the government. The bidding department is that of Transport. The story goes along these lines

(Worral's company) put in a R6.7-million bid to run a three-day investment conference for the transport department in June, but the tender was awarded to a 100% black-owned company, which offered to do the job for R13.5-million.

And when Worral asked why they didn't win

A spokesman for the Department of Transport, Thami Ngidi, has refused to enlighten Worrall about the tender award, other than to insist that the bid committee made its decision "based on price and capacity to deliver".

My natural tendency is to assume that the transport department was wrong, a sentiment that the article seems to suggest. I then spoke to Jan Breytenbach of National Treasury about the tender rules and how to evaluate the 80 or 90 points for price. Jan was extremely helpful, this is what I learned.

• In terms of general tender transparency and other rules the tendering department has to supply a reason as to why a bidder was not successful. They do not have to provide intimate information about why a certain bidder won, in other words "based on price and capacity to deliver" is a sufficient answer in terms of the law.
• I thought that perhaps the 90 points (the winning bid was R13.5m so it must be 90 points) would have been made up of price and functionality. This is what brought me to Jan Breytenbach, I couldn't figure out how the functionality points worked. Jan referred me to this Treasury Note which alerted bid managers that functionality had been regarded as ultra-vires in two different high court judgments. This would explain why the new regulations have eliminated functionality.
• The bid process removes all those bids that don't qualify for a variety of reasons. In other words the bid committee looks at the response and decides whether the bidder can actually deliver on what they are promising. If not, their bid is rejected (it's likely that Worral's bid was rejected at this point). The remainder of the bids are then evaluated out of the 90 points which is based on price.

Now onto the actual tender. I'll have to speculate here because I don't know anything about the pricing details other than the winning bid was for R13.5m.

So we'll invent a few other bidders for fun

A company – R12.7m

Winning company – R13.5

Other company – R14.9m

Let's start with the 10 preference points.

These points are allocated on a variety of criteria. I have seen bids that award points on this kind of basis (very speculative)

Criteria	Number of points
Ownership of people who had no vote before 1994	6
Woman ownership	3
Local capacity	1

In each of these cases they would allocate a formula but the maximum number of points is available for 100% compliance. Under these circumstances we might be referring to African, Coloured or Indian people. The women ownership points would include white women. Local capacity might refer to how much of the work would be performed by South African sub-contractors. Again, I haven't seen the bid so I don't know what the criteria might be.

In our fictitious world let's say the preference points were awarded this way

Company	Preference points
A company	0
Winning company	8
Other company	6

 

What about the 90 points that are based on price

The vast majority of government tender documents allocate the full 90 points for price. The formula for these points is (this has remained unchanged in the 2011 regulations – except they've brought in the concept of "comparative price").

Ps = 90 x	1 -	Pt - Pmin
		Pmin

Where

Ps = Points scored for price of tender under consideration

Pt = Rand value of tender under consideration

Pmin = Rand value of lowest acceptable tender

The points for these three companies are (you'll have to trust my calculations). 

Company	Price points
A company	90
Winning company	84
Other company	74

Putting it altogether

Many believe that if you don't get any of the preference points your bid is rejected altogether. This is rubbish by doing that you'd effectively be setting aside procurement for a certain type of bidder. This was outlawed by Treasury in 2006. The rule is that the bidder with the highest number of points (there is a caveat this: a bid may be awarded to a bidder with fewer points under certain circumstances).

Company	Price points	Preference points	Total number of points
A company	90	0	90
Winning company	84	8	92
Other company	74	6	80

 

You'll see how important the preference points are in bids that are very similarly priced. And the pricing is one of the things that the bid committee should be aware of at the outset (as per paragraph 3.a of the new PPPFA regulations).

Our PPPFA course

We've partnered with Keyona Business Information & Management Solutions to deliver a one-day PPPFA course where I'll be covering all this information and how the new regulations work in the bid process. I'll also throw in a special section on the Madonsela report. The course is on the 5^th of October, 2011 in Gauteng. You can find out more information here – or download the brochure.

PPPFA and contractors

There doesn't seem to be much press on the new PPPFA regulations, which I find quite strange because it's these regulations that Malema's cronies need to figure out so that they can carry on stealing from the taxpayer (oops did I just write that). There was an article in the Engineering News last week where Naren Bhojaram who is the CEO of consulting engineering company SSI laments

While these regulations are a great step forward in the bid to promote preferential tender award aims long held by the National Treasury and the Department of Trade and Industry, a refinement of the Act, specifically for consulting engineering services to include functionality as a component of the price and preference points in one assessment, would be a more positive advancement."

Further, the new regulations do not give preference for local consulting engineering groups. The regulations make provision for preference for local content but do not specifically include consulting services in terms of local preference.

There are two issues he raises here

1. That the functionality should be included in the price and preference points section (I think this is what he is saying)
2. The regulations might exclude local consulting services as part of local content

It's not clear what he means in the first point. Functionality has always been a component of the price section, and must be clearly specified and weighted. This is confirmed in section 4 of the regulations

4. (1) An organ of state must indicate in the invitation to submit a tender if that tender will be evaluated on functionality.

(2) The evaluation criteria for measuring functionality must be objective.

(3) When evaluating tenders on functionality, the

(a) evaluation criteria for measuring functionality;

(b) weight of each criterion;

(c) applicable values; and

(d) minimum qualifying score for functionality,

must be clearly specified in the invitation to submit a tender.

The second point is a lot more interesting. He's completely correct that local content is now expressly mentioned (a kind of anti-blackwashing). But, as Naren points out, local content refers back to imported content which is defined as

"imported content" means that portion of the tender price represented by the cost of components, parts or materials which have been or are still to be imported (whether by the supplier or its subcontractors) and which costs are inclusive of the costs abroad, plus freight and other direct importation costs, such as landing costs, dock dues, import duty, sales duty or other similar tax or duty at the South African port of entry;

This definition refers directly to tangibles, not intangibles like intellectual services. This is exacerbated by the definition of local content

"local content" means that portion of the tender price which is not included in the imported content, provided that local manufacture does take place

However I think that in spite of the tangibility of local and imported content, the PPPFA does contemplate services in its regulations and this falls within the definition of functionality

"functionality" means the measurement according to predetermined norms, as set out in the tender documents, of a service or commodity that is designed to be practical and useful, working or operating, taking into account, among other factors, the quality, reliability, viability and durability of a service and the technical capacity and ability of a tenderer

This is further enhanced by the definition of tender

"tender" means a written offer in a prescribed or stipulated form in response to an invitation by an organ of state for the provision of services, works or goods, through price quotations, advertised competitive tendering processes or proposals;

The question now is how do consulting services of any shape or form be stipulated as local content. It seems that the most effective way of doing this in terms of the regulations (I can't comment on how practical this is) would be to lobby the DTI to recognise that sector as being a designated sector in line with the national development and industrial policies for local production; viz

"designated sector" means a sector, sub-sector or industry that has been designated by the Department of Trade and Industry in line with national development and industrial policies for local production, where only locally produced services, works or goods or locally manufactured goods meet the stipulated minimum threshold for local production and content;

Once you've been designated as a designated sector you are specifically included in regulation 9 (paragraph 1)

An organ of state must, in the case of designated sectors, where in the award of tenders local production and content is of critical importance, advertise such tenders with a specific tendering condition that only locally produced goods, services or works or locally manufactured goods, with a stipulated minimum threshold for local production and content will be considered.

Even if you haven't managed to persuade the DTI that your sector should be a designated sector you aren't out in the cold. Section 9 (3) states

where there is no designated sector, an organ of state may include, as a specific tendering condition, that only locally produced services, works or goods or locally manufactured goods with a stipulated minimum threshold for local production and content, will be considered, on condition that such prescript and threshold are in accordance with the specific directives issued for this purpose by the National Treasury in consultation with the Department of Trade and Industry.

Furthermore the local capacity has to be determined at the outset in terms of regulation 3 of the PPPFA regulations

3. An organ of state must, prior to making an invitation for tenders

(c) determine whether the services, works or goods for which an invitation for tenders is to be made has been designated for local production and content in terms of regulation 9.

Naren does leave with a last thought that is terribly apt and is the sole reason why the BMF wanted a 70:30 or 60:40 split in the tender regulations.

"Consulting engineers compete with foreign companies that sometimes have the backing of their government to provide services on the African continent. This can result in unfair price competition because, even if the international company scores zero for preference, their subsidised lower price will give them the greater advantage in the overall score,"

And this comment gets to the bottom of section 217 of the constitution

217. (1) When an organ of state in the national, provincial or local sphere of government, or any other institution identified in national legislation, contracts for goods or services, it must do so in accordance with a system which is

fair,

equitable,

transparent,

competitive and

cost-effective.

The government still wants a fair price for the goods and services it procures. This issue was raised by Thuli Madonsela in her "Against the Rules Too" report on the SAPS leases (page 15),

(g) The market rental rate for a building such as the Transnet building was determined by the DPW at R40.00 per m². The lease agreement signed between RPF and the DPW in respect of the Transnet building reflect a rental rate of R125.30 per m². The procurement of the lease was not in accordance with a system that is cost effective.

The BMF's lobby point would have been a complete violation of section 217 and was correctly ignored (along with almost everything else they say).

PPPFA course in October, 2011

By the way, we are arranging a one day course on the PPPFA and B-BBEE in October.  The course will go through the legislation and finish up with a few interesting case studies.  I'll keep you posted as to the details.

 

The PPPFA regulations

Everyone probably knows about the new regulations. But not many people know what I (uppercase i) think of the regulations. In short – they're good. It evens things out for most companies and will spur on higher scores across the board. Also mere black ownership is no longer good enough – so cancel your BEE deal.

A few features

1. The regulations come into operation on the 7^th of December, 2011 – in other words in six months' time. Considering that they apply to almost every government entity and municipalities you would need about this much time to get the message across.
2. The 80/20 preference point system is applicable to bids from between R30,000 and R1million. This figure is INCLUSIVE of taxes like VAT etc. This is not new (the inclusive of tax bit is new) – although a practice does seem to exist within government supply chain systems where bids up to R200k can be issued using three written quotes. Whether this practice continues or not is to be seen.
3. They have built in an anti-blackwashing mechanism under the local content feature.. Blackwashing is a term that I first heard Kevin Lester use and it refers to black people importing goods and selling them. As far as the purchaser is concerned they have bought goods from black people and attract point under the last bit of preferential procurement - ESKOM is reported to have been duped often by this (such were the shortfallings of the ESKADAAT).  This is new and very welcomed.
4. There is a subcontracting clause that requires the bidder that subcontracts more than 25% of the contract to another entity (it appears to be a SINGLE entity) to ensure that the sub-contractor has a greater or equal BEE score to the primary bidder.
5. In certain places they actually clarify parts of the codes that are vague. For instance did you know that an accounting officer as contemplated in paragraph 4.5 of statement 000 is one that is contemplated under section 60 (1) of the CC Act.
6. The regulations all codes gazetted under section 9 (1) of the BEE Act.
7. It is very clear that only scorecards issued by SANAS or other recognised body accredited agencies.

The points system works like this

BEE level	80/20	90/10
1	20	10
2	18	9
3	16	8
4	12	5
5	8	4
6	6	3
7	4	2
8	2	1
Non-compliant	0	0

 

What is important to remember is that these regulations refer to PREFERENCE POINTS. In other words it is for the 20 or 10 points depending on the value of the tender. A bid cannot be rejected if a company does not submit a BEE certificate – all that happens is that the bid committee does not award preference points.

Similarly a great scorecard is not going to guarantee you the tender - it may help you win it but you still have to win as many points as possible under the 80 or 90 points. 

Local content and subcontracting etc is also not considered under preference points – it falls under the "functionality" section – which is part of the price section which is the 80 or 90 points.

There are all sorts of subtleties contained in this document – which is what you can expect from Treasury. We'll be starting our training courses soon so send me an email to book.

More on the KZN DPW - or a reader writes (rights too)

When people send me emails in response to the blog I can only assume that they don't want their names on this stunning piece of virtual real-estate.  This is a response to last night's post - None more black - not so say the KZN DPW

You may be reading that rubbish too narrowly.  If it excluded people who received the franchise as a result of 1983 Tricameral crap, what it is doing is excluding Coloured and Indians aged 18 and below in 1983 (in other words Coloureds and Indians under 45 year presently)

Now what’s interesting about this unthought-through garbage is that if you follow the logic to its natural conclusion, Africans aged under 35 should be excluded from the ambit of the law also. 

The level of legal support given to state agencies writing these policies is shocking beyond shocking.

This point has been made to me before (by the same reader).  The reader is correct - it's a simple mathematical equation.  

There is no doubt that the legal advisers to these entities are not up to par.  Or maybe they give the correct advice but the departments/ municipalities etc are still determined to push it through.  I believe that you can add in an element of "let's put it out and see if they stop us" in this process.

As Peter Green would say

 

They just can’t do it

You might have read that recent Mzwandile Jacks article where he quoted the ultimate bright spark, Keith Levenstain. Our PLT is quoted as saying "We would like to see the government and public enterprises obtaining a scorecard because it would show the government's commitment towards its own policies". Beautiful words – sadly uninformed and stupid. It's one thing to mouth off (as Levenstain does) but it's another thing to mouth off and actually know what you are talking about (which Levenstain doesn't).

I'll help our learned friend. Simply put – the government cannot do it.

The codes would love to let us think that government can implement them. After all the codes are really only applicable to those entities contained in schedules 2 and 3 of the PFMA, and by implication the MFMA.

Code Series 000, Statement 000: General principles and the generic scorecard – paragraph 3

3.1.1 all public entities listed in schedule 2 or schedule 3 (Parts A and C) of the Public Finance Management Act;

3.1.2 any public entity listed in schedule 3 (Parts B and D) which are trading entities which undertake any business with any organ of state, public entity or any other Enterprise;

To then add more credence to this statement they created a separate scorecard for specialised entities (Statement 004: Scorecards for SPECIALISED Enterprises). This scorecard is actually applicable to government entities – the complete list is

• companies limited by guarantee;
• Higher Education Institutions:
• Non-profit Organisations:
• public entities and other Enterprises wholly owned by organs of state;
• Public Benefit Schemes; and
• section 21 companies: and
• specify scorecards applicable to Measured Entities subject to this statement

Unfortunately the codes don't specify a scorecard so we have to guess what it might look like. This is the first problem – no scorecard is specified.

Now onto the actual scorecard.

Ownership

Strange that they left this element out. Logically they are right – the government (and section 21 companies et al) cannot be owned. However the ANC has somehow managed to convince Hitachi that they are black owned enough to be a suitable BEE partner. Be that as it may – ownership is excluded.

Management

This is one element that a government entity can implement and implement it well. They do it anyway – although it does seem as though it follows a jobs for buddies regime as opposed to merit.

Employment equity

Similar to management. In fact they are a little too good at this element, possibly even illegally too good at (as Captain Barnard will attest).

Skills development

This is where things get interesting. The government cannot favour any one race group over another when it comes to training. And the skills development element requires a vast amount of money to be spent on the training of black people (simply put) – this is quite easy to do in the private sector but not in government. They can however achieve these targets if the overwhelming majority of their staff are black – but does this then mean that they would need to request extra money from treasury to achieve it?

Any government policy that states they will favour the training of one race group over another is a huge problem and is discriminatory – which the constitution outlaws. More on this in preferential procurement.

Preferential procurement

The PPPFA might favour certain types of entities but it CANNOT and I stress CANNOT favour those entities at the expense of others. I mean, it can't exclude bidders from bidding because they don't fulfill a certain criteria which preferential procurement has to do. I'm not going to go into the finer details of the PPPFA, and I don't recommend that you ask Levenstain to explain them to you either. The best thing a government department can do is measure their procurement, it cannot target certain types of entities at the expense of others. This would be a gross violation of section 217 of the constitution. Tenderpreneurs are a different type of targeting – not something that preferential procurement envisaged either.

Enterprise development and SED

Both are no-goes. Complete and utter no-goes (not sure how to spell that). Firstly they measure it using NPAT (or some other convoluted way which no-one understands), and NPAT is not something that government understands or needs to measure. Secondly that if a government department did try and implement these two they could not favour 50% black owned companies and 75% type charities because this would be discriminatory. Thirdly if they wanted to do this they would have to go off to treasury and ask for more bucks to do it – and there is no way treasury would give it to them.

Technically speaking they can actually measure these two elements (according to Obed de Swardt). Every non-profit entity can declare a profit in the form of a surplus and it would be a percentage of that that would be measured – but I can't see that this would work in a government context.

 

I have been a little verbose here but it is abundantly clear that the DTI has not figured out a method to include government departments in their broad-based system. I told the same to Mzwandile when he called me about this story but he chose to go with Ajay Lalu (Udge – I hope you were quoted wrongly in this article because if not it does not bode well for your knowledge of the codes). My thinking is that the DTI is acutely aware of this problem and has decided to leave BEE in the capable hands of the private sector. Unless of course they are going to throw this problem at the BEE Council just to test their mettle.

Malfunction

Malema sells newspapers.  The press love him - and they want his blood.  I'm not too sure what he did to City Press, but they really hate him.  I think part of this must be Ferial Haffajee - who is their new editor.

City Press alleges that SGL Engineering's tax issues are not in order - in other words they do not have a tax clearance certificate.  In an article published an hour later City Press reported that SGL were awarded four tenders in a month.

The Greater Letaba municipality also handed Malema tenders worth R28m.  "Yes, they submitted a tax clearance certificate," said Mayor Godfrey Modjadji.

If this is the case then we have some very odd workings going on.   A tax clearance certificate is the state's filtering system - if you don't have one your bid is automatically rejected.  PPPFA 101.

I read somewhere years ago about the drug dealers in New York in the 70s and 80s who were the kings of bling who lived the life.  They became easy targets for the authorities and eventually toned it down.  Malema appears to be the same - and might just be his own worst enemy.  Can't wait to see what happens here.

More law

Two different articles came up today

Business Day - Advocates raise the bar on transformation

ADVOCATES in Johannesburg aspiring to attain the highest status in their profession — that of senior counsel or “silk” — will from now on have to display a “demonstrable commitment to transformation” to qualify for selection. This is froma a resolution passed by the Johannesburg Bar Council.

This demonstrable commitment

Now the silks committee had to consider the extent to which a candidate had mentored black and women juniors, his participation in transformation through bar structures, and how often he had involved black and women juniors in cases.

I like this.

FM - GOVERNMENT TENDERS - Sold, to the highest bidder

A sad tale of a person who applied to the court to get a tender decision set-aside.  It took him two years to get the matter to the supreme court.  By the time the court had heard it the contract (winning bidder) had run its course.

The SCA concluded that the question was moot and any judgment would have no practical effect. The appeal was dismissed with costs.

And so says Andrew Donnelly of Shepstone & Wylie

"(I)nterdicts are often hurried and we don't always have all the information, but this is our one bite at the cherry," says Donnelly. "And if it is unsuccessful, it is not practical to take it any further."

The message seems to be that you need to have your act firmly together if you want to pursue this route.  Read the article.