Paul Janisch

A BEE conspiracy (theory)

This post is partially inspired by a comment made by Steven Friedman on Jujust Left the ANC and an email from a casual reader.

Friedman had the following to say about our failed hero

Malema and the ANCYL had been strategically “pushed” into the position of spearheading the proposal for nationalisation by a faction in the ANC. It was not clear what this faction would do about the financial support it had given him. 

“Mr Malema is 30 years old, he has no post-graduate degrees at all and he’s reputed to have R53 million in his bank account. Well where does the R53m come from? It’s not coming from tenders; it is coming from the people who tell him to do this,” said Friedman.

And then the good reader wrote

Hidden truth.  If new codes are 10 year codes as has been suggested, it means that many good deals will run out of “lock in cover” and will fold anyway. Go figure, if new ten year targets require maintenance of a 25% target, then it is clear that round two of the rent seekers scramble is about to begin.

The tie-in between these two unrelated comments is that it is possible that the new codes (and the the bill) are being pushed by a group of connected players (of no discernible political persuasion) who now want their place in the sun.  

Then when you look at section 12A of the Bill which allows an organ of state to set up its own transformation policy (which by the way is happening as I write), this conspiracy theory makes perfect sense.  There is a growing fear that this will have a very strong bent towards ownership - and guess who the owners of these suppliers would be? 

Now consider Pravin's exemption of certain schedule 2 and 3 entities from implementing the PPPFA until December this year.   This gives the new and old players a whole year to milk the infrastructure cow that our dear President has presented to us, without fear or favour.  Then when the Bill goes through and section 12A is mined for all that it is worth - you get guaranteed wealth for being connected. 

What would the Mythbusters say?

 

 

 

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.

 

Eskom's and other parastatals' exemption for certain sections of the PPPFA

At round about the exact same time as Pravin posted this notice, I was writing my post on Eskom's illegal behaviour.  My bona fides are still intact.

You can look through the Treasury notice but it exempts schedule 2 (major public entities) and schedule 3 entities from a variety of sections of the PPPFA until the 7th of December, 2012.  There is only one section that is of significance to my post about set-asides, Eskom and the PPPFA.

2. (1)  These regulations apply to organs of state as contemplated in section 1 (iii) of the Act and all public entities listed in schedules 2, 3A, 3B, 3C and 3D to the PFMA and municipal entities.
(2) An organ of state contemplated in sub-regulation (1) must, unless the Minister of Finance has directed otherwise, only apply a preferential procurement system which is in accordance with the Act and these regulations.

The Treasury note (R 1027, 7 December 2011) exempts schedule 2 and 3 entities from sticking to the hard rules of the PPPFA for another year; which includes the application of the 80/20 and 901/10 rules.  What isn't very clear is whether Treasury Practice note SCM2 of 2006 which outlaw set-asides is not applicable to those entities that have been exempt by R 1027.  I think that Eskom is still precluded from practising set-asides because they are still subject to the PPPFA, albeit in less strict a format.  I will concede that the water  here is a bit murky.

 

Confirming the PPPFA's applicability and the DTI workshop

This notice was issued by Treasury this afternoon regarding the applicability of the PPPFA - it was issued in June but made the front page of www.gov.za today.  Reinforces my earlier post about Eskom and PPPFA.

NOTICE IN TERMS OF SECTION 1 (iii)(f) OF THE PREFERENTIAL PROCUMENT POLICY FRAMEWORK ACT, 2000 (ACT NO. 5 OF 2000) 

I,  Pravin  J.  Gordhan,  Minister  of  Finance,  acting  in  terms  of  section  1 (iii)(f)  of the Preferential  Procurement  Policy  Framework  Act,  2000  (Act  No.  5  of  2000),  hereby give notice that the Preferential  Procurement Policy Framework Act,  2000  (Act  No.  5 of 2000)  and its Regulations shall  apply to all  public  entities listed  in  Schedules 2  and 3  of  the  Public  Finance Management Act,  1999  (Act  No.  1 of  1999)  with  effect from 07 December 2011 . Signed  at Pretoria on this 6th day of June 2011 .

This notice bolsters the Joint statement by the Ministers of Economic Development, Finance and Trade and Industry on designated sectors for local procurement (which I think is great - very much in favour of this.

DTI's workshop today

By the way a little birdy is keeping a running commentary on the developments at this workshop.   It's not looking good - this is what I know so far (tweets have been edited)

• We are going to be measuring degrees of blackness
• In summary take everything jungle jim has said and turn it into your worst nightmare 

Oy vey - can't say I didn't expect as much.  There'll be many submissions from me to the DTI.

Why does Eskom always get it wrong?

Eskom probably regards themselves as the saviour of black business and on paper you might even be able to agree with them. There is little doubt that Eskadaat 6's intentions were to promote black business but not specifically to the detriment of non-black business. However the practical application of Eskadaat 6 was a huge threat to legitimate white-owned businesses who employed numerous people. The procurement department's interpretation of Eskadaat 6 had the effect of side-lining these businesses because they were not black owned, something that the Eskadaat itself never intended.

Eskadaat 6 is behind us but the practice of set-asides is not. Eskom's latest BEE policies, specifically Implementation of Eskom's Black Economic Empowerment Strategy (32-416), have very clear set-asides built within them. This diagram explains it all

In other words Eskom (and subsidiaries) will prioritise black disabled EMEs and if it can't get what it needs from them then it'll go down the level until eventually they can source what they want.

I was told by a person who knows these things that Eskom is contractually bound to the government to stimulate and promote black business. This is a very noble and honourable thing and would not be open to question if it was not poorly implemented and was in fact legal.

Legality

Why not legal you may ask. Simple; Eskom is subject to the PPPFA. The PPPFA is Treasury's responsibility and Treasury has outlawed set-asides. This will require a lot more explanation.

The now current PPPFA regulations which came into effect today states in paragraph 2 that

Application

2.(1) These regulations apply to organs of state as contemplated in section 1 (iii) of the Act and all public entities listed in schedules 2, 3A, 3B, 3C and 3D to the Public Finance Management Act, 1999, Act No. 1 of 1999,

(as amended by Act 29 of 1999) and municipal entities.

For the purposes of clarity, schedule 2 of the PFMA lists the following (go to page 71)

Schedule 2 - MAJOR PUBLIC ENTITIES

1. Air Traffic and Navigation Services Company Limited

2. Airports Company of South Africa Limited

3. Alexkor Limited

4. Armaments Corporation of South Africa Limited

5. Broadband Infrastructure Company (Pty) Ltd

6. CEF (Pty) Ltd

7. DENEL (Pty) Ltd

8. Development Bank of Southern Africa

9. ESKOM (my emphasis)

10. Independent Development Trust

11. Industrial Development Corporation of South Africa Limited

12. Land and Agricultural Development Bank of South Africa

13. South African Airways (Pty) Limited

14. South African Broadcasting Corporation Limited

15. South African Express (Pty) Limited

16. South African Forestry Company Limited

17. South African Nuclear Energy Corporation Limited

18. South African Post Office Limited

19. Telkom SA Limited

20. Trans-Caledon Tunnel Authority

21. Transnet Limited

All subsidiaries of the above major public entities

It's therefore very clear that Eskom et al are subject to the PPPFA. The legality of Eskom's set-aside policy is questioned by Treasury Practice Note Practice Note SCM 2 of 2006. I've written quite a lot about this before. The practice note states in paragraph 1.1.5 that

The preferences contemplated in the constitution and PPPFA provide for the protection or advancement of categories of persons, disadvantaged by unfair discrimination without prohibiting any category of bidders from bidding for government contracts.

This note is preceded by

"the practice note is applicable to all national and provincial departments, constitutional institutions and public entities as defined in schedule 3A and 3C of the PFMA."

Would Eskom then argue that they have a binding contract between themselves and government and this overrides the Constitution (specifically section 217 which gives the PPPFA its legitimacy)? Any lawyer will tell you that this isn't possible.

What now?

There is little doubt that large sections of 32-146 and other Eskom supply chain policies are unconstitutional and hence illegal. But this has never stopped Eskom from continuing with this practice. My thinking is that the press should chase up on this story. Its relevance is significant especially on the day that the PPPFA regulations come into effect.

Happy PPPFA day

Today is the day that the new PPPFA regulations come into effect.  All bids advertised from today onwards are subject to the new regulations.  If you have a moment, why not read your new tendering bible.  And take a look at the next post about the applicability of the PPPFA and how Eskom is getting it all wrong.

PPPFA regulations come into effect on................

The 7th of December, 2011.  And I quote

Repeal of Regulations

15. The Preferential Procurement Regulations, 2001, as published in Government Gazette No R. 725 of 10 August2001, are hereby repealed as from 07 December 2011.

Short title and commencement

16. These Regulations are called the Preferential Procurement Regulations, 2011 and shall come into effect on 07 December 2011.

What these two sections of the PPPFA regulations state is that all bids issued before 7 December 2011 are subject to the old (currently existing) regulations.  Even if the bid is due after the 7th it still has to be subject to the old regulations.

I wonder who advised the Department of Infrastructure Development: Gauteng who issued a tender on the 11th of November this year for the Supply, delivery, installation, commissioning and testing of two(2) new vacuum pumps.  You can't really blame their eagerness to get stuck into the new regulations but they are clearly stating on the notice that preference points are to allocated based on BEE score - something that the new regulations are quite keen on.

Alas - we'll have another cancelled tender, or alternatively if your company doesn't win you can apply for the award to be set aside and the tender to be re-issued according to the correct regulations.

Hell - if only they'd come on my course.

 

More on the disawareness campaign and a little bit of social consciousness

As per the November 6 post, it would seem that the Amajuba Municipality is a victim of poor DTI public relations and BEE.  This attachment is a must see - but for those of you with coloured monitors I'll write it out for you. (You can see the same announcement on the DTI's home page).

 

A MUST from 7 December 2011
Companies that wish to conduct business with government will be required to submit their valid BEE Certificates obtained from an Accredited Verifcation Agency or Registered auditors approved by the IRBA.  Companies with an annual revenue of R5million or less must get an Exempted Micro-Enterprise Certificate from a registered auditor or Accounting Officer confirming their annual turnover.

Whilst technically speaking this is correct, it suggests that without a BEE certificate (accredited or whatever) you cannot do business with government.  Also it doesn't take into account EME thresholds between the various sectors.  On top of this (as the reader who sent me the file observes).

The number being wrong at the bottom and the website it takes you to still talks about SANAS and pre-assessment letters.

The reader is correct on both counts.  The best is the telephone number (0861 394 9500), when you dial it you are politely informed that the number is invalid.  This is so wrong.  I'd love to say that it's not something we'd expect from the DTI, but it is.  Do they not understand that the average person is going to call them and not look at the website (internet penetration in South Africa is good but not that great).  

Yes, I am a cynic, and yes I have little faith in Rob and the DTI, but their every move in the world of BEE reinforces this.  

For those who wish to contact the DTI - here are the correct numbers.

Working Hours: Monday – Friday, from 08h00 until 17h00
National callers: 0861 843 384 
International callers: +27 (12) 394 9500

 

 

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.

PPPFA and BEE scorecards – one day workshop 5 October, 2011

We’ve partnered with Keyona Business Information & Management Solutions to deliver a one-day PPPFA course which covers the new PPPFA regulations and their applicability.  There's also 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.

If you are part of a bid committee in any schedule 2 or 3 entity (of the PFMA - this includes Eskom, Telkom, Transnet and every municipality) you'll find this one day course very useful.