Paul Janisch

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.

 

PPPFA regulations are here

You can find them here.  I haven't looked through them (power failure all day).  But the 90/10 rule is for R1m and up.  And scorecards are the way to go for preference points.

At first glance these regulations are not bad.  They allow for EME certificates that are not issued by verification agencies (something Coca Cola South Africa does NOT do - do you know that they are the hardest company in the country to do business with).

More on this tomorrw.

Counting on an Abacus

 Say you are but a humble BEE consultant who advises a certain multinational called Harriest*. Harriest has a complex structure because it is made up to two companies, Harriest One and Harriest Two. Harriest One is really an import company with no employees at all, they just import goods from their parent, HARRIESSENCE. They then supply Harriest Two with the same goods, to the extent that they are Harriest Two's biggest supplier by far (contributing about 90% of Harriest Two's total cost of sales bill). Their CEO, whose name is not Harry, is only interested in getting Harriest Two rated. And this is because Harriest Two employs all the people and some or other reason which you as the consultant accept.

Now, not Harry is a good CEO and he invests in his staff, has good employment policies and all that stuff. You advise him on the best way to get this enterprise development thing done properly etc. But you notice that in spite of all this, Harriest Two is only going to scrape onto the scorecard. not Harry is happy with this. So you and the verification agency go ahead and get the certificate (which is issued on the 11^th of November 2010) and you come up with the following score (level 8)

Element	Score	Maximum (excl bonus points)
Ownership	0.00	20
Management	0.00	10
Employment equity	3.31	15
Skills development	8.34	15
Preferential procurement	2.70	20
Enterprise development	12.51	15
Socio economic development	4.00	5
Total	30.86	100

And so you think you've done your job, not Harry pays you and off you go.

Now say you are having lunch with a friend of yours called HanselGretel and he tells you that Harriest Two has in fact got a level 6 rating. You gasp "I do not believe you, HanselGretel, is this the wine you have served me that is talking to me?" HanselGretel is determined that this is correct and on the Monday when the haze has cleared he sends you their scorecard. To your amazement this is the scorecard that is issued by Abacus Verification (Pty) Ltd (ABVA member and SANAS accredited BVA 086).

Element	Score	Maximum (excl bonus points)
Ownership	0.00	20
Management	0.00	10
Employment equity	4.41	15
Skills development	12.00	15
Preferential procurement	15.99	20
Enterprise development	15.00	15
Socio economic development	5.00	5
Total	52.4	100

The new scorecard is issued on the 24^th of March, 2011 - a mere four months after the first one. You fumble for breath – how is it that two verification agencies could be so different in such a short time. So you phone Harriest Two's CFO (So long MaryAnne) and ask her about this one. The conversation goes along the lines of:

Consultant: So long MaryAnne, but I am so surprised at this score.

 So long MaryAnne: Isn't it good, we are very proud of it

Consultant: But how is this possible?

So long MaryAnne: I met a man at a car wash who told me he does BEE scorecards

Consultant: Now that is interesting, do go on

So long MaryAnne: I told him that our score was bad, so he volunteered to come and look and see what he could do

Consultant: I am more intrigued than ever, So long MaryAnne, please don't stop and speak up for I fear I cannot hear you for my racks of sobs

So long MaryAnne: He said that procurement is preferential, and that means (something which the consultant has forgotten), and you can exclude imports

Consultant: (sob) uh huh (loud sigh and deeper sob)

So long MaryAnne: So he gave us almost 16 points for procurement which we deserve

Flabergasped, your consultant consults everything he can get his hands on in this regard. He then rattles off an email to Harriest Two's people

I feel that as the person who advised you for the earlier scorecard that I do need to point out why I think your new scorecard has issues.

The most concerning score is the procurement score. I spoke to So long MaryAnne today and she said the person who did the scorecard said that you could exclude imports and intra-group company expenditure. Imports aren't a worry, if I remember correctly the imports came through Harriest One anyway. However intra-group company expenditure is a problem. The first place we need to look at is the actual preferential procurement code (Code 500) which states that

5 Total Measured Procurement Spend

The following procurement is measurable within Total Measured Procurement Spend;

5.12 Intra-group procurement: except as provided in statement 002, all goods and services procured from subsidiaries or holding companies of the Measured Entity

This means that unless the intra-group company expenditure must be included unless it is exempted under statement 002..

002 talks about complex structures and is very clear that intra-group company expenditure can be excluded when you do a consolidated scorecard. In your case an example would be doing Harriest One which included Harriest Two. Under these circumstances you would take a look at the combined procurement and target each one's suppliers. The code then goes onto say that if each company within the group gets a separate BEE scorecard they must consider the BEE score of each group company if there is procurement between each one.

This paragraph explains it (in very bad English)

Conditions applicable to Measured Entity Level B-BBEE scorecards for Group Structures

8. Preferential Procurement score: calculation of the score for this element must measure procurement spend by the measured division/ business unit only. Note that incomes to an entity level B-BBEE scorecards for divisions, intra-group procurement with the enterprise to which the division or business unit belongs is measurable as per Statement 500.

The reference to Statement 500 is that paragraph 5 above.

I think that you were very badly advised under these circumstances. I'd be more than happy to explain this in person, but in the interim I do recommend that you forward this onto ABACUS because they must explain why they did this because they risk losing their verification licence if this scorecard gets queried.

Your consultant, who is an amateur blogger then makes a note of this on his blog. This post is greeted with shock and surprise by Maritha Steyn, who represents Abacus. The consultant is pleasantly surprised by her non-confrontational style and good humour – all the correspondence shows that she is willing to explain this. The consultant promises not to blog on this unnecessarily and gives her over a month to respond. Sadly that month has passed and a final note is emailed to her a week ago saying that this post would go up today. Another promise of a response comes the consultant's way – but nothing materialises. She did however agree that in a group of companies, intra company procurement must be considered as preferential procurement if there is no consolidated scorecard.

Harriest Two is wholly owned by HARRIESSENCE – a German company. (So only SA production should have been used as the baseline for PP) Harriest One PP should have been included as it was intra group Procurement; as far as I know this was not a consolidate scorecard where the Intergroup should not count as B-BBEE PP. On the ABACUS scorecard this was included and the amount was not small. I unfortunately deleted the scorecard but will request another copy as well as the file in order to do an internal audit on this matter.

This is an issue that must be sorted out, there is little doubt that both the consultant and the first verification agency have lost a client, unfairly I would suggest. This is the story so far, Ms Steyn is more than welcome to explain the situation but as the consultant in the story (I bet you never guessed that it was me), my reputation is a little on the line and I have lost a client.

 

* Some names have been changed to protect the innocent

A retailer's tale

Black economic empowerment as a concept works when the lone consumer is not involved in the procurement decision. 

Perhaps that was a little vague - what I mean is that the BEE status of a certain vendor/supplier/manufacturer etc is almost completely irrelevant to the average consumer.  An example is the power failure we experienced yesterday (which strangely enough cannot be blamed on City Power).  We had no power so we called our favourite electrician - Cooks Electrical.  We use Cooks because they are good, reliable and reasonable.  The last thing I would ever enquire about is their BEE status - I don't care, I want my electricity fixed.  And I'm willing to be that every home-owner in this country feels the same way (including Zoomersheengat).  

This same behaviour happens in my daily grocery and other purchases.  I use Woolworths for certain things and Pick 'n Pay, Shoprite and Spar for other things.  Never once have I ever bothered to enquire from the shop manager as to their BEE status - it has absolutely no bearing on whether I will shop there or not.

This factor has now been brought to the fore with the Walmart purchase of Massmart.  There seems to be an issue with local procurement.  (By the way - welcome back Lionel.)

Last week the deputy DG in trade & industry, Lionel October said in parliament, "We want to make a clear stand at the tribunal that [procurement] is an issue...It is not to prevent [Wal-Mart] from entering the South African market but to try and get a voluntary commitment from their side that they will try to procure locally.”

Massmart's CEO, Grant Pattison, took (vehement?) exception to this 

“it would be against the tenet of the Competition Act to hold Massmart to procurement targets, but not the rest of the industry.  If Massmart is held to that condition, and our competitors are not, then the one factory in SA that makes lawnmowers can sell us product that is 20% more expensive than others are importing them. “You cannot have asymmetric regulation. It’s terminal from a competition point of view.”

He is absolutely correct.  It's a ludicrous concept - Massmart owns a bunch of retail/wholesale stores.  This is where people like me come in and buy stuff for our personal and in some cases, business use.  We shop there because we believe (often incorrectly) that we will find the best prices for what we are looking for.  In order to cater for this, Massmart must negotiate the best price for each item.

If they are now forced to start procuring locally and the consumer does not like the product or the price then they won't buy it.  They will probably head off to other stores to buy those products that Massmart used to sell.

The fact remains that BEE is irrelevant in the retail space and suppliers of consumer goods are probably very aware of this.  There is no way that any of the retailers are going to stop purchasing from a supplier who provides goods that consumers want to buy because of their BEE status.  And these consumers include the likes of jungle jim and all his ANC cronies.

What about those entities that think they might need a BEE scorecard but don't

This is a repost of one of my informative Caird Code Rules as per a reader's request.  I've added in another little feature that I've never done before - if you place your mouse on the underlined text it will show the sections in the codes that I'm referring to.

Charities and other section 21 companies that are looking for SED money

Paragraph 5 of Code 000, statement 004 states very clearly that their BEE status is not a consideration in determining whether they will be beneficiaries of SED contributions

There are some NGOs/section 21s who provide certain types of services to corporates to raise money for their core activity. Under these circumstances they become a supplier to that corporate and might be required to produce a specialised enterprises BEE scorecard (statement 004).

Entities or companies providing enterprise development services

Now this is a very common occurrence. There are many private companies providing these services, Endeavor and Raizcorp are two that I know rather well. This practice is contemplated by code 600, paragraph 3.2.5.12.  It does not appear that these companies actually need to produce a BEE scorecard to provide ED services. One of the exclusions under Code 500 (Preferential Procurement) is empowerment related procurement – more specifically (paragraph 6.5.2)

investments, loans or donations qualifying for recognition under any statement under Code series 600 or 700

This strongly suggests that that expenditure is excluded and hence a BEE scorecard is not needed.

PPPs and BEE

Public Private Partnerships are without doubt the most effective tool that the government has to achieve its Black Economic Empowerment (BEE), RDP and other empowerment related goals. Yet this method of procurement is not making the most of these opportunities. The problem seems to be that the transaction advisors that are used in the early stages of the feasibility study are not suitably aware of empowerment requirements and structures that PPPs would like to achieve in the long term. The majority of these bid documents contain antiquated empowerment requirements that might deliver a narrow type of empowerment structure that ultimately benefits very few people.

The empowerment criteria for PPPs are contained in Module 2 of the National Treasury PPP Practice Note of 2004. The practice note precedes the Department of Trade and Industry's broad-based BEE codes of good practice (COGP) by about three years but a careful reading of both the COGP and the practice note reveals that they are remarkably similar and that a standard COGP implementation will more than likely cover almost every requirement that Module 2 has laid out. Interestingly the Municipal Service Delivery and PPP Guidelines have deviated from Treasury's module 2 and incorporated the DTI's codes of good practice into its requirements – suggested perhaps that the Treasury module will follow suit in the future.

The stated empowerment objectives of PPPs include

•    Increasing levels of black ownership and management

•    Development of local skills

•    Development of supporting entrepreneurship

•    Creation of local jobs (directly and indirectly)

It is the last three objectives that tend to be ignored in most PPPs. The management and ownership requirements are pushed to the fore and more often than not benefit people who may not reside or have any roots in the area that the PPP has targeted. It may appear that empowerment has been achieved but without the required emphasis on local economic development, the local population might come out of this process completely neglected. Perhaps the best way to explain this process is to use an example of a PPP that we worked in a remote area of the Eastern Cape.

The specific project is located in an region that was a labour sourcing area during apartheid. It is still suffering from the chronic ravages of this policy and as a result has virtually no infrastructure with an economically active population that is mostly female with a high HIV infection rate. It stands to reason that any investment in this area must have some positive impact on the local community. Our job was to ensure that the empowerment requirements would continuously develop that local community.

Using both module 2 and the DTI's codes as a starting point we recognised that the construction phase was unlikely to employ any of the local population on a permanent basis so budgets that would typically be allocated under a standard BEE scorecard were re-allocated to other areas of the scorecard that would see a greater investment in the local community. We specified that the local community (i.e. people living within a 50km radius of the target area) was to be used because the DTI's BEE scorecard only speaks of black people – not local people. This means that without specifying local investment it is conceivable that a company operating in this area could be fully compliant by investing in any other area. The facilities' management scorecard built on the BEE foundations laid by the construction phase and increased the number of local people employed on a permanent basis over a ten year period. The modifications to the scorecards were within the ambit of module 2.

The single most important feature of a PPP is that the Treasury Manual insists that all empowerment requirements are made contractually binding on the winning consortium, with penalties for non-compliance. Of course this requires both the government and the private party to measure their BEE performance. If the prescribed scorecard deviates so far from a standard scorecard then there is no conventional method of measurement. Verification agencies have been mandated to measure empowerment based on either the DTI's scorecard or a sectoral charter and do not have the legal capacity to measure any other type of scorecard that deviates from these norms. This means that an additional third party has to be contracted to measure and report on this.

Public Private Partnerships are still relatively new to South Africa and their efficacy is not yet fully tested. But there is little doubt that they have incredible potential to deliver on government's empowerment measures. It is very important that these measures are carefully thought out at the early stages of any PPP because it may be very difficult to change them ten years down the line when it is realised that they are not achieving what all stakeholders hoped they would. Proper advice at the outset mitigates this risk.

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Paul Janisch is the CEO of Caird Consulting – a broad-based BEE compliance consultancy. Caird has advised both the private and public sectors on PPP empowerment requirements. Janisch can be contacted on 083 227 1375 or email

2009 BEE awards

I was looking through my predictions for 2009 and have to (humbly) confess that the Nostradamus way is not my calling.

• The FSC is probably going nowhere
• A bunch of charters made section 9 gazetting
• BEE scorecards have become necessary tools in doing business but are not a competitive advantage. It seems that each industry has a certain standard and if you don't meet that standard then you are at a disadvantage
• Treasury actually published updated regulations for the PPPFA and they included scorecards
• Verification agencies were accredited and before the elections too
• Can't say whether Empowerdex lost their market share to NERA – but they do seem to have lost the empowerdex.com domain

Now onto to 2009. It was one hell of a year for BEE as a policy. This is what I think were the most significant events

• Accreditation of verification agencies

I never thought this would happen. But it did and it looks as though a few more will make the cut too. I've prepared a spreadsheet that explains how much work verification agencies have on their hands in the next few years. I was fiddling around on a VERY FAMOUS verification agency's website and they proclaimed that to date they had done about 2000 certificates since they started. I have news for you VERY FAMOUS verification agency, you are going to have to do about 6,494 (I like to keep my speculative figures precise) next year. This is about 26 per day. If you'd like to check my figures - please do.

As a little postscript I have been very hard on the old VAs (but not hard enough on ABVAngelis) – I have just completed a list of procedures for a VA hoping to get through SANAS. This is a lot of work and a very expensive process. I expect I'll be doing a lot more of that next year.

• Rob Davies taking over the trade and industry ministry

This was a weird one. It seemed that Rob wasn't that interested in BEE and that he inherited a mess from Mandisi. I stand by what I have said about Rob, I think he's pushing for compliance over transformation, hoping that compliance will lead to transformation.

• Section 9 Charters

There were a bunch. Some gazetted by Mandisi and others by Rob.

• New PPPFA regulations

A bold move, even if they are in draft form. I'm not going to speculate as to when the final document gets published.

• NABC starts making a noise

The National Association of BEE Consultants. This is a total waste of time. As much as I dislike ABVA, at least they are organised. The NABC has no common agenda and lacks unified leadership. I cannot see how they are going to add any value to anything ever (oops there I go wearing my Nostradamus hat again)

• BEE advisory council

Good move Zumachine Gun. Let's see what they do in 2010.

• Expected demise of the FSC

The FSC seems to be dead in the water (on this subject the drafter of the new FSC annual report pinched almost everyone of my ideas from last year – don't they say imitation is the greatest form of flattery. It would have been nice to see a document that stuck to the actual tender requirements).

Good luck for 2010 – I am hoping to fulfil the Charlie Christian mantra throughout the year with each client (it is said that Charlie would play guitar if he got all three, but he was known to settle for two out of three)

1. Learn something new
2. Get paid
3. Have fun

And on the subject of fun – can anyone spell AC/DC.

Feel free to add your highlights in the comments section.

Caird Code Rule #1 – Is BEE applicable to you

A while ago I was doing a presentation to the American Chamber of Commerce on Equity Equivalents. One of the delegates was an apparel manufacturer who asked my why his company should consider the programme I was proposing. I was a little surprised that such a company would even consider equity equivalents as an option. Why would they need to, they sell takkies, T shirts and caps. Every single one of their products are sold to a consumer who is very unlikely to use BEE status in their decision to buy their product. Edgars etc might ask them for their BEE status but I have my gravest doubts that they will not stock those products in their stores because that company does not comply with their BEE wishes. And it is also unlikely that Edgars will incentivise their sales staff to push a local product over the imported one. Can you imagine the conversation

Consumer: I'd like to try on these Adidas shoes.

Sales assistant: Please sir would you consider these Dlaminis. They are locally manufactured and Edgars will get more BEE points if we sell these.

Consumer: No I will not you horrid sales assistant you. I'm off to Sportsman's Warehouse.

This fictitious interaction exposes the deepest flaw in the implementation of BEE viz if the average joe is the end user then BEE is not going to be very important. This means that BEE can really only be applicable when the consumer is some sort of a corporate or government entity.

The general rule here is that if your business caters for consumers then it is unlikely that BEE will ever affect you. This would include restaurants (that don't serve alcohol), shoe shops, clothes shops, plumbers, electricians, pool companies, record shops, news agents, retail jewellers. As with any rule there are exceptions.

1. Any restaurant, hotel, pub or anything that serves alcohol requires a liquor licence. And those licenses are handed out by the DTI. And the DTI asks a bunch of BEE questions in allocating these licenses. I have written countless BEE plans for liquors wholesalers and retailers that have to be submitted with each renewal.
2. Shops looking to rent in malls that are owned by parastatals like Transnet or Eskom. I have heard that your BEE status is important to these types. ACSA is another example – the annual tender for renewals for shops in the airports require BEE credentials. I don't know who drafted those BEE questionnaires but they are so badly written they are an embarrassment (mind you so is ACSA). I haven't come across private property owners asking for BEE credentials.
3. Manufacturing jewellers have to comply with the Mineral and Petroleum Resources Development Act of 2002, (MPRDA). The requirements for this are exactly the same as those for a mining licence. I won't comment on this right now but suffice to say – this abomination requires its own future post.
4. Anything that can be used under section 10 of the BEE Act. I haven't really seen this being used, although I have worked on PPPs where the legal advisors have anticipated it in the PPP agreement. The DTI has taken a cautious path when it comes to section 10 because I believe that they recognise that over-regulation will stifle the development of the South African economy (as if we aren't over-regulated already). Technically speaking they could shove section 10 in the way of almost everything to achieve the BEE Act's transformation goals.

What about those entities that think they might need a BEE scorecard but don't

Charities and other section 21 companies that are looking for SED money

Paragraph 5 of Code 000, statement 004 states very clearly that their BEE status is not a consideration in determining whether they will be beneficiaries of SED contributions

The status of Socio-Economic Development Contributions made to any of the types of entities in paragraphs 1 and 2 under Code series 700 is not dependent on such entity's scorecard result, but rather the nature of the contribution itself and the identity of that contribution's beneficiaries.

There are some NGOs/section 21s who provide certain types of services to corporates to raise money for their core activity. Under these circumstances they become a supplier to that corporate and might be required to produce a specialised enterprises BEE scorecard (statement 004).

Entities or companies providing enterprise development services

Now this is a very common occurrence. There are many private companies providing these services, Endeavor, Raizcorp and ED Alliances are three that I know rather well. This practice is contemplated by code 600, paragraph 3.2.5.12

payments made by the Measured Entity to third parties to perform enterprise development on the Measured Entity's behalf

However it does not appear that these companies actually need to produce a BEE scorecard to provide ED services. One of the exclusions under Code 500 (Preferential Procurement) is empowerment related procurement – more specifically (paragraph 6.5.2)

investments, loans or donations qualifying for recognition under any statement under Code series 600 or 700

This means that the expenditure is excluded and hence a BEE scorecard is not needed.

Jacob Zuma on plans for economic transformation

Zuma's ANC letter beautifully precised by Moneyweb as "ANC president responds to the concerns raised by the BMF over Eskom and other SOE's". 

A few features/quotes

• One of the key focus areas of the ANC government is economic transformation.
• We emphasise that the creation of decent work will be at the centre of our economic policies and will influence our investment attraction and job-creation initiatives.

To achieve this, we said we would utilise state levers such as procurement, licensing and financial support to assist small and medium enterprises as well as to promote the implementation of Broad-Based Black Economic Empowerment (BBBEE) and affirmative action policies. These policies must not just benefit a few but should be extended to a broad section, especially the workers, youth, women and people with disabilities.

(You know where licensing comes in - good old section 10)

And then a reference to the BMF (who now deny that they ever suggested Bobby is racist, but they want the board to resign).  And now for a post within a post.  This is from November the 9th (Business Report) in which they called for the resignation of the board and threw in a few choice epithets.

Mnyaka said the problems at the power utility stemmed from an ideological disconnection between the strategic imperatives of the ANC government and the board led by its chairman Bobby Godsell, as well as lack of clarity between his and Maroga's role. She added that Maroga was a victim of "anti-transformation people with a racist agenda" at the electricity parastatal.

'nuff sed about that.  Back to Zumachine Gun

• Our meetings with black business sensitised us to some actions of government which serve to hamper the development of small entrepreneurs. One of these is the delays in paying small businesses.
  
  During the election campaign we said we would change the way in which government works, and that we would ensure faster delivery. Treasury Regulations on the approval of expenditure in government states that unless determined otherwise in a contract or other agreement, all payments due to creditors must be settled within 30 days from receipt of an invoice or, in the case of civil claims, from the date of settlement or court judgment.
  
  We have instructed all government departments to comply with this regulation without delay.
• To further streamline our transformation work, we are currently in the process of appointing a BBBEE Advisory Council which in terms of the BBBEE Act will be chaired by the President of the Republic. This process should be completed in a few weeks’ time. The Council’s responsibility will be among others to advise government on black economic empowerment, monitor implementation and review progress in achieving black economic empowerment.

That's about it.  You can read the whole thing here.

Pravin and the PPPFA (not quite Peter and the Wolf, but there is a jungle element in it somewhere)

This is a repost - I messed around with the blog and lost the post.  Sorry Mike - I've also lost your comments.

 

 

In municipalities and government agencies, similarly, spending on unnecessary travel and entertainment, unfocused consultant contracts, procurement supplies at uncompetitive prices and layers of administrative paperwork that interfere with getting the job done, will be cut.

Pravin Gordhan - Medium Term Budget Policy Statement (27 October 2009)

 

This quote comes from the Weekender’s Thought of the Week.  Our new Trevor (the real one was seen by me with Maria shopping for veggies at Woollies in Hyde Park on Saturday) has impressed me no end.  I think there is a wealth of information contained in this quote.  I suppose being a consultant who does a fair amount of work with the public sector I should be concerned, but that isn’t the phrase that interests me.  Take a look at “procurement supplies at uncompetitive prices”.  This simple phrase effectively affirms Treasury’s view on the PPPFA and the preference points’ ratio.  In the space of a few words Pravin has shot down guru jungle and other lobbyists who chant an “empowerment at all costs” mantra.  So much for sir jungle of jim proclaiming that the PPPFA should be scrapped altogether or insisting on a 60:40 regime.

Which brings me to what I really want to write about – the PPPFA.  I’ll consider it my public sector, public service duty to list a few little known facts about this mysterious act.  The PPPFA is just another one of those pieces of legislation that is badly understood and very poorly implemented.  And it is remarkably short too. 

Here are a few observations.

1)    It is applicable to those entities contained in schedules 2 and 3 of the PFMA and those contained in the MFMA (I have put up this list on the Caird website). You will notice that certain SOEs contained in schedule 2 do not use the PPPFA at all – Eskom, Telkom, ACSA (who the hell advised these guys – it is the biggest mess I have ever seen) etc.  It could be that they are not subject to the PFMA and have not been removed from the list or that they don’t know.  You will know pretty quickly if the PPPFA is at play because it will present you with a fifth hand photocopy telling you what preference points are expected for that bid.

2)    It is not a filtering tool for government procurement.  In other words if a bidder does not get a single preference point they cannot then get excluded from the entire bid process (bid is the correct word by the way).  The rules state that the preference points section and the tender section need to be evaluated separately and then the points are added together and the bidder with the highest number of points should win.  (This doesn’t apply to PPPs at the RFQ stage – as a general rule certain empowerment criteria must be met in order for a bidder to be considered for the RFP phase)

3)    The state does not need to use the PPPFA for every bid.  This would add unnecessary administrative paperwork (another of Pravin’s bugbears) in the case of goods and services that can only be procured from outside the country.  Section 3 of the act states

3. Exemption.-The Minister may, on request, exempt an organ of state from any or all the provisions of this Act

(a) is in the interests of national security;

(b) the likely tenderers are international suppliers; or

(c) it is in the public interest.

4)    As a general rule the PPPFA kicks in from contracts worth R200k. Below this figure three written quotes will suffice (actually above R30k). However I have heard that this is not a hard and fast rule – a figure of up to R500k can be contemplated before the PPPFA is used. 

I’ll dig up more information and post it up here.  My next instalment is a little discourse on King III and BEE.