Paul Janisch

How much does a level 8 BEE certificate actually cost? PPRA content (Estate Agency dilemma)

Last week we demonstrated that if your turnover is between R2.5m and R35m and you have 51% black ownership then you all you need to do is sign an affidavit that shows that you have requisite ownership and you have a level 2 (100% ownership is a level 1, again with an affidavit).  This is more than acceptable to the PPRA.  PPRA’s legal manager and acting transformation manager, Deli Nkambule, explained that “the PPRA’s position is that it will not issue an FFC unless a compliant BEE certificate accompanies the application.

“The accepted level of compliance is 40 points or more (BEE Level 8). You will not be issued a BEE certificate if you score below 40 (making your BEE certificate non-compliant),” she said.

The reported quote shows a complete lack of understanding of the technical and financial considerations that are required just to get to a level 8.  We’ll discuss this in the next email. 

A BEE scorecard is made up 5 elements.   We’re only going to focus on those points that have a financial consideration to them.  The table below makes a few assumptions

• The cost of labour in a smaller estate agency is 60% of turnover. This is based on the 50/50 revenue split between the agent and the agency.  We’ve added on a further 10% for support staff
• The Net Profit After Tax (NPAT) in the last financial year is 5.62% of turnover. This figure comes from StatsSA.
• The estate agency’s revenue in this example was R10million in the last financial year.

The three elements that require a financial outlay are

1. Skills development (spend only on black people) – 3% of payroll (if the agency does not employ any black people then this will have to be spent on training of black people outside of the organisation)
2. Enterprise and supplier development (assisting black owned businesses to become sustainable) is 1% of NPAT each

• Socio-economic development (financial contributions to charities where the beneficiaries are at least 75% black) is a further 1% of NPAT

We have then added on a further R15,000 for the actual BEE certificate to be issued.

Turnover/Revenue	R10 000 000.00
NPAT	R536 000.00
Payroll	R6 000 000.00
Skills development spend on black people	R180 000.00
Supplier Development	R5 360.00
Enterprise Development	R5 360.00
Socio Economic Development	R5 360.00
Verification costs	R15 000.00
TOTAL	R211 080.00

This is an annual cost of compliance and the costs increase as the turnover increases. 

Next week we’ll show you that even if you do spend this money there is no guarantee that you will arrive at a level 8.

If you would like to know more about level 2 BEE compliance that will cost you a quarter of that amount take a look here.

BEE sector codes’ – your BEE options

A recent email from AQRate said the following

This is probably the question we are asked the most often. Will these Amended Codes and all Sector Codes really become effective on 1 May 2015. A well known BEE Consultancy recently advised that there would be a delay and this was refuted in the strongest of terms the following day by the Dti. We believe that the Dti will continue to pursue the 1 May 2015 implementation date. One of the solutions that have (sic) been suggested is that all current Sector Codes will be repealed before 1 May 2015 and that on this date everyone will use the Amended Codes of Good Practice until their particular sector code has been amended and gazetted.

The underlined section poses a wide number of issues.

1. Can the DTI summarily repeal current codes?
2. Is there a process that needs to be followed?
3. What are the ramifications of such an action?

I can't answer question one in any informed way. I would imagine they can't but will anyway. Which brings me onto the second question. I cannot see that a piece of legislation or secondary legislation can be arbitrarily repealed, there must be a standard procedure contained within our law. I don't know what that procedure is and I don't know how to ask DuckDuckGo how I go about this. Chris van Wyk suggested to me that the action of repealing a code must follow the standard process as prescribed in section 9 (5) of the act which is to put it out for comment for 60 days. 9(5) talks about "issuing, replacing or amending" a code. Chris posits that repealing is either an amendment or replacement.

Time has now run out for the sector codes to meet the 1 May deadline. If they published them all for comment tomorrow then the 60 day comment period would end in early May. They have to consider comments and hence cannot logically publish the final code the day after. The consideration period for the revised shambles was about a year. Let's say it takes them two months to consider the comments, we are looking at about July before the first code comes into effect. We know from the QSE codes et al that were published last year for comment that a sector code has no lead in period (which I certainly believe is unreasonable). July at the earliest.

There are two possible options that could happen.

1. The DTI summarily repeals all the codes and tells everyone (as per AQRate's email) that those companies must now follow the revised BEE codes

This would be procedurally wrong and legislatively unfair. We know that all codes issued under section 9(1) enjoy the same legal status. This means that those companies subject to an industry code have no reason to even consider or anticipate implementing the revised codes. They could persuasively argue (unfortunately only in a court of law) that they can't be expected to consider the revised codes in such a short period of time. Also I would encourage some form of litigation from charter councils or their constituents to query as to whether the DTI may do this.

2)    The DTI follows the prescribed process

As I wrote earlier I don't know what the prescribed process is but I'm willing to bet that you cannot summarily repeal a piece of legislation without at least putting it to some sort of public vote or similar.

My money is on the fact that there will be a 60 day comment period whether they publish codes for comment or repeal them. If this does happen then this what I recommend you do

RECOMMENDED ACTION IF YOU ARE SUBJECT TO A SECTOR CODE

Avoid the mad rush to get your old certificate issued before the revised codes come into effect on the 1^st of May. If your certificate expires during the comment period then you are OK – get a new one issued under the old code. However if you are somewhere in between then wait until the 60 comment period has passed and immediately renew your certificate under the old code. You might be able to drag it out by about a month but I wouldn't wait any longer, don't forget that when the new code comes into effect that's it – there's no lead in period.

Related articles

BEE timeline

Who stands to benefit from the revised BEE codes

Junk status, BEE and Levenstuck

Thank goodness for Keith Levenstein. Those in the industry know that he knows not what he speaks of, and so he is a blogger's dream. In fact I reckon Hlaudi has already issued him with the very first journalist's licence.  His latest press release, which was published by Engineering News , has certainly got tongues wagging. As sensational as the heading may be, it's the only accurate piece of information that is contained in the whole article "Half the economy could become BEE noncompliant by May 2015". It's only half accurate – I would suggest that more than 90% of all companies operating in SA would be BEE non-compliant.

Let's move on to what ol' Keefie is attempting to get through to an unsuspecting public. Wait a minute, I need to go back a bit. Levenstop peddles advice and courses to those who don't know that he doesn't know what he's talking about. Obviously the more sensational the press release the more likely it is that companies are going to flock to him for "high quality advice" (with a strong emphasis on high).

Back to Levenstoy. "If the sector codes are not released in time, businesses will need to follow the amended codes released last October," he said.

Really, is that the truth? And if it is the truth then out of which source did it permeate? Even the DTI would question this version of the truth. It would be wrong for me as a concerned blogger and see-througher-of-Levenstick to leave it at that.

The issue that Levenstranded conveniently ignored is the status of transformation codes. We need to go back to the 2007 codes here (gazette number 29617), specifically statement 003, paragraph 4.3 "A sector code enjoys equal status with that of any other CODE". A Code is issued under section 9 of the BEE Act – see paragraph 3.6 of statement 003 "After considering public comment, the minister may gazette the transformation charter as a sector CODE under section 9 of the Act".

At this point Levenstrangle would be jumping up and down and saying "fuck him – he's wrong! Hasn't the idiot looked at paragraph 10.3 of the revised codes (36928), which says "….(t)he generic scorecard in Code series 000, Statement 000 issued on 9 February 2007, notwithstanding the REPEAL of that statement." ? I'll answer for the idiot. Yes he has read that section – he also knows that the specific paragraph is without legal substance and even if it was it says that Statement 000 is repealed, not Statement 003.

Returning to 36928. Paragraph 3.2.3 of Statement 000 has the following to say about sector codes "A measured entity in a sector in respect of which a sector code has been issued in terms of section 9 of the BBBEE Act as amended, may only be measured for compliance in accordance with that code." Even the new codes recognise that you need sectoral codes (Levenstrungout is an expert on fronting and sectoral codes you know). This is the juncture at which the DTI have got themselves firmly stuck up a pole. The sectoral codes issued under section 9 of the BEE Act are still in force and if they are not amended, replaced or repealed then they will not only not talk to the revised codes, but they'll still be applicable. (The word repeal has been added to the amended bill/act – I don't know what the legal status of the amended act is.). I've spoken to a few people at charter councils and they are galloping away at re-alignment. However this takes time. The Act says that any amendment must go out for comment for 60 days. Then the dti has to ignore consider the comments and then ignore them some more and then publish the final code. The sectoral codes are desperate to meet the dti's April 30 deadline so that all can be harmonious.

Back to Levenstigmatised's aversion that if the sectoral charters aren't aligned or repealed then you default to the revised BEE codes. This is such embarrassing bullshit, I'm sure the DTI are turning their heads in shame. In short, ignore this press release as rubbish and steer clear of poor BEE advice.

Related articles

Complete scorecard (and the occasional cynical quip) for 36928

The new BEE codes and their impact on socio-economic development contributions.

What is the legal status of the new codes?

Challenging the 2013 BEE codes in a court of law - the ball has started rolling

Less than R10m turnover and an EME, I don't think so

Adjustments to the property charter

This document is an update of the property charter.  Amend your notes