SCORING ON BBBEE SCORECARDS?
I’ve recently had a lot of requests as to why the BBBEE Scorecards that everybody has been rushing to get is not used in the evaluation of tenders. The answer is simple: the Draft Preferential Procurement Policy Regulations published on 14 August 2009, have not been finalized and approved by the Minister.
It is my belief that the draft Preferential Procurement Regulations will go a long way in giving Government better value for money whilst combating fronting and other unwanted practices. I can only speculate as to the reasons why the Draft Procurement Regulations are not being finalized. Some matters do however require clarity and I believe that these matters as I attempt to discuss and illustrate below, might be holding up the process.
Draft Regulations versus the Codes of Good Practice:
According to the Draft Preferential Procurement Regulations, 2009, par 11(6) states “Enterprises with a total revenue not exceeding R5 million per year are deemed to have the status of a BBBEE level 4 contributor and therefore qualify as Exempted Micro Enterprises.”
According to the BBBEE Codes of Good Practice “A much-needed solution to the challenge of BEE and small enterprises has been presented in the form of the Qualifying Small Enterprise (QSE) scorecard and its corresponding statements. In addition, all entities with a turnover of less than R 5 million per annum are granted a deemed BEE Status as Level Four Contributors. In the case where such entities are also more than 50% owned by black people or black women, their status is elevated to that of Level Three Contributors.”
It seems that the Draft Regulations do not acknowledge the BBBEE Codes of Good Practice explicitly, and knowing Government officials this will cause confusion. If the Codes are not applied correctly and the Regulations are not read in conjunction with the Codes, all smme companies, irrespective of ownership composition, will be scored exactly the same as level 4 contributors.
Semantics:
In the definition clause, paragraph (b), “acceptable bid” is defined. However, this term is defined in the Preferential Procurement Policy Framework Act, 2000 as “acceptable tender”. The definition in the regulations seems to expand the one in the Act. Regulations should not go beyond the provisions of the enabling legislation. The definition of “acceptable bid” should thus be deleted from the regulations.
Section 2(1)(d) of the Act refers to the promotion of historically disadvantaged individuals, as well as the promotion of RDP goals. Other than for clause 11(1), the draft regulations currently only deal with the promotion of BEE and the RDP goals are not included.
The impact of the new regulations:
Firstly the new regulations will simplify the awarding of BBBEE Scores in the tender process to great relief of all the honest officials sitting on tender committees and will add to the frustration of those who have other questionable motives.
Secondly the Preferential Procurement Policy Framework Act of 2000 will now be aligned with the Broad Based Black Economic Empowerment Act of 2003.
But let’s look at a practical example as to the effect of the proposed regulations on pricing:
Currently a small black owned company has an advantage of 12% to 20% on price in terms of the current Preferential Procurement Regulations for a tender with a value below R500 000.
If par 11(6) of the draft regulation is read and applied as is, it would seems that small black companies will would now lose this the above mentioned advantage and be on equal footing with all other small businesses if all Qualifying Small Enterprises are scored on the same level.
The advantage for a small black owned enterprise will also be negligible if a level 3 Status is awarded as indicated in the Codes of Good Practice for a SMME with black ownership of more that 50%. This will give a 4 point advantage from the 20 on the scoring as per the Draft Preferential Procurement Regulations.
I’ve recently had a lot of requests as to why the BBBEE Scorecards that everybody has been rushing to get is not used in the evaluation of tenders. The answer is simple: the Draft Preferential Procurement Policy Regulations published on 14 August 2009, have not been finalized and approved by the Minister.
It is my belief that the draft Preferential Procurement Regulations will go a long way in giving Government better value for money whilst combating fronting and other unwanted practices. I can only speculate as to the reasons why the Draft Procurement Regulations are not being finalized. Some matters do however require clarity and I believe that these matters as I attempt to discuss and illustrate below, might be holding up the process.
Draft Regulations versus the Codes of Good Practice:
According to the Draft Preferential Procurement Regulations, 2009, par 11(6) states “Enterprises with a total revenue not exceeding R5 million per year are deemed to have the status of a BBBEE level 4 contributor and therefore qualify as Exempted Micro Enterprises.”
According to the BBBEE Codes of Good Practice “A much-needed solution to the challenge of BEE and small enterprises has been presented in the form of the Qualifying Small Enterprise (QSE) scorecard and its corresponding statements. In addition, all entities with a turnover of less than R 5 million per annum are granted a deemed BEE Status as Level Four Contributors. In the case where such entities are also more than 50% owned by black people or black women, their status is elevated to that of Level Three Contributors.”
It seems that the Draft Regulations do not acknowledge the BBBEE Codes of Good Practice explicitly, and knowing Government officials this will cause confusion. If the Codes are not applied correctly and the Regulations are not read in conjunction with the Codes, all smme companies, irrespective of ownership composition, will be scored exactly the same as level 4 contributors.
Semantics:
In the definition clause, paragraph (b), “acceptable bid” is defined. However, this term is defined in the Preferential Procurement Policy Framework Act, 2000 as “acceptable tender”. The definition in the regulations seems to expand the one in the Act. Regulations should not go beyond the provisions of the enabling legislation. The definition of “acceptable bid” should thus be deleted from the regulations.
Section 2(1)(d) of the Act refers to the promotion of historically disadvantaged individuals, as well as the promotion of RDP goals. Other than for clause 11(1), the draft regulations currently only deal with the promotion of BEE and the RDP goals are not included.
The impact of the new regulations:
Firstly the new regulations will simplify the awarding of BBBEE Scores in the tender process to great relief of all the honest officials sitting on tender committees and will add to the frustration of those who have other questionable motives.
Secondly the Preferential Procurement Policy Framework Act of 2000 will now be aligned with the Broad Based Black Economic Empowerment Act of 2003.
But let’s look at a practical example as to the effect of the proposed regulations on pricing:
Currently a small black owned company has an advantage of 12% to 20% on price in terms of the current Preferential Procurement Regulations for a tender with a value below R500 000.
If par 11(6) of the draft regulation is read and applied as is, it would seems that small black companies will would now lose this the above mentioned advantage and be on equal footing with all other small businesses if all Qualifying Small Enterprises are scored on the same level.
The advantage for a small black owned enterprise will also be negligible if a level 3 Status is awarded as indicated in the Codes of Good Practice for a SMME with black ownership of more that 50%. This will give a 4 point advantage from the 20 on the scoring as per the Draft Preferential Procurement Regulations.
The current preferential procurement policy regulation allows a HDI Owned (Pty) Ltd a price advantage of at least 12,5% on the 80/20 principal if 12 points out of 20 are allocated to ownership.
Under the new draft preferential procurement regulation it can be concluded that for BEE Owned (Pty) Ltd to win the bid, their price can now only be R5 higher (6,25%), than the price of Another (Pty) Ltd, as there will be a 4 point difference if the 80/20 principal is applied. This will apply to the new threshold of R1 million in terms of the new Draft Preferential Procurement Regulations.
Conclusion
The draft preferential procurement regulations require clarification regarding some issues, but will have a positive impact in many instances. If applied correctly I believe that procurement will become more competitive and contribute to the underlying requirements of fairness, cost effectiveness, being equitable and transparent.
The passage of time has also created new challenges. In a 2009 court case the KZN high Court ruled that certain sections of the Preferential Procurement Policy Regulations were “ultra vires”. The result of this is that functionality is to be considered as a pre-qualification criteria and that price thus scores 90 points on the 90/10 principle or 80 points in terms of the 80/20 principle. Again the Draft Preferential Procurement Regulations will have to be adapted to address this issue.
Until the powers that be decide to finalise the Draft Preferential Procurement Policy Regulations and address the issues created by our abundance of legislation and regulations, the status quo will remain and all the BBBEE Scorecards will remain in their picture frames on the wall…
Jako Liebenberg CA(SA)
Jako is a Chartered Accountant and Registered Public Auditor specializing in Government Procurement Processes. Jako has worked as Chief Financial Officer in Provincial Government and has served on tender evaluation and adjudication committees. jako@ldsw.co.za
Under the new draft preferential procurement regulation it can be concluded that for BEE Owned (Pty) Ltd to win the bid, their price can now only be R5 higher (6,25%), than the price of Another (Pty) Ltd, as there will be a 4 point difference if the 80/20 principal is applied. This will apply to the new threshold of R1 million in terms of the new Draft Preferential Procurement Regulations.
Conclusion
The draft preferential procurement regulations require clarification regarding some issues, but will have a positive impact in many instances. If applied correctly I believe that procurement will become more competitive and contribute to the underlying requirements of fairness, cost effectiveness, being equitable and transparent.
The passage of time has also created new challenges. In a 2009 court case the KZN high Court ruled that certain sections of the Preferential Procurement Policy Regulations were “ultra vires”. The result of this is that functionality is to be considered as a pre-qualification criteria and that price thus scores 90 points on the 90/10 principle or 80 points in terms of the 80/20 principle. Again the Draft Preferential Procurement Regulations will have to be adapted to address this issue.
Until the powers that be decide to finalise the Draft Preferential Procurement Policy Regulations and address the issues created by our abundance of legislation and regulations, the status quo will remain and all the BBBEE Scorecards will remain in their picture frames on the wall…
Jako Liebenberg CA(SA)
Jako is a Chartered Accountant and Registered Public Auditor specializing in Government Procurement Processes. Jako has worked as Chief Financial Officer in Provincial Government and has served on tender evaluation and adjudication committees. jako@ldsw.co.za
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