B-BBEE STRATEGIES
WHAT IS B-BBEE?
Companies in South Africa that deal with the government or parastatals need to be empowered as required by the Preferential Procurement Act. In return, these companies require their suppliers to be empowered to improve their rating at government. Thus, broad-based empowerment is driven down the supply chain. Various other legislation supports the B-BBEE effort, including the Skills Development Act and Employment Equity Act.
The initial BEE (Black Economic Empowerment) focused solely on ownership whereas the current revised B-BBEE (Broad Based Black Economic Empowerment) now incorporates 5 elements.
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B-BBEE is intended to be temporary in scope, it is intended to stimulate the process of participation of previously disadvantaged groups in the economy leading to increased economic growth. With the implementation of the newly amended B-BBEE Codes, companies will have to be pro-active in their approach to transformation in order to maintain a reasonable B-BBEE score.
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DEFINITION
Black means, African black, coloured or Indian people who are South African citizens by birth or became a South African citizen before the 27th April 1994.
Note the definition of coloured also includes Chinese.
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ADVANTAGES OF B-BBEE COMPLIANCE
There are definitively advantages to becoming compliant. It is important to note that B-BBEE compliance is technically not compulsory for privately-owned businesses, but it is important for businesses to participate in BEE as it could have a big financial impact on the business. The BEE Act indeed has made it compulsory for all listed entities and also public entities to report on their BEE status to the newly created BEE commission. This reporting requirement came into effect on 6 June 2016 and must be done on an annual basis.
Businesses who have a valid BEE certificate will have more business opportunities than businesses without a BEE Certificate.
One of the biggest benefits of having a B-BBEE certificate is being able to conduct business with government sectors (including municipalities) and public entities. A certificate allows a company to tender – and the higher the level of your certificate, the better your chances of being awarded the contract.
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DO YOU REALLY NEED A B-BBEE CERTIFICATE?
Every entity in South Africa should be asking themselves this question.
Answer the below question to find out for your entity.
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Are my clients requesting our B-BBEE certificate?
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If so what percentage of our current business requires B-BBEE compliance?
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Do we stand to lose any business if we are not B-BBEE compliant?
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What potential business could be achieved by having a B-BBEE compliant certificate?
By quantifying the above, a proper business decision can be determined without any emotions obscuring the process.
PGCA uses this strategy of quantifying as an add-on to our consultation process.
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Contact us for our B-BBEE TARGET templates with embedded calculations.
This is a very useful tool to implement and answer the question, “Do I really need a B-BBBEE certificate?”
Types of BEE Scorecards
1. EME - Exempt Micro Enterprise
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2. QSE - Qualifying Small Enterprise
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3. GENERIC - Large Enterprise
The below thresholds are based on annual turnover.
1. EME
TURNOVER: R 10 mil pa or less
VERIFICATION: Affidavit (Amended Codes)
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2.a) QSE
TURNOVER: R 10 - R 50 mil and more than 51% Black Ownership
VERIFICATION: Affidavit
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2.b) QSE
TURNOVER: R 10 - R 50 mil and less than 51% Black Ownership
VERIFICATION: Audit (Amended Codes)
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3. GENERIC
TURNOVER: R 50 mil pa or more
VERIFICATION: Audit (Amended Codes)
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SECTOR CODES - Certain sectors have unique codes & turnovers.
TURNOVER: See Sector Codes
VERIFICATION: Audit (Amended Codes​)
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It is important to know and understand the type of scorecard to use as this will determines the BEE planning process as well as the pricing for verification.
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According to the latest financial statements i.e. the annual turnover, the following is categorised:
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EME
Exempted Micro Enterprise, this is when the natural turnover is less than R 10 mil. Please note that in some industries this may differ e.g. Tourism Industry the annual turnover only needs to be less than R 2,5 mil. A full audit is not necessary, only relevant supporting documentation e.g. Cipc Registration and certified copies of ID's of owners.
EME with more than 51% black ownership can get to a Level 2 score and 100% black ownership can obtain a Level 1 only needing an affidavit.
QSE
The Qualifying Small Enterprise scorecard applies when the annual turnover is less than R 50 mil but more than R 10 mil. An on-site audit is conducted, this is where the 5 elements are verified.
QSE with more than 51% black ownership can get to a Level 2 score and 100% black ownership can obtain a Level 1 and only need an affidavit.
GENERIC
In the case of a Generic Enterprise, with more than R 50 mil, a full site audit is conducted. This requires that all 5 elements are verified as per the Generic scorecard, a site verification as well as interviews are conducted.
SECTOR CODES
If an entity falls under a sector code it can only be measured in accordance with that sector, the amended codes only apply to entities which do not fall under any of the sector codes below:
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Agri-BEE Charter
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Financial Sector Charter
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Information and Communication Technology (ICT) Charter
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Property Sector Charter
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Chartered Accountancy Sector Code
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Integrated Transport Sector Codes
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Forest Sector Code
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Marketing, Advertising and Communication (MAC) Sector Code
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Tourism Sector Code
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*Construction Sector Code
*The Construction charter council proposed an Amended Construction Sector Code which was published by the DTI as a draft for public comment in government gazette 40375 on 28 October 2016. Until the final draft is published all entities operating within the Construction Sector must still apply the Amended Codes of Good Practice.
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The Five Elements of the
B-BBEE Scorecard
There are 5 elements in which to score points:
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OWNERSHIP
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MANAGEMENT
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SKILLS DEVELOPMENT
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ENTERPRISE & SUPPLIER DEVELOPMENT
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SOCIO-ECONOMIC DEVELOPMENT
SUMMARY OF THE ELEMENTS ARE AS FOLLOWS:
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OWNERSHIP = 25%
This element measures the percentage of shares in the entity that are owned by black people. Including the voting rights and shareholding with scoring emphasis on black women.
The codes also allow for the calculation of ownership and voting rights among certain groups, i.e. blacks aged below 35 years or above the age of 65.
Proof of share certificates to be provided amongst other requirements.
This is a priority element and not achieving the sub minimum target (40% of Net Value) will result in the Level obtained being discounted.
MANAGEMENT CONTROL = 15% + 4% (bonus points)
This element measures directors, top management and the employees in the entity.
It accounts for the degree to which voting rights on the board is held by black members, the control of the executive board, and what percentage of black senior management is in place.
Interviews will be conducted to confirm seniority, job description, salary etc.
Submission of an EE report is required, representing the organisation’s workforce employment equity levels and categories.
SKILLS DEVELOPMENT = 20% + 5% (bonus points)
This element measures the amount spent on training of black employees.
It measures the extent to which a company invests in its workers and strives towards the improvement of their skills and competencies of black employees.
Proof of training spend is required for black employees and /or non-employees on accredited programs such as apprenticeships, learnerships, internships and mentorship programs.
This is a priority element and not achieving the sub minimum target of 40% will result in the Level obtained being discounted.
ENTERPRISE AND SUPPLIER DEVELOPMENT = 40% + 4% (bonus points)
This element measures your Enterprise development score by calculating the spend on assisting other black owned enterprises, both of which can be your suppliers or non-suppliers. Thereby aiding SMME's and emerging entities to trade in the mainstream economy.
It also measures your entity’s Supplier Development score by calculating the amount spent on suppliers and factoring their corresponding BEE compliance levels as well as if they are *Empowering Suppliers as a percentage of total procurement spend.
Proof of financials indicating supplier expenditure will be required for verification purposes.
This element focuses on the degree to which small, black-owned companies receive your support and assistance in their development.
This is a priority element and not achieving the sub minimum target of 40% will result in the Level obtained being discounted.
* Empowering Suppliers are B-BBEE compliant organisations that adhere to all regulatory requirements of the country and meet the following criteria: At least 25% of cost of sales, excluding labour costs and depreciation, procured from local producers or local suppliers in SA.
SOCIO-ECONOMIC DEVELOPMENT = 5%
This element measures spend on assisting charitable organisations
It focuses on the degree to which the entity carries out social investment initiatives and can also include contributions towards your own employees, employees’ families and communities such as paying employees children's school fees as an example.
The Eight Levels of Compliance
THE LEVELS & POINTS REQUIRED ARE:
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LEVEL 1 ≥ 100 points
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LEVEL 2 ≥ 95 but < 100
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LEVEL 3 ≥ 90 but < 95
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LEVEL 4 ≥ 80 but < 90
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LEVEL 5 ≥ 75 but < 80
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LEVEL 6 ≥ 70 but < 75
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LEVEL 7 ≥ 55 but < 70
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LEVEL 8 ≥ 40 but < 55
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NON-COMPLIANT < 40 points
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Our Solutions
STRATEGIES & SOLUTIONS TO MAXIMISE YOUR B-BBEE SCORECARD
INCLUDES THE FOLLOWING:
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1. CONSULTATION
We offer consultation, solution options and advisory strategies on either a retainer or ad hoc basis.
Contact us for your FREE first consultation.
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2. QUANTIFYING B-BBEE
Understanding the BEE costs and potential business opportunities, PGCA implements this strategy as an add-on to our consultation process.
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3. MANAGEMENT CONTROL - ELEMENT
As EE reports are compulsory to score in this element, PGCA under our EE solutions can assist to advise and maximise scoring.
This is a perfect example of how our umbrella solution integrates through the various compliance pillars.
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4. SKILLS DEVELOPMENT - ELEMENT
As per above, SD reports are compulsory to score in this element, PGCA under our SD solutions can assist to advise and maximise scoring.
This is yet again a perfect example of how our umbrella solution integrates through the various compliance pillars.
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5. ENTERPRISE & SUPPLIER DEVELOPMENT - ELEMENT
We offer assistance to achieve your targets in this element by delivering the required value through any of our training courses to qualifying ED entities.
Your suppliers are requested to improve upon their scorecards in turn translating into improved score in your scorecard. This can be achieved through the outsourcing of PGCA's preferred provider network.
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6. SOCIO-ECONOMIC DEVELOPMENT - ELEMENT
PGCA can assist with achieving your targets by delivering the required value through any of our training courses to Non Profit Organisations or qualifying entities.
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7. DATA COLLECTION COLLABORATION
We can offer record keeping of solutions and initiatives undertaken with PGCA in order to build your portfolio of evidence file that the verification agent will require in order to audit.
Collation of documents and records for the other elements of B-BBEE can be outsourced through PGCA's preferred provider network.
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8. CUSTOMISED FEE STRUCTURES
Flexible fee structures available to suit your budget.
- Ad Hoc
- Retainer
- V.I.P
Contact us for your FREE first consultation.
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PGCA believes in the philosophy that people buy from people first and foremost.
Coupled with the complexity of B-BBEE we highly recommend unpacking and implementing our solutions at the beginning of your financial year or as close to as possible in order to plan and roll-out strategies timeously.
Thereafter requesting a verification agent to conduct their independent audit and issue you a B-BBEE rating and certificate.
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More B-BBEEÂ Information
THE VERIFICATION PROCESS
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The process of becoming BEE Compliant is known as the BEE Verification process.
This is a process where together with a SANAS Accredited BEE Agency, the entity undergoes either a partial or full audit to determine their BEE compliance level.
An IRA (independent rating agency) conducts the official rating on behalf of the DTI and then issues the company with their BEE scorecard and certificate.
These IRA’s must be totally objective from the entity being rated, and for this reason they cannot provide any kind of consulting services.
During a BEE verification the entity will be required to submit physical proof of activity, spending and contributions in the five elements of empowerment.
Steps are as follows:
Planning and implementation of strategies.
Gathering of evidence according to the 5 elements.
Completion of documentation and book BEE Verification.
Verification of evidence and calculations are done by IRA. (Independent Rating Agency)
Once above is completed a BEE Certificate of the specific entity’s' BEE Compliance and Procurement Recognition is then issued.
Contact us
For further information regarding your B-BBEE requirements or for a consultation meeting,
please send us your query or request.
Thank you.
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