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Broad-Based BEE Verification Agency

BEE Rated Newsletter – March 2012

1.    BEE LEGISLATION:  Quo Vadis in 2012 and onwards?

Companies are likely to be faced with significant, if not spectacular, new challenges during the year as and when the new revised BEE Codes are gazetted. It seems they will be gazetted for public comment soon.

Some of the issues have been covered in our past Newsletters, and there are likely to be even more to come. As soon as we are able, we will communicate these developments, so that the earliest planning, preparation and response can be taken to try and, at least, maintain your organisation’s current scorecard rating.

In summary, some of the major changes/challenges in the making are:

  • A major theme is alignment of the BEE Codes to related legislation such as the Employment Equity and Skills Development Acts, as well as to Government strategies such as the NGP(New Growth Path) and IPAP (Industrial Policy Action Plan) – see also point 3. below, about Transnet’s new procurement policies.
  • QSE’s will also have to comply with all 7 elements of the BEE Scorecard, and not be able to choose the best 4 scores,  as is the case at present.
  • Thresholds for EME’s and QSE’s to be adjusted, ie, while you may be a QSE now (with an annual turnover of less than R35 million), this may no longer be the case in future.
  • BEE Contributor level status to be increased, eg, level 4 from 65% to 75%, level 3 from 75% to 85%, etc. so even if you maintain your overall score, you may drop a Level!
  • Penalties for non-compliance with the Preferential Procurement and Enterprise Development elements in the Scorecard. In order to avoid penalties for non-compliance, Companies may now need to budget for ED contributions (such as grants, loans, assistance with overhead costs, discounts, early payment terms, professional assistance, etc.)
  • Criminal penalties for fronting/window-dressing. Don’t do it!

It would seem there may be a 12 month ‘harmonising period’ for organisations to reassess their BEE situations and strategies. If this is the case, it will be a welcome opportunity to make the necessary preparations, and to take any action steps.

2.    KPMG B-BBEE 2011 Survey:  Trends of note.

BEE scores have improved significantly over the past 5 years, according to a 2011 survey by audit firm KPMG, showing an increase of the B-BBEE contributor status from an average of Level 8 to L4 in the period between 2006 and 2011. Significant points are:

  • The focus remains on improving the generally lower scoring people elements,  employment equity and skills development. There were also increased efforts towards supporting small black-owned entities – enterprise development scores improved from an average of 3 points in 2006, to 12 points last year.
  • The survey revealed that 43% of respondents in 2011, as opposed to 27% in 2010, indicated they had set minimum BEE levels for their suppliers: 69% of respondents set a level four contributor status.
  • Scores for ownership and socio-economic development stood at averages of 13.43 and 4.51 points respectively.
  • The survey concluded:  “The time for leaders to navigate organisations to transformation has never been so critical, especially given the current difficult economic climate.”

So, with the pending new changes, covered in 1. above, it seems that much of what has been done will need reviewing, revising, and updating in order for organisations to maintain, if not improve, upon their BEE contributor level status.

3.    Exempted Micro Enterprises (EME’s):  New requirement to display the SANAS logo.

With effect 01 March 2012 BEE certificates issued by the accredited verification agencies to EME’s, ie, with an annual turnover < R5 million per annum (except in the Tourism sector, <R2.5m; and Construction sector BEP’s, <R1.5m) are required to carry the SANAS logo in order to be regarded as valid.

As a result, there are more onerous evidence requirements when measuring and evaluating the BEE status of EME’s. It is no longer enough to issue a certificate on receipt of a confirmatory letter from the measured entities accountants.

4.    Procurement Procedures:  Changes in Public entities/State-owned enterprises.

At a recent presentation we attended, Transnet unveiled their new procurement procedures and requirements. It is going to be very pressing indeed to meet these new conditions of doing business with state-owned enterprises, and the public sector as a whole.

Some their pending requirements are:

  • No sub-contracting of more than 25% of the tender value to companies with a lower BEE scorecard than that of the bidder.
  • Monitoring mechanisms are being installed to identify misrepresentation of a company’s BEE status, eg, a visit to the company to check the validity/honesty of a bidders submission.
  • “Further Recognition Criteria” (FRC): in addition to a valid BEE Certificate, to establish that an organisation is indeed ‘transforming’, Transnet will examine in detail the scores obtained, and will want to see  a ‘BEE Plan’ – particularly to see improvements in the lot of bidders’ Black employees, and support they are providing small Black businesses;
  • A ‘Supply Chain Development” Programme (SD) is being instituted: bidders must comply, on pain of being eliminated from the bid – the focus will be on issues such as job creation and preservation, youth and rural development.
  • Out of these FRC and SD examinations, targets will be set for suppliers.

In sum, in addition to points for a BEE Certificate, points are to be allocated for performance in relation to the ‘FRC’, ie, a BEE Plan, and to the ‘SD’ programme.

These new initiatives by Transnet are clearly an illustration of pending requirements within all of the public sector. Also, it is not unlikely that many organisations in the private sector will follow suit in due course.

5.   ASSOCIATION OF BEE VERIFICATION AGENCIES (ABVA ):   recognized by the Services SETA.

ABVA, the industry body for accredited BEE verification agencies, has always maintained that proper training and development of BEE verification practitioners to ensure that they are adequately qualified and competent to discharge their responsibilities.

After almost two years ABVA has now successfully completed the Services SETA’s intense due diligence process, and is officially recognized as a Schedule Four association, which is very significant, as this means that when Services SETA plans and develops skills and training strategies for the sector, the BEE Verification Industry training needs will officially be part of that planning, and ABVA will be the industry’s representative body.

6.   Recognition of Management Control in QSE’s:  ARG is not applied!

It has now been established and confirmed that adjusted recognition for gender (ARG) is not applied when measuring the Management Control element in Qualifying Small Enterprises (QSE’s). The up to 25 points are scored simply for Black representation, be it male or female, and the 2 bonus points are awarded specifically for Black Woman representation.

Last year a number of our clients were negatively impacted here, following our receipt of a non-conformance by SANAS on this issue.

7.    Recognition of Socio-economic Development contributions:  Future requirements.

Please note that the requirements for recognising SED contributions are now more stringent than in the past. Going forward, we will only be able to award points where there has been a reputable independent confirmation of the percentage of the end beneficiaries who are broadly defined Black (African, Indian, Coloured) South African citizens.

Such independent confirmation can be by way of written confirmation by professionally recognised person/body, e g, the organisation’s registered accountants/auditors, an accredited BEE verification agency, or a BEE consultancy.

8.    Recognition of Ownership in the form of Family Trusts:  Qualifying status?

We encounter companies from time to time in which there is Black ownership in the form of a family trust. In order to recognise the Trust for BEE measurement purposes, it is imperative that they meet the very detailed, and stringent, conditions/rules spelt out in the BEE Codes. If not, then we will not be able to award points for Ownership, despite the fact that the Trust beneficiaries are clearly Black persons.

The essential reasons for this are: the Codes say that a Trust Deed must specify who the beneficiaries are, and their proportion of entitlement to receive distributions; and that the Trustees must have no discretion over these terms. Typically, these conditions are not met in family trusts.

It is important to be aware of these rules, and to then check that there are no surprises  to be had in the recognition of ownership points.

Questions and Comments are welcomed – please send to BEE RATED:  

Tony Kruger at tony@beerated.org;  Kim Odell at kim@beerated.org

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Members: A. Kruger; K. Odell

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