New PPPFA Regulations

New regulations will speed up B-BBEE implementation

Many companies have not woken up to the reality that lack of commitment to Broad Based Black Economic Empowerment (BBBEE), as required by the new procurement regulations, will run the risk of losing business from government and its agencies. 

From January 2012, companies with low or no compliant level contribution with BBBEE will have difficulty doing business with the state. 

In terms of the reviewed regulations published and gazetted in June this year by the Minister of Finance, a fully compliant BBBEE company with a level 1 contribution will score 10 or 20 preferential points, for contracts with the value of R1-million and above R1-million, respectively.

The other 80 and 90 points of the evaluation criteria will continue to be used to assess price and functionality of bidders. 

Coming into effect from the 7 December 2011, the new regulations will apply to all state organs defined in Section 1 of the PPPFA and public entities listed in schedule 2, 3A, 3B, 3C and 3D of the PFMA.

These include chapter nine institutions such as the Commission for Gender, ICASA, Airports Company, Telkom and Transnet. 

Long overdue, the regulations represent a significant measure in the elevation of BBBEE certificates by the public sector.

Since the gazette of the Codes for BBBEE in February 2007, a BBBEE certificate of compliance with the score card had never been a compulsory requirement for most of the state departments and government agencies, as such revolutionizing and accelerating compliance with BBBEE across the country. 

Start-up companies with less than R5-million annual turnover will still be exempted from compliance with BBBEE and they can prove their status by submitting letters from the auditors and accounting officers. 

As a commitment towards industrial action plan, the local content and production will become another important feature in tendering for business with the state.

Organs of state will, as part of the new regulations, now be required to declare certain sectors as designated sectors and require that successful bidders comply with certain minimum requirements to have their products and goods procured locally.

This is aimed at boosting the local manufacturing and industrial sectors of the economy. 

As the leading and biggest supplier of goods and services in the country, state procurement budget for the year 2011/2012 is estimated at over R200-billion.

This drastic move compels government departments and its institutions to ensure that as of next year, all supply chain processes and systems are improved, changed and aligned with the new requirements.

Over the next four months, the National Treasury must ensure that all supply chain departments and officials are orientated and trained on the new regulations. This will be a high mountain to climb. 

For its part, the dti has already consolidated plans to increase and accelerate uniform standards and norms for the verification of BBBEE compliance.

This has arguably been one of the reasons why the alignment of treasury regulations and BBBEE took longer than was envisaged by cabinet whet it approved such an alignment in 2006.

Already, the auditing firms are in the process of being approved verification bodies by the dti and IRBA. This should significantly meet the demands for the BBBEE certificates that will be increased by the new regulations.

There are a number of interesting requirements that companies seeking to do business with the state will now need to comply with:  

• Certain invitations for tenders and bids must be designated for local production and content. Designated institutions must, where in the award of the tenders local production and content is of critical importance, advertise that only locally produced goods, services or work or goods that are locally manufactured, with a stipulated threshold will be considered. 
• The emphasis on local production is to promote economic and social development within the areas in which the contract was awarded (the designated sectors) in the form of job creation, infrastructure development, community development and all initiatives that a local company will be able to undertake in order to comply with the spirit of Broad-Based Black Economic Empowerment Act. 
• In order to prevent chances of fronting and ensure meaningful emphasis to BBBEE, a successful bidder in a state contract may not sub-contract more than 25% of the contract to any other contractor with a lower BBBEE score than itself; it can only be equal or better than that company's contribution level. This prevents organisations from sub-contracting companies that do not comply with BEE Act after winning the bid. 
• Where two or more bidders score equal preference points on functionality, the bidder with the highest points for BBBEE must be successful, and where the bidders score equally on the BBBEE points, then the bidder scoring highest points on price and functionality will prevail. However, in the event that bidders are equal in all respects, the award will be decided by the drawing of lots. 
• State Organs themselves must comply with BBBEE
• The new regulations emphasize all tertiary institutions seeking to contract with the state and organs of state themselves and all designated institutions must submit their BBBEE status in accordance with the specialized score-card contained in the BBBEE Codes or any other applicable Sector Code gazetted in terms of Section 9 (1) of the BBBEE Act. 

Thabo Masombuka bio 

Thabo Masombuka is the executive director for transformation services at Siyakha Consulting, a multi-disciplinary management solutions consultancy firm that focuses of people's services, business and transaction advisory services on BBBEE.