“There is no basis to say we are doing away with BEE.” says finance minister Enoch Godongwana
A lot of news has been circulating in the last week concerning BEE following the release of government gazette 47452 on 4 November 2022. This document is an amendment to the Preferential Procurement Policy Framework Act(PPPFA) , an act that placed controls on Government and SOE spending.
While it may seem that changes are coming BEE, the finance minister has made it clear that the focus is on Government and SOE Procurement, relating to how proposals will be evaluated. What remains unclear is the impact this will have on the value chain, from entities that supply government directly and the entities who supply them in turn.
BEE Going Foward
Several viewpoints have already been put forward, speculating what impact this will have on BEE in the future. But, based on past experience it will take time for any changes to be seen and for the response to these changes to be evident. We will continue working with our clients and partners to keep them up-to-date as the economy adapts to these changes. To be clear: these changes will not affect any BEE calculation, but will instead affect the use, need, and demand for BEE certification.
Let’s put the change in PPPFA into context. The BEE Act, the “Codes”, and the “Charters” comprise a measurement structure that is to be used by Government, SOEs and Private Companies alike to measure transformation goals. Government and SOEs use BEE when evaluating procurement as well as licensing and certification. Originally BEE was limited to only being used in the evaluation of bids under procurement but was extended to include licensing and certification in 2013 within the “Amended BEE Codes.
The PPPFA regulates spending between Government/SOEs, who are major spenders in the SA economy, and the private sector. Therefore any changes to how procurement is handled in this space will have reverberations across the economy.
What This Means For BEE And Procurement
The new gazette of 4 November arose from a Constitutional Court judgement in February 2022 requiring the PPPFA to align with the Constitution (specifically S217).
In essence, the changes to the PPPFA, as of 2022, are as follows: the BEE scoring calculation and criteria is removed as a predetermined means to calculate either the 10 (of 100 points on the 90/10 criteria) or the 20 (of 100 points on the 80/20 criteria). The revised legislation now refers to two very important concepts:
That the “10 or 20” be determined based on (transformation) goals
In January 2023 further clarity will be provided
Therefore we can deduce that between now and January 2023 there is discretion for Government institutions and SOEs to determine how to calculate the “10 or 20” and align these goals more to their specific situations. Discretion is therefore a mechanism to provide for better alignment to S217 of the Constitution. S217 of the Constitution reads as follows:
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“1. When an organ of state in the national, provincial or local sphere of government, or any other institution identified in national legislation, contracts for goods or services, it must do so in accordance with a system which is fair, equitable, transparent, competitive and cost-effective.
2. Subsection (1) does not prevent the organs of state or institutions referred to in that subsection from implementing a procurement policy providing for
a. categories of preference in the allocation of contracts; and
b. the protection or advancement of persons, or categories of persons, disadvantaged by unfair discrimination.
3. National legislation must prescribe a framework within which the policy referred to in subsection (2) must be implemented.”
This new product is currently being tested by a large law firm. We hope to have it out for draft use by the end of the month, refined and ready to use. Our view is that many LSMEs (Legal Sector Measured Entities) will find this draft code difficult and expensive to comply with and consequently there will probably be extensive discussions before a final code is gazetted. If you would like more information on this product or would like to be notified when it releases please click here.
While we are not qualified to comment on the philosophy and drivers underlying these changes, we are able to comment on the possible impact for our valued verification Agents, BEE Consultants, Corporate Clients and Partners. Several scenarios may arise during the next year due to Government and SOE spending changing. Including but not limited to:
Government and SOE partners/clients may require input (from you) as to how best to determine their discretionary transformation goals
Private Companies supplying Government/SOEs directly will require input from you as to how to engage with and respond to their Government/SOE clients – being proactive is always best
Private Companies lower down the value chain will require input from you to approach their private company customers to determine any domino effect in procurement (or other) measurement criteria
Mantis Networks will strive to stay abreast of not only the legislative changes but also how they play out in the market and specifically our industry so that we can all be best prepared to serve our clients and transformation goals with excellence.
One Thing Hasn't Changed
We always strive for providing ease of use when it comes to our products. That’s why we will be experimenting with a new service that will make your calculations easier. This new service will allow our clients to initiate a Procurement Registry search from within our calculator. If you are interested in this service fill out this form to be contacted with more information.