Issue Date: 
Monday, August 24, 2015

Code of Good Practice is causing confusion

The government is committed to break the barriers that have been hindering small companies from winning tenders. One of the biggest challenges for small companies was the red tape that often would hinder their tender success.

The amended broad-based BEE Code of Good Practice came into effect on 1 May 2015. It aims to have more small businesses classified as micro-enterprises. It also aims to remove the onus for small, black-owned businesses to go through the BEE audit process. One of the major changes to the Code of Good Practice is that, companies' BEE recognition levels have been boosted to improve opportunities for them in tender bidding.

Previously, level-one Broad-Based Black Economic Empowerment (B-BBEE) status was not being recognised on the procurement system if a company was using an affidavit as proof of company's turnover and ownership. The broad-based BEE codes also classified a company as an Exempt Micro-Enterprise (EME) only when their turnover was less than R5 million.

The newly amended codes have now increased the turnover threshold for micro-enterprises to R10 million. The amended codes also remove the need for a company to obtain an auditor's letter or a certificate from a verification agency. Instead, a black-owned micro-enterprise can provide a sworn affidavit attesting to its turnover and ownership to qualify for EME status.

What do the amendments mean?

These amendments mean more companies, which have a net turnover between the stipulated ranges, can now bid for tenders without having to produce a B-BBEE certificate. This is what most small companies have been struggling with as they were not scoring enough points due to the absence of such B-BBEE certification.

However, the newly amended Code of Good Practice seems not to align with the Preferential Procurement Policy Framework Act. This Act is strictly followed by many tender-issuing organizations. This has caused a lot of confusion and frustration.

According to reports, the new EME requirements are leading certain departments to be more cautious about taking on new suppliers. They believe that the more lenient requirement of just an affidavit makes fraud or fronting prone and easy. Importantly, small companies must be warned that even when they have a sworn affidavit, some companies may require more paperwork as additional proof.

Companies claiming to be 100% black-owned now may be vigorously scrutinized as many tender-issuing organizations fear the risk of fronting. These risks could have very negative effects, especially if we take into account the steep penalties for fronting in the B-BBEE Amendment Act. This can make the organization itself to be found guilty of 'fronting' if the necessary measures are not put in place to weed out the potential fronting practices by its suppliers.

The government is doing its best to enable small and medium businesses to get a slice of the cake. However, don't rely too much on their efforts as it can happen that they forgot to tie the loose ends. Be proactive and make sure you've got your ducks in a row.

When Must I Sub-Contract?

There seems to be a lot of confusion amongst entrepreneurs when it comes to tenders and sub-contracting. The Draft Preferential Procurement Regulations, have been gazetted and are currently up for review. However, these Regulations are the major cause for the confusion. Many entrepreneurs ask whether they should sub-contract or not whilst responding to a tender.

The Draft Preferential Procurement Regulations stipulates the following: 

  1. For contracts above R30 million, the tenderer MUST sub-contract a minimum of 30% of the value of the... Read More
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