Issue Date: 
Monday, April 25, 2016

Tenders and subcontracting

Did you know tenders and subcontracting go hand in hand. In fact, subcontracting part of a tender is so common in South Africa that there are specific rules regulating subcontracting in executing tenders especially Government tenders.
According to Investopedia subcontracting is the "practice of assigning part of the obligations and tasks under a contract to another party known as a subcontractor". Subcontracting is especially prevalent in areas where complex projects are the norm, such as construction and information technology. Subcontractors are hired by the project's general contractor, who continues to have overall responsibility for project completion and execution within its stipulated parameters and deadlines.

It is important to know that in South Africa there are two major rules when it comes to subcontracting if awarded a Government tender. According to the Preferential Procurement Regulations, 2011:

  • Section 11(8) states that a company must not be awarded points for B-BBEE status if they are sub-contracting more than 25% of the contract to any other enterprise who does not qualify for the same amount of points that the tenderer qualifies for.  That is, unless the intended subcontractor is an exempted micro enterprise that has the capability and ability to execute the sub-contract.
  • Section 11(9) states that a company awarded a contract may not sub-contract more than 25% of the value of the contract to any other enterprise who does not have an equal or higher BBBEE status level. That is, unless the contract is subcontracted to an exempted micro enterprise that has the capability and ability to execute the sub-contract.

Simply put, these two sub-sections of the Regulations clearly indicate that you cannot subcontract more than 25% of the contract value to another party if that party does not have at least the same or a higher B-BBEE Status Level as you. The Office of the Chief Procurement Officer is watchful for discrepancies like this and if you are found to be in contravention of these regulations you stand the chance of losing the contract or having your existing contract cancelled.  You may also be liable for costs incurred by the Government Entity in executing the contract.

If you are going to subcontract less than 25% of the value of the contract you are safe and wont need to be concerned about the B-BBEE Status Level of the subcontractor.
Subcontracting doesn't need to be difficult but if you want to know more about subcontracting and other important tender response information we recommend you attend the How-to-Tender workshops.

Email for more information.

Brand new Preferential Procurement Regulations 2017 for Tenders

The brand new Preferential Procurement Regulations 2017, has been finalized and was gazetted on 20 January 2017. There are some interesting changes and challenges that we will discuss during the coming months. This is the official media release from National Treasury:

The regulations were initially promulgated in 2001 and revised in 2011 thus making this the second revision since the initial promulgation.

The revision of the Preferential Procurement Regulations of 2011 was largely influenced by the need... Read More

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