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Preferential procurement: What you need to know

Preferential procurement: What you need to know

Total Measured Procurement Spent (TMPS) is calculated based on the figures reflecting in your Annual Financial Statements under consideration. The TMPS is weighed against the various indicator targets.

How is procurement calculated?

Procurement is calculated on purchases and not payments, further taking into account purchase returns excluding VAT. In the case of imported goods, purchases in South African currency excluding customs and excise duties.

What is required to calculate procurement spend?

Verification agencies require the following documents to ensure that the procurement spend provided corresponds with the Annual Financial Statements. All these documents have to be for the financial year you are being rated on:

  1. Detailed Supplier Ledger in Excel
  2. Supplier Age Analysis
  3. Trial Balance
  4. Detailed General Ledger

The general rule is that a supplier’s Broad-Based Black Economic Empowerment (B-BBEE) certificate or Sworn Affidavit should be valid for at least 1 day in the entity’s financial period OR valid on the date of verification.

Preferential procurement as Priority Element?

In terms of the Revised Codes of Good Practice, Preferential Procurement as part of the broader Enterprise and Supplier Development element is a Priority Element for generic entities. Qualifying Small Enterprise (QSE) entities may choose between Enterprise and Supplier Development or Skills Development as a Priority Element.

In terms of the requirements set for preferential procurement as a Priority Element, at least 40% of the total available points (excluding bonus points) must be scored. Generic entities must score at least 10 points out of a possible 25 and QSEs must score at least 8 points out of a possible 20.

What if you fail to achieve minimum targets?

Where a company fails to achieve the sub-minimum targets set out above, the company will automatically be discounted by 1 level.

The discounted level will reflect on the B-BBEE certificate regardless of the overall scoring.

What is enhanced recognition for procurement spend?

The Revised Codes allow for a supplier’s procurement spend to be multiplied by a factor of 1.2 in instances where the supplier is:

  1. A recipient of supplier development contributions from a Measured Entity under Code Series 400 and has a minimum 3 year contract with the Measured Entity.
  2. A black-owned QSE or Exempted Micro Enterprises (EME) which is not a supplier development beneficiary but has a minimum 3 year contract with the Measured Entity.
  3. A first time supplier to the Measured Entity.

What to remember with Preferential Procurement Scoring

  1. It is important to establish the B-BBEE particulars of each supplier (cost of sale expenses, capital additions, finance costs and general expenses), early in the entities financial period.
  2. Ensure that the VAT number reflected on the B-BBEE certificate corresponds with the VAT number reflected on the Tax Invoice.
  3. Entities are encouraged to procure from suppliers that are EMEs or QSEs with at least 51% Black Ownership and 30% Black Women Ownership.
  4. In the case of third party purchases such as a credit facility, the purchase is not with the financial institution but with the supplier. Therefore, the B-BBEE certificate of the supplier is included.
  5. Bank charges and interest charged by financial institutions will form part of the spend with the specific financial institutions.
  6. Imported goods are not automatically deducted from the Preferential Procurement calculation. The verification agencies take the following into consideration: whether,
    1. the entity is registered with SARS as an importer;
    2. the reasons for importing the goods or services; and
    3. a detailed development plan with the objective of strengthening the local industry is in place.

ABOUT THE AUTHOR

Jason Daniel George is an Admitted Attorney and completed his LLB degree at the University of Port Elizabeth (NMMU). Jason has been working at SEESA since August 2013 and currently holds the position of legal advisor in the BEE department at our Cape Town Office

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