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Supplier Development and the Amended Construction Codes

Supplier Development and the Amended Construction Codes

The Amended Construction Sector Codes have brought about significant changes to the Supplier Development element. Generic Enterprises now have to ensure that their assistance meets the requirements of a compliant Supplier Development programme.

A Generic Enterprise is regarded as the following:

  1. Contractors – revenue above R50 million;
  2. Built Environmental Professional (BEPs) – revenue above R25 million.

The requirements for a Supplier Development programme are :

  1. The measured entity may not hold more than 20% (calculated in terms of the normal flow through principle) in the beneficiary.
  2. The beneficiary must employ a minimum of 3 permanent employees.
  3. The beneficiary must be in possession of a valid tax clearance certificate.
  4. The beneficiary must be in possession of a B-BBEE certificate or sworn affidavit.

There must be a written agreement that is signed by both parties identifying needs of the beneficiary and the areas to be targeted for development. This agreement must also identify the priority interventions of the program. The value of the contributions must be stated in the agreement and a Supplier Development Champion must also be appointed. The Champion appointed must at least be in a management position.

The supplier development program indicator must also comply with the sub-minimum requirement of 40% of the points available. This means that a contractor must reach 2 out of 5 points and a BEP 1.6 out of 4 points. If the sub-minimum is not reached, the entity will be discounted by 1 level.

Once establishing whether there is a compliant Supplier Development programme in place, the value of the contribution can be calculated. The target under Supplier Development is 3% of Net Profit After Tax (NPAT) for both Contractors and BEPs.

In terms of the Amended Construction Codes, the NPAT is based on the average NPAT over the last 3 years (the 3 financial years that precedes the measurement period), unless:

  1. The measured entity did not make a profit on average over the last 3 years.
  2. The average net profit of the entity over the 3 year period is less than a third of the industry net profit margin over the same 3 year period.

Where the average NPAT is either a loss or less than a third of the industry profit margin, the NPAT will be the revenue of the entity for the current measurement period multiplied by a third of the average industry norm net profit margin for the 3 financial years preceding the measurement period. The sub-minimum requirement for Contractors is 4 out of 10 and for BEPs 2 out of 5.

Generic Entities must, therefore, ensure that they comply with not only the value of the contribution but also the Supplier Development Programme itself to avoid being discounted a level.

ABOUT THE AUTHOR

Seshni Ramalingam obtained her LLB degree from the University of KwaZulu-Natal in 2014 and is an admitted attorney. She joined SEESA as a BEE Legal Advisor in September 2016.

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