The importance of Preferential Procurement on the B-BBEE Scorecard.

The importance of Preferential Procurement on the B-BBEE Scorecard.
October 9, 2018 Chante Hobbs

Since the inception of the revised codes, companies have placed more time and resources into their Broad-Based Black Economic Empowerment (B-BBEE) journey.

However, after 3 years companies have realised that arguably the most important sub-element of the B-BBEE scorecard is Preferential Procurement, under the Supplier & Enterprise Development element.

Previously very little attention was given to this element. However, seeing as this forms part of a priority element and also provides entities with a lot of points, companies have started requesting B-BBEE credentials of their suppliers and their B-BBEE plan going forward.

  1. Each company must establish what their Total Measured Procurement Spend will be. One cannot only have regard to suppliers on this ledger but rather all those that invoice the company, including purchases of capital additions such as plant and machinery, land and buildings and motor vehicles.
  2. Establish how much is being spent with each supplier excluding VAT
  3. Contact each supplier to request a copy of their B-BBEE certificate. Provide this information timeously to your legal advisor, so that he or she can provide you with feedback as to whether the B-BBEE credentials provided by the supplier is correct. Not all companies qualify for a sworn affidavit and the validity of the B-BBEE certificate must be determined prior to making large purchases with a particular company.

In the instance that purchases have been made with a supplier and the supplier provides the incorrect B-BBEE credential, the verification agents may exclude that purchase from your claim, which will have an impact on the entities Procurement points.

It is important to note the level on the suppliers B-BBEE certificate. A lot of suppliers do have a B-BBEE certificate but they are only a level 8. This will result in the entity only being able to claim 10% of the amount spent on this supplier. Please see below the B-BBEE Recognition levels:

 

B-BBEE Status Level B-BBEE Score B-BBEE Procurement Recognition Level
Level 1 100%+ 135%
Level 2 95 – 100% 125%
Level 3 90 – 95% 110%
Level 4 80 – 90% 100%
Level 5 75 – 80% 80%
Level 6 70 – 75% 60%
Level 7 55 – 70% 50%
Level 8 40 – 55% 10%
Non-Compliant 0 – 40% 0%

 

The above B-BBEE levels provide insight as to why companies are encouraged to make use of suppliers that have good B-BBEE levels and not only remain B-BBEE compliant but rather improve on their B-BBEE status.

Regarding imported goods or services, one should note that not all imported goods or services are automatically deducted from the Total Measured Procurement Spend. Imports can only be deducted if the reason for the imports is in line with the requirements as per the Codes of Good Practice. Even though one of the B-BBEE reasons have been met the imported goods or services may not be deducted or only a certain portion may be deducted in terms of the Department of Trade and Industry’s local content provisions.

The key objective of this provision is to strengthen the local economy.

ABOUT THE AUTHOR

Jason Daniel George is an admitted attorney who completed his LLB degree at the University of Port Elizabeth (NMMU). Jason started working at SEESA in August 2013 and is currently a legal advisor in the BEE department at our Cape Town branch.

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