1st May 2015 (New Codes)

REVISED CODES OF GOOD PRACTICE ON B-BBEE

Gazette no. 36928 of 11 October 2013

Contents

1. Legislative Framework

2. Code 000 – General Principles and the Generic Scorecard

3. Code 100 - Ownership

4. Code 200 – Management Control

5. Code 300 – Skills Development

6. Code 400 – Enterprise and Supplier Development

7. Code 500 – Socio Economic Development

8. Questions & Comments

LEGISLATIVE FRAMEWORK

Legislative Framework

LEGISLATIVE PROCESS

Delegated Legislation

The Revised Codes of Good Practice is sub-ordinate or delegated legislation. (i.e. legislation that is not made by the primary legislator but in terms of authority delegated to

the executive, the Minister of Trade and Industry in this case.)

The executive’s authority to legislate is limited by act that gives him such authority.

Section 9(5) Public Commentary

+-500 pieces of commentary received

Only then publish final Revised Codes i.t.o.section 9(1)

Broad-Based Black Economic Empowerment Act 53 of 2003

6 Pages – gives wide powers to Minister to issue Codes and Regulations

Section 9(1) and 9(5) interaction, also section 14

Section 10 - mandatory application of any Codes

The Codes of Good Practice on Broad-Based Black Economic Empowerment, 9 February 2007 (Gazette nr.: 29617)

Code 000 to 800

Various Sector Codes – promotion from charter to Code

Statement 005 – Verification Professionals

Revised Codes of Good Practice on B-BBEE, 11 October 2013 (Gazette nr.: 36928)

From the Codes

Legislative Framework

Code 000 – General Principles and the Generic Scorecard

Defining Black

“ Black people ” is as defined in the Broad-Based Black EconomicEmpowerment Act no. 53 of 2003, (Africans, Coloured and Indians)

Please note that this is limited to natural persons who are South Africancitizens by birth or descent or who acquired citizenship prior to 27th April1994 by naturalization or thereafter but who would have qualified had it notbeen for Apartheid legislation.

Population Registration Act 30 of 1950

Revised Codes 000

1. When do the Revised Codes become Effective?

2. What of Old Codes remains after they become effective?

3. Impact on Sector Codes

4. Concept of Empowering Supplier

5. Changes to EME, QSE and Generic Thresholds

6. We don’t expect wide use of merely affidavits

7. QSE Scorecard

8. Generic Scorecard

9. Priority Elements

10. Changes to the B-BBEE Status Levels

11. Broad-Based to Narrow Based Empowerment

12. Who can Verify

13. Mixed Acceptance of Certificates

14. What else does the Revised Codes focus on

When do the codes become effective?

Notice Page of Gazette 36928I, Dr Rob Davies, Minister of Trade and Industry, hereby:

a) Issue the following Codes of Good Practice (the codes) under section 9 (1) of the Broad-Based Black Economic Empowerment Act, 2003 (Act No. 53 of 2003); and

b) Determine that these Codes will come into operation within twelve (12) months from date of this publication. With and added 6 months extension 1 May 2015

Statement 000, Section 10 – Transitional Period10.1 For the first year after the gazette of this Statement, a Measured Entity may elect to

use:

10.2 The Amended Codes of Good Practice; or

10.3 The Generic Scorecard in Code series 000, Statement 000 issued on 9 February 2007, notwithstanding the repeal of that Statement.

10.4 Thereafter the first year, as per paragraph 10.1, all B-BBEE compliance measurement will be in accordance with this Statement.

What of Old Codes remains after they become effective?

What is clear is that the Existing Codes (Gazette 29617) is still active and has not been repealed.

Even after 1 May 2015 several of the old Statements or Codes will remain active as the revised Codes does not purport to amend, substitute or repeal them:

All Sector Codes until they are aligned to revised Codes

Statement 003: Guidelines for developing and gazetting of transformation charters and sector Codes

Statement 004: Scorecards for Specialised Enterprises

Statement 005: Requirements for Verification Agencies

Statement 102: Recognition of Sale of Assets

Statement 103: Recognition of Equity Equivalents for Multi Nationals

Code 800: QSE Scorecard?

Impact on Sector Codes

Statement 000, section 3.2.3

“A Measured Entity in a sector in respect of which a sector code has been issued in terms of Section 9 of the B-BBEE Act as amended, may only be measured for compliance in

accordance with that code.”

All thresholds for distinction between EME’s, QSE’s and Generic Enterprises will therefore remain in tact for those entities that falls within a particular sector Code.

EME’sConstruction Sector Code: BEP’s < R1.5 milTourism Sector Code < R2.5 milProperty Sector Code: Asset Based Businesses – Net Assets <R30 mil

QSE’sConstruction Sector Code: BEP’s R1.5 mil - R11.5 milTourism Sector Code R2.5 mil - R35 milProperty Sector Code: Asset Based Businesses – Net Assets R30 mil – R280 mil

Existing Codes Gazette 29617 will remain the basis for resolving ambiguity, uncertainty or gaps within any particular Sector Code even after the effective date of the Revised Codes. That is until the that Sector Codes itself is aligned to the revised Codes.

Concept of a Empowering Supplier

All 25 points for procurement require that the suppliers are Empowering Suppliers.

For B2B Procurement the B-BBEE Status level of the business will therefore mean nothing unless it is also an Empowering Supplier.

Definition: Empowering Supplier

"B-BBEE compliant entity, which is a good citizen South African entity, comply with all regulatory requirements of the country and should meet at least three if it is a large enterprise or one if it is a QSE of the following criteria:

(a) At least 25% of cost of sales excluding labour cost and depreciation must be procured from local producers or local suppliers in SA, for service industry labour cost are included but capped at 15%.

(b) Job creation – 50% of jobs created are for Black People provided that the number of black employees since the immediate prior verified B-BBEE Measurement is maintained.

(c) At least 25% transformation of raw material/beneficiation which include local manufacturing, production and/or assembly, and/or packaging.

(d) Skills transfer – at least spend 12 days per annum of productivity deployed in assisting black EMEs and QSEs beneficiaries to increase their operation or financial capacity.

All EME's automatically qualify as an Empowering Suppliers.

Changes to Thresholds

The Thresholds for EME’s, QSE’s and Generic Entities have been amended:

B-BBEE Status Level of EME’s & Black Owned QSE’s EME’s = Level 4 BEE Status EME’s = Empowering Supplier status EME’s or QSE’s that are 51% Black Owned = Level 2 BEE Status EME’s or QSE’s that are 100% Black Owned = Level 1 BEE Status Black Owned QSE’s are not automatically Empowering Suppliers Sworn Affidavits attesting to turnover and black ownership will be sufficient evidence for EME’s

and Black Owned QSE’s. Empowering Supplier status for Black owned QSE’s still needs to be verified though.

The term 51% Black Owned is defined and requires: that the economic interest and voting rights of the business is at least 51% owned by black

people as determined in Code 100. (modified flow through applicable) All net value points are earned

Don’t expect wide use of the affidavit

Lacks professional appeal of a certificate;

Not independent confirmation like certificate;

Risk of Inadvertent misrepresentation in affidavit with could be met with fines of up to 10% of rvenue and/or imprisonment of up to 10 years;

Tender Boards of Government may not rely on affidavits (2011 Preferential

Procurement Policy Framework Act Regulations);

Affidavit only used to attest to black ownership and turnover, but aspects which have become relevant in terms of the new Codes, such as the EME’s ‘designated group status’ and ‘enterprise and suppliers development beneficiary status’, can only be attested to by means of a certificate.

QSE Scorecard

3.2.2 of Statement 000 refers to the Generic Scorecard and QSE scorecard

The Revised Codes contains no separate QSE scorecard

5.2 of Statement 000: QSE must comply with all the elements of B-BBEE for the purposes of measurement.

Code 800: not expressly repealed, one has to infer that it was substituted by generic scorecard.

Rumors abound that the Dti will shortly gazette a QSE scorecard.

At the moment therefore no distinction between QSE and Generic Scorecard.

Non-Black Owned QSE’s only have two priority elements in stead of 3 to comply with:

Ownership is compulsory priority element They then have to choose between either Skills Development or Enterprise and

Supplier Development as priority elements.

Generic Scorecard

Who can verify

Schedule to Statement 005, The Codes – (23 September 2011) has not been

repealed

Section 4.5, Statement 000, The Codes has not been repealed

“Sufficient proof of qualification as an EME is and auditor’s certificate or similar

certificate issued by an accounting officer or verification agency”

Mixed Acceptance – next 12 months

Vast majority of large businesses will not opt into Revised Codes. Whoever goesfirst will not have any suppliers that are Empowering Suppliers;

Existing Codes only recognises measurement in terms of itself and its alignedSector Codes. Companies that opt out of the Revised Codes and those rated onSector Codes would therefore not be able to accept certificates in terms of theRevised Codes;

PPPF Act and its 2011 regulations are not aligned to Revised Codes. Tenderboards would be opening themselves up to immense legal risk in acceptingaffidavits or certificates in terms of the Revised Codes until such time as PPPFAis aligned.

Even white owned EME’s between R5 mil and R10 mil turnover will have littleincentive to be rated in terms of Revised Codes as they now have to competewith Level 2 and 1 black owned entities.

Ownership : 2007

Indicator Weight (Marks) Target

Black voting rights 3 25%+1

Voting rights of Black women 2 10%

Black economic interest 4 25%

Economic interest of Black women 2 10%

Economic interest of Black designated groups; participants in Employee Ownership Schemes; beneficiaries of Broad-based Ownership Schemes; participants in co-operatives

1 2.5%

Ownership fulfillment 1 Complete

Net Value 7 Increasing

TOTAL 20

Black New Entrants 2 10%

Black participants in: Employee Ownership Schemes; Broad-based Ownership Schemes or Co-operatives

1 10%

Ownership: 2013

Indicator Weight (Marks)

Target

Black voting rights 4 25%+1

Voting rights of Black women 2 10%

Black economic interest 4 25%

Economic interest of Black women 2 10%

Economic interest of Black designated groups; participants in Employee Ownership Schemes; beneficiaries of Broad-based Ownership Schemes; participants in co-operatives

3 3%

Black New Entrants 2 2%

Net Value 8 Annexure 100 (E)

Total 25

Ownership Calculation

Normal Formula

A = x D

A = the score

B = the actual contribution by the measured entity

C = the target

D = the weighting

B

C

Ownership Calculation

A = B/C

Where A = % black shareholding

B = Issued share in the hands of black participant (26 shares)

C = Total Issued Share Capital of ME (100 shares)

BEE

participant

Current

Shareholders

Measured Entity (Pty)

Ltd

74 shares 26 shares

100 issued shares

1000 authorised shares

A = B/C = 26/100 = 26%

Calculating Net Value

Deemed Net Value

A =

A = the deemed net value

B = the value of the shares

C = the carrying value of the acquisition debts of the black participants

D = the value of the SA operations of the measured entity on date of measurement

Net Value = higher of formula A or BFormula A Formula B: normal formula

A = B x x 8

A = the score

B = the deemed net value

C = the time based graduation factor: 10% year 1; 20% year 2; 40% year 3&4 etc.

B C

D

25% x C

1

THE DEFINITION OF ‘CURRENT EQUITY INTEREST DATE

The term current equity interest as used in the graduation factors in Formula A of the Net Value

calculation in Annexe 100 (C), is not defined in the Codes. Revised Codes did not fix this omission.

ABVA’s technical committee interprets the term ‘current equity interest date’ in line with

the term “Net Value date” which is defined as meaning:

“..the later occurring of the date of commencement of statement 100 and the date upon which

the earliest of all still operative transactions undertaken by the Measured Entity in order to achieve black

rights of ownership, became effective and unconditional.”

Example:

Timeline

Deal 1 Deal 2

9 Feb 20073 Jan 2005 2 Apr 2009

Date of Commencement

statement 100

OTHER BEST PRACTICE NOTES

MAJOR DIFFERENCES Increase of overall points from 23 to 25

Black new Entrants

Threshold increase from R20 mil to R50 mil

Target dropped from 10% to 2%

Points increased from 1 to 2

Realisation point moved to Net Value category

Modified Flow through principle

BEE controlled or owned company now ≥51%

Can only apply once in entire ownership structure

Cannot apply exclusion principle if you apply MFT

MODIFIED FLOW THROUGH PRINCIPLE

The Modified Flow-Through Principle applies to any a

juristic person in the chain of ownership of the ME, in

which black people have a flow-through level of

participation of at least 51%. Then, according to this

principle, only once in the entire ownership structure

(use to be chain) may such black participation be

treated as if it were 100% black.

Only applies to “Black People” indicators therefore not

to any other indicators including female, net value or

bonus points.

Example on left:

Old Codes

% BEE = (100% x 15%) + (100% x 10%)

= 15% + 10%

= 25%

Revised Codes

% BEE = (100% x 15%) + (60% x 10%)

= 15% + 6%

= 21%

Measured Entity

Co A Co B

BEE 1 BEE 2

MFT MFT

51% 60%

15% 10%

MAJOR DIFFERENCES

Mandated Investments – only South African

Continued recognition of Sale of Shares limited

Private Equity Fund treatment corrected

Definitions of BBOS’s; ESOS’s and Trusts amended to:

Defining of participants and their proportion of entitlement

Limitation of fiduciaries’ discretion with this (except family trusts)

Compulsory AGM’s (disclosure of financials)

Constitution must be available upon request to participants in

their language.

ANNEXURE 100 (B) VEHICLES

BROAD BASED OWNERSHIP SCHEMESSubstantive definitions removed in final draft e.g. > 50 people

Only objective factual criteria

- Management Fees not to exceed 15%

- Constitution must record rules for distribution of Econ. Interest

- At least 85% of value of scheme to accrue to black people

- 50% of fiduciaries must be independent

- 50% of fiduciaries must be black people and 25% black female

- Chairperson must be independent

- On winding up all accumulated econ. interest transferred to

beneficiaries or entity with similar objectives.

Now Added

- Defining Participants and entitlement

- Limitation of Fiduciaries discretion

- Compulsory AGM and disclosure of financials

../ABVA/Best Practice Notes/ABVA Best Practice Notes 7 December 2010 final.pdf

EMPLOYEE SHARE OWNERSHIP SCHEMES

A Worker or Employee Scheme

Objective Rules paragraph 2 of Annexe 100 (B)

- Constitution must define Participants and the proportion of their

entitlement to receive distributions.

- Fiduciaries must have no discretion on the above.

- Participants must take part in

- appointing 50% of fiduciaries.

- managing the scheme at a level similar to shareholders in

company.

- The Constitution must be available in an official language of the

requester.

- Winding up all interest payable to participants

- Financial reports to be presented at annual general meeting of

scheme.


TRUSTS

Constitution must define Participants and the proportion of their

entitlement to receive distributions.

- Written record of beneficiaries or reference to defined

class of natural person satisfies the requirement for

identification.

- Written record of fixed % of entitlement or formula satisfies

the need for defining proportion of benefit.

Fiduciaries must have no discretion on the above (except in case of

family trust)

On winding up all interest to beneficiaries or similar entity

representing interests of beneficiaries.

Additional criteria for 100% recognition – certificate by competent

person.


MANAGEMENT CONTROL - 2013

Measurement category & Criteria Weighting

points

Compliance

Target

2.1.1 Exercisable Voting Rights of black board

members as a percentage of all board members

2 50%

2.1.2 Exercisable Voting Rights of black female board

members as a percentage of all board members

1 25%

2.1.3 Black Executive Directors as a percentage of all

executive Directors

2 50%

2.1.4 Black female Executive Directors as a

percentage of all executive Directors

1 25%

Board Participation

MANAGEMENT CONTROL


points

Compliance

Target

2.2.1 Black executive Management as a percentage of all

executive directors

2 60%

2.2.2 Black female executive Management as a

percentage of all executive directors

1 30%

Senior management


points

Compliance

Target

2.3.1 Black employees in Senior Management

as a percentage of all Senior Management

2 60%

2.3.2 Black female Senior Management as a

percentage of all Senior Management

1 30%

Other Executive management

MANAGEMENT CONTROL


points

Compliance Target

2.4.1 Black Middle Management as a percentage of

all Middle Managers

2 75%

2.4.2 Black female Middle Management as a

percentage of all Middle Managers

1 38%

Junior management


points

Compliance 7Target

2.5.1 Black employees in Junior Management as a

percentage of all Junior Management

1 88%

2.5.2 Black female Junior Management as a

percentage of all Junior Managers

1 44%

Employees with disabilities


points

Compliance Target

2.6.1 Black employees with disabilities as a

percentage of all employees

2 2%

Middle management

MANAGEMENT CONTROL

.

Key Measurement Principles

The Measured Entity must use its current payroll data in calculating its score

Collapsing Rules:

- If no distinction between Other Executive Management and Senior Management,

then Executive Management is measurable as a single indicator with a Weighting of

6 points under paragraphs 2.2.1 and 2.2.2 split as 4 and 2 point respectively.

- No provision for collapsing in case of no distinction between other categories.

MANAGEMENT CONTROL

General Principles

Executive Management positions include:

CEO, COO, CFO and other Executive Managers that serve on the Board.

Other Executive Management positions include:

- all executive management that do not serve on the board, e.g.

human resource executive, transformation executive; and

- other people holding similar positions.

Normal Formula

A = x D

A = the score

B = the actual % contribution by the measured entity for that sub-category

C = the target

D = the weighting

B

C

HOW TO CALCULATE % MANAGEMENT CONTROL

MANAGEMENT CONTROL

.

Determining the sub-targets

2.1 The compliance targets for 2.3, 2.4 and 2.5 of the Management control scorecard are

based on the overall demographic representation of black people as defined in the

Regulations of Employment Equity Act and Commission on Employment Equity Report,

as amended from time to time

2.2 In determining a Measured Entity’s score, the target should be further broken down into

specific criteria according to the different race subgroups within the definition of black in

accordance with the Employment Equity Act on an equitable representation and weighted

accordingly.

Formula Annexure 200(A) further states that:

C is the compliance target as per the Regulations of Employment Equity Act and Commission on Employment

Equity Report for that measurement sub-category.

Measurement of Senior Management, Middle Management, and Junior Management

EAP TARGETS:

Commission for Employment Equity

• Annual Report 2012-2013

Source: Commission for Employment Equity Annual Report 2012-2013

Measurement Category and Criteria Weighting

points

Compliance

Target

2.1.1. Skills Development Expenditure on any Program specified in the Learning Programme

Matrix for black people as a % of leviable amount:

2.1.1.1 Skills Development Expenditure on Learning Programmes

for black people as a percentage of Leviable Amount

8 (6) 6% (3%)

2.1.1.2 Skills Development Expenditure on Learning Programmes

for black employees with disabilities as a % of Leviable

Amount.

4 (3) 0.3%

2.1.2 Learnerships, apprenticeships and Internships:

2.1.2.1 Number of black people participating in Learnerships,

Apprenticeships and Internships as a % of total employees

4 (6) 2.5% (5%)

2.1.2.2 Number of unemployed black people participating in

Learnerships, Apprenticeships and Internships as a % of

total employees

4 2.5%

Bonus Points:

2.1.3 Number of black people absorbed by the Measured and

Industry Entity at the end of the Learnerships programme

(pre-requisite is a trainee tracking tool)

5 100%

SKILLS DEVELOPMENT CODE 300

Normal Formula

A = x D

A = the score

B = the actual % contribution by the measured entity for that sub-category

C = the target

D = the weighting

B

C

HOW TO CALCULATE % SKILLS DEVELOPMENT

Calculating Compliance (for 2.1.1.1 and 2.1.2)

AM + CM + IM + AF + CF + IF

C C C C C C

6

A =


For each indicator where:

A is the percentage spend on Black Employees (indicator 2.1.1.1) or percentage of Black People (indicator 2.1.2) for each indicator as

measured in the Skills Development Scorecard using the annual EAP targets as published in the Regulations of the Employment Equity

Act and Commission on Employment Equity Report

AM is the % of spend (indicator 2.1.1.1) or people (indicator 2.1.2) in the measurement category that are African Males

CM is the % of spend (2.1.1.1) or people (2.1.2) in the measurement category that are Coloured Males

IM is the % of spend (2.1.1.1) or people (2.1.2) in the measurement category that are Indian Males

AF is the % of spend (2.1.1.1) or people (2.1.2) in the measurement category that are African Females

CF is the % of spend (2.1.1.1) or people (2.1.2) in the measurement category that are Coloured

Females

IF is the % of spend (2.1.1.1) or people (2.1.2) in the measurement category that are Indian Females

C is the compliance target as per the Regulations of the Employment Equity Act and Commission on Employment Equity Report for that

measurement sub-category


Skills Development now a priority element (40% of targets vs. total weighting points?)

New pre-requisites:

SETA approved documents: Workplace Skills Plan, Annual Training Report and Pivotal Report

Implemented Priority Skills programmes for black people

No enhanced recognition for ABET programmes

Skills Spend target increased from 3% to 6%

Skills spend on unemployed black people now also recognised (double counting SED?)

Mandatory sectorial training does not qualify i.e.. health and safety

The following are limited to 15% of the total Skills Development Expenditure (i.e.. inclusive of spend on non-

black):

Category F & G learning Programmes

Legitimate training costs e.g.. accommodation, travelling (non-exhaustive list)

MAJOR DIFFERENCES


MAJOR DIFFERENCES

Legitimate Recognisable Training Expenses

Costs of training materials;

Costs of trainers;

Costs of training facilities including costs of catering;

Scholarships and bursaries;

Course fees;

Accommodation and travel; and

Administration costs such as the organization of training including, where appropriate, the cost to

the Measured Entity of employing a Skills Development facilitator or a training manager.


Bonus points for absorption of black people at end of learnerships

Absorption = “a measured entity’s ability to successfully secure formal permanent or long-term

contract employment for the Learner or to assist the Learner’s proceed with further education and

training”

Seems to be only available for people that were on Learnerships

Tracking tool must be developed to score these bonus points

If less than 100% absorbed then still earn proportionate recognition

Salaries or wages only recognised if the Learning Programme is a Learnership, Internship

and Apprenticeship (category B, C and D) of the Learning Programme Matrix.

New Learning Programme Matrix (Annexe 300A)

MAJOR DIFFERENCES

Learning Programme Matrix

Cat Programme Narrative Description Delivery Mode Learning Site Learning Achievement

A Bursaries Institution-based theoretical instruction

alone – formally assessed by the

institution

Institutional instruction Institutions such as

universities and

colleges, schools,

ABET providers

Recognised theoretical knowledge resulting in the

achievement of a degree, diploma or certificate

issued by an accredited or registered formal

institution of learning

B Internships Institution-based theoretical instruction

as well as some practical learning with

an employer or in a simulated work

environment – formally assessed

through the institution

Mixed mode delivery with

institutional instruction as well

as supervised learning in an

appropriate workplace or

simulated work environment

Institutions such as

universities and

colleges, schools,

ABE providers and

workplace

Theoretical knowledge and workplace experience

with set requirements resulting in the achievement of

a degree diploma or certificate issued by an

accredited or registered formal institution of learning

C Learnerships Recognised or registered structured

experiential learning in the workplace

that is required after the achievement

of a qualification – formally assessed

by a statutory occupational or

professional body

Structured learning in the

workplace with mentoring or

coaching

Workplace Occupational or professional knowledge and

experience formally recognized through registration

or licensing

D Learnerships OR

Apprenticeships

Occupationally-directed instructional

and work-based learning programme

that requires a formal contract –

formally assessed by an accredited

body

Institutional instruction

together with structured

supervised experiential

learning in the workplace

Institution workplace Theoretical knowledge and workplace learning,

resulting in the achievement of a South African

Qualifications Authority registered qualification, a

certificate or other similar occupational or

professional qualification issued by an accredited or

registered formal institution of learning

E Work-Integrated

Learning

Occupationally-directed instructional

and work-based learning programme

that does not require a formal contract

– formally assessed by an accredited

body

Structured, supervised

experiential learning in the

workplace which may include

some institutional instruction

Workplace and some

institutional as well as

ABET providers

Credits awarded for registered unit standards, CPD,

improved performance or skills (e.g.. evidence of

outputs based on Performance Development

Programme)

F Informal training

Limited to 15% of

total spend

Occupationally-directed informal

instructional programmes

Structured information

sharing or direct instruction

involving workshops,

seminars and conferences

and short courses

Institutions,

conferences and

meetings

Continuing professional development, attendance

certificates and credits against registered unit

standards (in some instances)

G Informal training

Limited to 15% of

total spend

Work-based informal programmes Informal training Workplace Increased understand of job or work context or

improved performance or skills

2.1 PREFERENTIAL PROCUREMENT Weighting

points

Compliance targets

2.1.1 B-BBEE Procurement Spend from all Empowering Suppliers

based on the B-BBEE Procurement Recognition Levels as a %

of Total Measured Procurement Spend

5 (12) 80% (70%)

(subminimum 32% or

discounted one level)

2.1.2 B-BBEE Procurement Spend from Empowering Suppliers

that are Qualifying Small Enterprises based on the applicable

B-BBEE Procurement Recognition Levels as a percentage of

Total Measured Procurement Spend

3 15%

(subminimum 6% or



that are Exempted Micro Enterprises based on the applicable

B-BBEE Procurement Recognition Levels as a percentage of


4 15%

(subminimum 6% or



that are at least 51% black owned based on the applicable B-

BBEE Procurement Recognition Levels as a percentage of Total

Measured Procurement Spend

9 40%

(subminimum 16% or



that are at least 30% black women owned (defined >30.1%)

based on the applicable B-BBEE Procurement Recognition

Levels as a percentage of Total Measured Procurement Spend

4 12%

(subminimum 4.8% or


Bonus Points

B-BBEE Procurement Spend from Designated Group Suppliers that are

at least 51% Black owned

2 2%

ENTERPRISE & SUPPLIER

DEVELOPMENT CODE 400

2.2 SUPPLIER DEVELOPMENT Weighting points Compliance targets

2.2.1 Annual value of all Supplier Development Contributions

made by the Measured Entity as a percentage of the

target

10 2% of NPAT

(subminimum 0.8% or


2.2(3) ENTERPRISE DEVELOPMENT

2.3.1 Annual value of all Enterprise Development and Sector

Specific Contributions made by the Measured Entity as

a percentage of the target

5 (15) 1% (3%) of NPAT

(subminimum 0.4% or


2.4 BONUS POINTS

2.4.1 Bonus point for graduation of one or more Enterprise

Development Beneficiaries to graduate to the Supplier

Development Level

1

2.4.2 Bonus point for creating one or more jobs directly as a

result of Supplier and Enterprise Development

initiatives by the Measured Entity.

1

ENTERPRISE & SUPPLIER

DEVELOPMENT CODE 400

Cannot get recognition for same activities undertaken in 2.2 and 2.3

One combined scorecard with PP, Supplier Development (SD) and ED. 40

points on the scorecard 4 bonus points.

All indicators (except bonus points) are subject to 40% sub-minimum

priority downgrade

Procurement is now based on Procurement Status level and Empowering

Supplier status

Removal of enhanced recognition for Black Owned Professional Service

Providers and Entrepreneurs

Adjustments made to Total Measured Procurement Spend (i.e. pre-

requisite set for allowing permissible exclusions in respect of Imports)

MAJOR DIFFERENCES

ED and SD Measured Annually as a % of NPAT (removal of Industry

Norms) (allows for averaging over multiple years)

Encouraged to develop and implement an ED & SD Plan including clear

objectives, priority interventions, KPI’s, implementation plan.

No double counting between any of the 3 broad categories of the

scorecard.

Double counting allowed amongst sub-indicators of PP scorecard.

MAJOR DIFFERENCES

Formula for calculating the Preferential Procurement

Normal Formula

A = x D

A = the score for preferential procurement

B = the weighted B-BBEE spend

C = the total measured procurement spend

D = the weighting

Weighted B-BBEE Spend

A = B x C

B = Value of included procurement spend with supplier not excluded

C = B-BBEE Procurement Recognition of each such supplier

B

C

•Contribution Level •Qualification •BEE Recognition Level

•Level One Contributor •≥ 100 points on the Generic Scorecard •135%

•Level Two Contributor •≥ 95 but < 100 points on the Generic

Scorecard

•125%

•Level Three Contributor •≥ 95 but < 95 points on the Generic

Scorecard

•110%

•Level Four Contributor •≥ 80 but < 90 points on the Generic

Scorecard

•100%

•Level Five Contributor •≥ 75 but < 80 points on the Generic

Scorecard

•80%

•Level Six Contributor •≥ 70 but < 75 points on the Generic

Scorecard

•60%

•Level Seven Contributor •≥ 55 but < 70 points on the Generic

Scorecard

•50%

•Level Eight Contributor •≥ 40 but < 55 points on the Generic

Scorecard

•10%

•Non Compliant Contributor •< 40 on the Generic Scorecard •0%

WEIGHTED BEE SPEND

SCORE RANGES AND CORRESPONDING B-BBEE STATUS & RECOGNITION

Procurement recognition from own Supplier Development Beneficiary with

min 3 year contract with ME = BEE spend multiplied by 1.2

Procurement recognition from black owned QSE or EME which is not a

supplier development beneficiary with min 3 year contract with ME = BEE

spend multiplied by 1.2

Procurement recognition from 1st time suppliers is multiplied by 1.2

PREFERENTIAL PROCUREMENTWEIGHTED BEE SPEND: Key Measurement principles

Concept of Empowering Supplier

All 25 points for procurement require that the suppliers are Empowering Suppliers.

For B2B Procurement the B-BBEE Status level of the business will therefore mean nothing unless

it is also an Empowering Supplier.

Definition: Empowering Supplier

"B-BBEE compliant entity, which is a good citizen South African entity, comply with all regulatory requirements of the

country and should meet at least three if it is a large enterprise or one if it is a QSE of the following criteria:

(a) At least 25% of cost of sales excluding labour cost and depreciation must be procured from local producers or

local suppliers in SA, for service industry labour cost are included but capped at 15%.

(b) Job creation – 50% of jobs created are for Black People provided that the number of black employees since the

immediate prior verified B-BBEE Measurement is maintained.

(c) At least 25% transformation of raw material/beneficiation which include local manufacturing, production and/or

assembly, and/or packaging.

(d) Skills transfer – at least spend 12 days per annum of productivity deployed in assisting black EMEs and QSEs

beneficiaries to increase their operation or financial capacity.”

All EME's automatically qualify as an Empowering Suppliers.

Formula for calculating the Preferential Procurement

Normal Formula

A = x D

A = the score for preferential procurement

B = the percentage weighted BEE Spend

C = the target for preferential procurement

D = the weighting

How do we calculate the % weighted BEE spend?

B =

B

C

Weighted BEE Spend


PREFERENTIAL PROCUREMENT SPEND

Operational Expenditure

Cost of Sales

Capital Expenditure

Total

Spend

TOTAL MEASURED PROCUREMENT SPEND

Allowable Exclusions:

•Salaries

•Loans and Donations

•Certain imports

•Rates & Taxes, levy and

• post retirement funding and

•Investments loans, etc.

•Imports (Specific Exclusions as

• detailed in Statement 500)

BEE Spend Non-BEE spend

TOTAL MEASURED PROCUREMENT SPEND : INCLUSIONSCost of sales

Operational expenditure

Capital expenditure

Procurement from organs of state and public entities (Only when statutory monopoly is

it excluded. When reseller of service required to look through to primary supplier)

Procurement from monopolistic suppliers

Third Party Procurement: where the cost of that procurement is included as a

expense in the annual financial statements of the ME

Outsourced Labour Expenditure: Independent contractors & Labour brokers;

Pension & Medical Aid Contributions (excluding contribution to capital investment)

Trade commissions

Empowerment Related expenditure (excluding ESD & SED but incl. its facilitation cost);

Imports

Intra-group procurement (no exclusion for consolidated verification)

Taxation: e.g.. rates, levies, taxes;

Salaries, wages, remunerations, and emoluments;

Third Party Procurement: where the cost of that procurement is included as a

expense in the third party’s or client’s annual financial statements and not ME’s

Empowerment Related procurement

Investments in or Loans to Associated Enterprise,

Investments, loans or donations for ESD or SED

Imports

TOTAL MEASURED PROCUREMENT SPEND :PERMISSABLE EXCLUSIONS

The following imports may be excluded:

PERMISSABLE EXCLUSIONS: IMPORTS

Imported capital goods/components for value-added production in South Africa

provided that:

No existing local production of such capital goods or components; and

The importation thereof facilitates further value-added production within South Africa

Imported goods or services other than as contemplated above if there is no local

production of such goods or services including imported goods or services that:

Carry a brand different to locally produced goods or services;

Have different technical specifications to locally produced goods or services.

ONLY IF

ME Developed and Implemented an ESD Plan for imported goods and services with:

•Clear objectives

•Priority Interventions

•Key Performance Indicators

•Concise implementation plan with clearly articulated milestones

BEE Spend = 65% or 85% if enhanced

Target is 80%

BEE Spend – and Enterprise Development

Supplier Contribution

Level

Recognition

Level

Total

Procurement

Pure BEE

Procurement

Score

Sup. Dev.

Ben. 3yr ct

( x 1.2)

1st time

Suppliers

(x 1.2)

Black-

owned

QSE EME

3yr ct

(x 1.2)

Total BEE

Score

enhanced

IPS Co. 2 R1.25 R1 000.00 R1 250.00 R1 500.00 R1 800.00 NO R1 800.00

EME Co. 2 R1.25 R1 000.00 R1 250.00 NO NO R1500.00 R1 500.00

NO BEE

Co.

Non

Compliant

Zero R1 000.00 ZERO ZERO

JUST BEE

Co.

8 R0.10 R1 000.00 R 100.00 NO R120.00 NO R 120.00

TOTAL R4 000.00 R2 600.00 R 3 420.00

Beneficiaries = EME’s or QSE’s that are at least 51% black owned or 51%

black women owned (error in definition in Schedule 1 refers to 30% black women owned)

“Supplier Development Ben.” vs. “Enterprise Development Ben.”

“Value-adding Supplier” Non-Supplier?

(term not defined)

Objective in both cases must be to contribute to development, sustainability

and financial and operational independence of those beneficiaries.

SUPPLIER AND ENTERPRISE DEVELOPMENT BENEFICIARIES

ENTERPRISE DEVELOPMENT AND SUPPLIER DEVELOPMENT : Benefit Factor Matrix (400B)

Qualifying Contribution type Contribution Amount Benefit Factor1 Grant and Related Contributions

1.1 Grant Contribution Full Grant Amount 100%1.2 Direct Cost incurred in supporting approved projects or enterprise

developmentVerifiable Cost (including both monetary and non-monetary)

100%

1.3 Discounts in addition to normal business practices supporting approved projects or enterprise development

Discount Amount (in addition to normal business discount)100%

1.4 Overhead Costs incurred in supporting enterprise development (including people appointed in enterprise development)

Verifiable Costs (including both monetary and non-monetary)

70% (80%)

2 Loans and Related Contributions2.1 Interest-Free Loan with no security requirements supporting

enterprise and supplier developmentOutstanding Loan Amount

70% (100%)

2.2 Standard Loan to enterprise and supplier development beneficiaries

Outstanding Loan Amount50% (70%)

2.4 Guarantees provided on behalf of a Beneficiary entity Guarantee Amount 3%

2.5 Lower Interest Rate Outstanding Loan Amount Prime Rate – Actual Rate3 Equity Investments and Related Contributions

3.1 Minority Investment in enterprise and supplier development beneficiaries

Investment Amount70% (100%)

3.3 Enterprise and Supplier Development Investment with lower dividend to financier

Investment Amount Dividend Rate of Ordinary Shareholders – actual Dividend Rate of Contributor

4 Contributions made in the form of human resource capacity4.1 Professional services rendered at no cost and supporting

approved projects or enterprise and supplier developmentCommercial hourly rate of professional

60% (80%)

4.2 Professional services rendered at a discount and supporting enterprise and supplier development

Value of discount based on commercial hourly rate of professional 60% (80%)

4.3 Time of employees of Measured Entity productively deployed in assisting beneficiaries

Monthly salary divided by 16060% (80%)

5 Other Contributions5.1 Shorter payment periods Percentage of invoiced amount x 15% (approx cost of short

term funding)Percentage being 15 days less the number of days from invoice to payment (max points is 15% of 10

points) (max 1.5 points)

ENTERPRISE DEVELOPMENT MATRIX

SOCIO-ECONOMIC DEVELOPMENT: 2007 & 2013

Socio Economic Development Weighting

Points

Compliance

Target

Annual value of all Socio Economic Development

Contributions made by the Measured Entity as a

percentage of the target

5 1% of NPAT

DEFINITION

Par 3.2.1 Code 500

“Socio-Economic Development contributions consist if monetary or non-monetary contributions actually initiated

and implemented in favor of beneficiaries by a measured entity with the specific objective of facilitating income

generating activities for targeted beneficiaries.”

Schedule 1

Contradiction with definition in Schedule 1 which refers to “promotion of sustainable access to the economy”

Schedule 1:

Development programmes for women, youth, people with disabilities, people living

in rural areas

Support of healthcare and HIV/AIDS programmes

Support for education programmes, resources and materials at primary, secondary

and tertiary education level, as well as bursaries and scholarships;

Community training skills development for unemployed people and adult basic

education and training; or

Support of arts, cultural or sporting development programmes;

Socio Economic Development Examples

Full Value: Communities, natural persons and groups of natural

persons where at least 75% of the value of the benefits accrue to

natural persons who are black people.

If less than 75% of contribution directly benefits black people, then the

value of the contribution multiplied by the percentage that benefits black people

is recognisable.

Annual Measurement only. No more Cumulative Measurement.

Industry Norm Calculation remains if company made a loss.

Socio Economic Development Recognition

Qualifying Contribution type Contribution Amount Benefit Factor

Grant and Related Contributions

Grant Contribution Full Grant Amount 100%

Direct Cost incurred in supporting social development or sector specific initiatives

Verifiable Cost (including both monetary and non-monetary)

100%

Discounts in addition to normal business practices supporting social development or sector specific initiatives

Discount Amount (in addition to normal business discount)

100%

Overhead Costs incurred in supporting social development or sector specific initiatives

Verifiable Costs (including both monetary and non-monetary)

80%

Contributions made in the form of human resource capacity

Professional services rendered at no cost and supporting social development or sector specific initiatives

Commercial hourly rate of professional

80%

Professional services rendered at a discount and supporting social development or sector specific initiatives

Value of discount based on commercial hourly rate of professional

80%

Time of employees of Measured Entity productively deployed in assisting beneficiaries and supporting social development or sector specific initiatives

Total annual cost to company of the employee divided by 160

80%

SOCIO-ECONOMIC DEVELOPMENT

BENEFIT FACTOR MATRIX ANNEX 700(A)

Concluding Remarks

Some Positives:

1. Some technical issues addressed

2. Emphasis on skills and supplier development

3. Local production and procurement

4. ARG done away with

Some Negatives:

1. Several more technical flaws

2. Exclusionary approach

3. Over emphasis of black ownership 51% of total scorecard vs. 28% in previous version – contradicts NDP

direction

4. Government procurement practice section 217 of Constitution

5. Contradictions, inconsistencies and drafting errors abound

Individuals affected by sub-ordinate legislation must know with a reasonable amount

of certainty what is expected of them. In cases where a particular provision of sub-ordinate

legislation is certain, that provision is valid. Where it is uncertain that provision should be invalid

by reason of uncertainty or vagueness. [Arnold v Race Classification Appeal Board and

Another [1967] II All SA 182 (C).]

We thank you for your time.

Gavin Fletcher Email: [email protected]: 011 783 7190Cell: 084 587 9990

Thank You

mailto:[email protected]

Comparison to F & C Sub Sector Charter

No Priority Elements in F&C

Ownership is the same

Management control is the same

New codes have a slight higher Black Junior Manager ( 88% -F&C 80%) and Black female Managers ( 44% - F&C 40%)

Skills - increase in skills spend from 3% to 6%

ED - F&C has an extra 1.5% spend for Female black owned business

There is no SD in F&C

Procurement – 10% increase in Black Spend

SED – extra recognition for HIV / Bursaries / Poverty Alleviation F&C industry awareness

1st May 2015 (New Codes)

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