New BEE rules are weak, say analysts

The revised preferential procurement regulations by the National Treasury are weak and companies are not empowered when bidding for state tenders, analysts say. The revised regulations were gazetted by the department in June and will come into effect on December 7. The National Treasury said the regulations had been aligned with the Broad-Based Black Economic Empowerment (BEE) Act and its codes of good practice, and were in line with the government’s Industrial Policy Action Plan. Previously, bidders for tenders scored a maximum of 80 or 90 points for price, and 20 or 10 points for black ownership and for promoting redevelopment programme goals. “The points for price will remain unchanged, while bidders will now score 20 or 10 points for the broad-based BEE status level of contribution,” said the National Treasury. All bidders will have to submit BEE-rating certificates, issued either by an accredited verification agency or by registered auditors.

The Treasury previously said the threshold value for the distinction between the 80/20 and 90/10 preference point system was R500 000. This has now been increased to R1 million to stimulate the development of small businesses. Andile Tlhoaele, a BEE practitioner and specialist, said the revised regulations did not attach any weight to BEE and there was no transparency on how the bids were evaluated. He said Finance Minister Pravin Gordhan went against submissions by black business and amended the Preferential Procurement Policy Framework (PPPF) Act. “A bidder can be 10 percent cheaper in price than a BEE-compliant competitor and they will get the tender. The gazetted regulations that will come into operation in December include a point system to evaluate tenders and select companies that score the highest points even if they don’t have black ownership.

“The system does not recognise black ownership and bonus points that companies achieve when they exceed BEE targets,” Tlhoaele said. He said these regulations would have a negative impact on BEE compliance, black business and particularly small, black businesses that depended on government for survival. The regulations made it difficult to use BEE as an advantage. “The regulations underscore and reverse the gains of empowerment as they create an environment for companies to not be empowered.” He added that companies with black ownership would no longer enjoy any advantages, particularly firms with a turnover of less than R35 million, since one could easily achieve level 1 BEE status without black ownership. Ajay Lalu, the managing director of Black Lite Consulting, said black companies should be awarded 20 points to 30 points for ownership.

He said: “People hide behind the PPPF Act, which does not allow set-asides to be done. The problem is the state procures on price and ends up doubling the price. They must look at value for money instead of the cheapest price.”