“Our company will probably go over the R50 million mark this year. This will require us to verify as a Generic enterprise under the DTI BEE Codes of Good Practice. I am very concerned about the impact this will have on our BEE level, as I have heard that the procurement element in particular can lead to getting a lower BEE level. Is there anything I can prepare for with our company’s procurement to avoid such a situation?”
The Procurement Element forms part of the Enterprise and Supplier Development Element (“ESD”) under the Generic BEE Codes of Good Practice (“the Codes”) and is a Priority Element. This means that if you fail to meet certain sub-minimum targets, you can be discounted by a full level on your B-BBEE scorecard. If your company has to report as a Generic enterprise, it will have to pay attention to all the Priority Elements, but specifically also the Procurement element, which is substantially more complex under the Generic scorecard. With proper planning and management of your company’s procurement one can still achieve the necessary points and meet the sub-minimum requirements.
The key with procurement is timeous planning as procurement points are built up over time through your company’s procurement. There is no quick fix for procurement points and preparation is therefore vital.
The first step in your planning is to establish what your total procurement spend will be. This will involve an estimate based on your previous figures extrapolated to the current year, taking into account any increases in expenditure. Remember to exclude VAT and to only look at purchases and not payments.
Secondly, you have to look at the BEE recognition levels of your suppliers. The better the BEE levels of a supplier, the better for your procurement, particularly if it is a large supplier to you. Obtain the B-BBEE certificates of your suppliers and ensure that they are valid. Generally, BEE verification agencies will allow a certificate if such was valid for at least a day in the financial period under which you are reporting.
Being a Priority Element, at least 40% of the total available points under the ESD element must be obtained. Procurement alone accounts for 27 points excluding the 2 bonus points on offer. However, focusing only on B-BBEE compliant companies will not fully address your procurement as this sub-target only accounts for roughly 18% of the total points available under the Procurement element. A further 15 points can be scored for spending on Empowering Suppliers that are at least 51% Black Owned and 30% Black Women owned. A further 7 points are also available for spending on EME and QSE companies.
It is thus crucial for a Generic company such as yours to constantly revise and monitor its suppliers to ensure that spend is aligned with the sub-targets under the Procurement element. You will want to make sure that at least 50% of your procurement spend is with 51% Black Owned suppliers and 12% with 30% Black Women owned suppliers. Ideally these companies should also be EME or QSE’s.
Lastly, remember to allow for enhanced recognition. Here, allowance is made for a multiplication of your procurement spend by a factor of 1.2 when your supplier is either –
- a recipient of supplier development contributions from a Measured Entity under Code series 400 which has a minimum 3-year contract with your company;
- a Black Owned QSE or EME which is not a Supplier Development beneficiary but has a minimum 3-year contract with your company; or
- is at least 51% Black Owned or at least 51% Black Woman Owned utilising the Flow Through Principle.
From the above it is clear that procurement points takes timeous planning and careful management, but that if this is done, a company can obtain the necessary points for procurement to maintain a decent BEE level. If your company is set to be rated as a Generic enterprise, we would advise consulting your BEE specialist to help you get a procurement plan in place as soon as possible for your company.