The pressure is mounting when it comes to the preferential procurement element on the B-BBEE scorecard
Large enterprises realise that Preferential Procurement is the one element on the scorecard over which they have limited control. After all, you can’t force your suppliers to become B-BBEE compliant.
Yet, if a company were to score poorly on this element, many of the other B-BBEE initiatives undertaken during the measurement year may have been in vain from a point scoring perspective. This is because the preferential procurement element constitutes around 25% of the total available B-BBEE points. This poses a significant risk of overall non-compliance as preferential procurement is also one of the priority elements that result in a one-level discounting if the 40% subminimum criteria are not met. In practical terms this means a company could have spent a lot of money on the other scorecard elements (ownership, management control, skills development, enterprise development, supplier development and socio-economic development) just to find that a poor score on preferential procurement results in an overall non-compliant status.
Qualifying small enterprises are also finding the revised codes very difficult to deal with. Not only is the scorecard proving to be extremely expensive to implement but the planning and execution is administratively burdensome. In the meantime, they are being pressured by their clients to prove they are compliant.
So, what is the solution? Working with your suppliers.
Large enterprises should move away from simply putting pressure on their smaller suppliers and expecting them to do the almost impossible. This can only lead to further frustration, breakdown in supplier relations and even potential supply chain problems. It can also lead to the sad situation where desperate smaller suppliers revert to fronting practices to stay in business. Companies should rather work with their suppliers and build a strategy around helping them to comply. For example, in the case of qualifying small enterprise suppliers (those with an annual turnover between R10 million and R50 million), corporates could assist such suppliers in implementing 51% black ownership for them to qualify for the automatic Level 2 status. They could partner with one of the many B-BBEE equity strategists out there and really help their suppliers embrace the transformation agenda. This would be in the best interests of all involved as the corporate will achieve its preferential procurement targets in a sustainable manner while smaller and mid-sized suppliers will stay in business.
YOUR B-BBEE STRATEGY
Timing is vital when planning a B-BBEE strategy. There is no use in undergoing a verification if there is no certainty that, based on your latest financial year, the company will achieve a compliant status. The verification process is costly and time consuming. When considering the 51% black ownership route, it is important to note that such a transaction can even be implemented after your latest financial year-end and will still benefit your clients if the transaction is finalised and your sworn affidavit issued before your client’s next verification. Do you know when your most important clients’ certificates expire?
Anton de Wet CA(SA)
Managing Director of Managing Director of NetValue™ Equity Partners