Archive for category BBBEE Knowledge
PPPFA Fails
Posted by Keith in BBBEE Knowledge, True Empowerment on January 17th, 2012
We were very pleased when the finance minister gazetted the changes to the PPPFA regulations. It brought the PPPFA in line with the B-BBEE act and codes. It made for consistency and ensured fairness and objectivity in adjudicating and awarding tenders.
It was a shock therefore to see that the finance minister has issued an exemption to all public/state owned enterprises for the new regulations. SOEs no longer need follow the new regulations and have pretty much carte blanche on how they will issue/ advertise and ultimately award tenders. The exemption is for a period of 12 months to 7th December 2012. The PPPFA does allow the minister to issue those exemptions notices, but we feel that this has set back the entire B-BBEE process, almost irretrievably.
Who is affected? All entities in schedules 2 and 3(b), (d) of the Public Finance Management Act. This includes ACSA, Telkom, Transnet, SAA, Eskom, Rand Water, Umgeni Water. It refers to a huge proportion of government expenditure.
What is left are only government and provincial departments and smaller organisations like Boxing SA that need to follow the new regulations.
We see this as a huge blow for true empowerment. The only measure of empowerment is your B-BBEE certificate, and yet, the largest SOEs are refusing to implement the new regulations in favour of a different, inconsistent system.
The SOEs do have reasons for wanting to be exempt – ranging from difficulty in implementing the new policies to their feeling that B-BBEE is “too soft”. The Black Business Council feels that the new regulations threaten black business because many white owned businesses have a better B-BBEE level, or can win business by giving a discount of more than 10%. They are asking that certain spend be set aside for specifically black business.
This is inconsistent with the B-BBEE scorecard. If there was a problem with the B-BBEE scorecard being “too soft”, then the route to go should be to change the B-BBEE codes and strengthen the fight against fronting rather than throwing out B-BBEE in favour of the old PPPFA regulations.
We do recognise that some SOEs, e.g ESKOM demand that their suppliers have a valid BEE certificate, level 4 or above, so they are not dismantling B-BBEE totally.
The new regulations have been discussed for 3 years, and were gazetted in June 2011, so there was sufficient time for discussion before it was implemented, rather than the minister have to issue his exemption on the date that the new regulations came into effect. It really makes us wonder why the minister bothered to implement any regulations at all if he is going to exempt probably more than 50% of all state procurement from the regulations.
This is not going to improve peoples’ attitudes around tendering and B-BBEE – rather is will harm them and result in lower compliance. At the moment the dti is trying to get its new B-BBEE Amendment Bill accepted by parliament. This is also a set back for the chances of that bill being approved. We, ourselves have spent nearly two weeks writing up our submission on that bill, giving it our qualified support, and making what we consider are positive suggestions. Based on the failure of the PPPFA, our feeling right now is that the Amendment Bill will never be gazetted or implemented, so why bother wasting time on a submission. If that is our feeling, as the biggest supporters of empowerment and B-BBEE, I’d hate to hear what others are saying.
PPPFA and Treasury tries to clear waters.
Posted by Keith in Accreditation, BBBEE Knowledge, Verification on December 6th, 2011
The Treasury Dept has issued guidelines to be implemented for the new PPPFA regulations coming into effect tomorrow (7th December).
They have fixed up the errors we identified, and which we had requested them to change – i.e. EMEs that fall into the Tourism or Construction sectors have different EME thresholds. In the original regulations it did not specify that certain sector have different thresholds – it made the blanket statement that EME’s have a turnover of less than R5 million, but did state that the regulations are in line with the B-BBEE Codes.
They have now clarified that an EME is one with an annual turnover of less than R5 million, unless you fall into the tourism sector where the threshold is R2.5 million and the Built Environment Professionals sector where the EME threshold is less than R1.5 million
The second issue relates to acceptable certificates:
The guidelines relating to verification agencies state that certificates will be identifiable by a SANAS logo and a unique BVA number. All certificates bear this logo, other than EMEs, because SANAS has not accredited any agencies to issue certificates for EMEs. No EME certificate issued by a verification agency is allowed to carry the SANAS logo.
The guidelines also do mention with respect to EMEs that “Sufficient evidence to confirm a qualifying EME is a certificate issued by an Accounting Officer (as contemplated in the CCA), a similar certificate issued by a Registered Auditor or a Verification Agency.”
We have spoken to Treasury and they confirm that the intention is for an EME certificate, like all certificates to carry the SANAS logo. While there could well be a legal challenge to the slight ambiguity in the guidelines, there is no doubt that every procurement officer affected by the PPPFA is going to look for a SANAS logo, and if one is not present on the certificate, they will automatically reject it.
Proposed amendments to the B-BBEE Act
Posted by Keith in BBBEE Knowledge, Fronting, Interpretations, True Empowerment on November 25th, 2011
Proposed amendments to the Broad-Based Black Economic Empowerment Act (B- BBEE)
Cabinet approved the publication of the Broad-Based Black Economic Empowerment Act (B-BEE) Amendment Bill for public comment.
The proposed amendments to the Act intend to achieve the following objectives:
(a) Align the Act with other legislation impacting on the B-BBEE and with the codes
(b) Establish the B-BBEE Commission to establish an institutional environment for monitoring and evaluation broad-base black economic empowerment
(c) Provide for the regulation of the verification industry by the Independent Regulatory Board of Auditors
(d) Deal with non-compliance and circumvention by introducing offences and penalties
The proposed changes to the B-BBEE codes of good practice:
(a) Enterprise Development (ED) and Procurement to be elevated with each requiring sub-minimum and enhanced recognition for ED targeted at key sectors in IPAP and the New Growth Path
(b) Penalty provision for non-compliance with Enterprise Development and Procurement elements of the B-BBEE scorecard, and discount from overall score
(c) The points of ownership element should be broadened to include designated groups in the main points, creating greater incentives for genuine broad-based ownership such as employee share ownership, co-operatives and community ownership
(d) Setting sub-minimums/threshold for each element of the scorecard save for the adjusted ownership element
(e) The Qualifying Small Enterprises scorecard will be adjusted and certain elements made mandatory.The thresholds for Exempted Micro Enterprises will be reviewed
(F) The Employment Equity element to receive adjusted recognition and to be aligned to the Employment Equity Act (targets, Reporting and Definitions).
(g) Skills Development Element to be aligned to the New Skills development Strategy and the New Growth Path and
(h) Targets in the Ownership Skills Development Procurement and Enterprise Development will be adjusted.
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Comments:
In general, EconoBEE welcomes the proposed changes. We need to see the actual bill to analyse it in more detail, but in general, all the recommendations we have sent to the dti and BEE Council have been addressed.
We like that B-BBEE is being aligned with other acts, in particular the PPPFA which comes into effect on 7th December 2011.
More than a year ago we recommended to the minister that he establish an office of the BEE Ombudsman, to handle issues of interpretations, valid certificates, fronting, disputes. This is now being done via the establishment of a commission.
We also welcome IRBA as the overall regulatory body for verification. The verification industry has always had problems, starting with ABVA, and subsequently SANAS has struggled to handle our volume of enquiries and sort out various issues. We hope that IRBA will be fully staffed to handle the increased workload.
We were one of the first companies to raise the issue of invalid certificates, fronting and other non-conformances. We therefore welcome the approach that fronting will be penalised, and that the B-BBEE Commission will be tasked to investigate this.
In principle,we also welcome any proposed adjustments to the weightings and targets of the elements or the definitions. We have always like the fact that B-BBEE stands for “broad-based” implying it affects all aspects of the economy, and not necessarily only narrow based ownership.
We look forward to seeing the proposed bill and will make representations
EMEs may have to produce two EME certificates
Posted by Keith in Accreditation, BBBEE Knowledge, Interpretations, Verification on November 17th, 2011
A key principle of government’s economic growth policy is to encourage the development and growth of small businesses and entrepreneurs. One of the initiatives is to reduce red tape for those small businesses. Recently the National Treasury issued new procurement regulations that were intended to reconcile B-BBEE with government procurement via the PPPFA (Preferential Procurement Policy Framework Act).
These regulations stated that the PPPFA would use B-BBEE principles in evaluating all government tenders. It also meant that a small business could obtain one B-BBEE certificate and use it for both their private enterprise customers, as well as for submission with government tenders. Small businesses, with an annual turnover of less than the threshold are defined as Exempt Micro Enterprises (EMEs) and are exempt from all forms of B-BBEE. This means they do not need to go to the effort and expense of building up a B-BBEE scorecard.
If they are in the tourism industry this threshold is R2.5 million. If they are Built Environment Professionals the turnover threshold is R1.5 million. For all other industries the current threshold is R5 million. This is set by the minister of trade and industry and can be changed by notice in the government gazette.
They do need to prove to both their private enterprise customers and government that their annual turnover is below their threshold. The B-BBEE codes state that:
“4.5 Sufficient evidence of qualification as an Exempted Micro-Enterprise is an auditor’s certificate or similar certificate issued by an accounting officer or verification agency”.
Typically an auditor will check the financials of the company and if its turnover is less than the threshold will write a letter to this effect. Most verification agencies will do the same task. These “EME certificates” are then given to the company’s customers, and to government as required by the new regulations. To date there have been some queries about the issuing of these certificates. We ourselves have queried a number of certificates, mainly on the basis that the company was lying about its turnover, or that the auditor or verification agency did not apply the correct industry thresholds. In some cases private enterprises rejected auditors’ or accounting officers’ certificates and demanded that the certificate be produced by a verification agency. It took some harsh words from us to those companies to get them to recognise that an EME certificate issued by an auditor or accounting officer was acceptable. This was based, not only on the codes but correspondence with the dti who confirmed that both auditors, accounting officers and verification agencies could indeed issue EME certificates.
As always there are complications: In 2009 the minister created the concept of “accredited” verification agencies and “non-accredited” verification agencies. In December 2009 and January 2010 we wrote to the dti and SANAS asking them for the definition of a non-accredited verification agency and received an unsatisfactory answer. In 2009 SANAS began accrediting verification agencies. On the letter of accreditation it clearly identified the type of work, i.e for which code the agency was accredited. We picked up that SANAS had not stated formal accreditation for codes 000, 800 and some of the sector codes. At our insistence SANAS re-issued their accreditation certificates formally allowing verification agencies to accredit for example QSEs (codes 800). They never issued formal notification to accredited verification agencies in terms of code 000. Code 000 is the statement that sets out key principles, defines EMEs and even defines specialised entities.
This is why all EME certificates issued by accredited verification agencies do not bear the SANAS logo because officially they do not have rights to produce EME certificates, and they do not have to follow the verification guidelines, which would include site visits and automatically increase costs. However certificates issued by accredited verification agencies tended to become acceptable, even to the extent that some companies even insisted upon it. The dti and SANAS never had a problem with verification agencies issuing EME certificates as it was in line with paragraph 4.5 of the codes above, and they still do not. As recently as 23rd September, in the notice issued by the dti minister regarding accreditation to IRBA, he re-iterated that paragraph 4.5 still remains valid for EMEs.
The new PPPFA regulations issued on 8th June 2011, and coming into effect on 7th December 2011 are intended to ensure that government procurement follows B-BBEE principles. Basically they state that adjudication of tenders submitted will take into account your own B-BBEE certificate issued in terms of the B-BBEE codes. The higher your BEE level, the more likely you are to win the tender. In the case of EMEs, they automatically qualify as level 4 ( a good level) or even level 3 (a better level) if they are more than 50% black owned. For small tenders, with a value of less than R1 million, a level 3 certificate can contribute approximately 16% of the entire tender adjudication, so it becomes essential for EMEs especially to obtain a valid EME certificate.
The new PPPFA regulations issued by the finance minister chose to use different wording to paragraph 4.5. Their paragraph 10 states:
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Broad-Based Black Economic Empowerment Status Level Certificates
10. (1) Tenderers with annual total revenue of R5 million or less qualify as Exempted Micro Enterprises (EMEs) in terms of the Broad-Based Black Economic Empowerment Act, and must submit a certificate issued by a registered auditor, accounting officer (as contemplated in section 60(4) of the Close Corporation Act, 1984 (Act No. 69 of 1984)) or an accredited verification agency.
(2) Tenderers other than Exempted Micro-Enterprises (EMEs) must submit their original and valid B-BBEE status level verification certificate or a certified copy thereof, substantiating their B-BBEE rating.
(3) The submission of such certificates must comply with the requirements of instructions and guidelines issued by the National Treasury and be in accordance with notices published by the Department of Trade and Industry in the Government Gazette.
(4) The B-BBEE status level attained by the tenderer must be used to determine the number of points contemplated in regulations 5 (2) and 6 (2).
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We have already highlighted the mistake made by the finance minister in that he defines an EME as being one with an annual turnover of R5 million when that is not currently the case in all circumstances. Their paragraph 10.1 also uses the wording “accredited verification agency”. Effectively 10.1 is incorrect and probably unconstitutional. We had hoped that reading paragraph 10.3 would sort out the problem as it uses the words: “…be in accordance with notices published by the Department of Trade and Industry”. When we wrote to the Treasury Department they told us any interpretations regarding the BEE codes, i.e the entire section 10, should be referred to the dti as they are the gatekeeper.
However, on Tuesday,15th November, SANAS put out the following notice to all verification agencies:
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Dear All
Please familiarize yourself with the newly gazetted PPPFA Guidelines, according to these guidelines EME certificates cannot be issued by Verification Agencies, a letter confirming turn over below R5 million per annum must be written by either an Accounting Officer or an Auditor. There is even an attached format of how this letter should be written. Make sure that you do not mislead the public by issuing these certificates as though they will be acceptable in public service because all these complaints will come back and flood my system.
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The guidelines of course refer to the entire Regulations, especially section 10. The email above states that EME certificates issued by verification agencies to private companies remains valid. However if the same EME wishes to submit documentation to “public service”, they will need to get another certificate, this time issued by an auditor or accounting officer. The many EMEs that currently have valid EME certficates produced by verification agencies are going to have to pay twice to get a second EME certificate. As noted above some private companies are INSISTING on certificate issued by verification agencies, while govt is now insisting on certificates to NOT be issued by verification agencies. The dti is happy with one set of certificates, while PPPFA is unhappy with it. The only way to win is to spend time and money, and red tape producing the same certificate twice. Apparently PPPFA is now interpreting the codes and insisting both SANAS and accredited verification agencies are following their rules. Even more confusing in our discussions with senior directors at Treasury, their had no idea of the policy as explained in the email above.
The problem could have been avoided if SANAS had issued full accreditation for code 000 to all agencies. It could also be avoided if the dti minister were to issue a ruling that overrides the Treasury’s requirements, or whoever is objecting to verification agencies issuing EME certificates.
At the same time we are well aware that some agencies, and accountants do not perform rigid checks on turnover and simply issue certificates on the basis of a faxed document purporting to be accurate financials. In many cases the company has a turnover of well above the threshold and is deliberately supplying ncorrect information, which is fronting and which the new regulations are trying to stop.
This issues raises more questions than answers.
1) What if a company accepted agency EME certificates in its own verification, and earned procurement points on those certificates. Surely this company’s certificate could not be used by the PPPFA because they used different rules in calculating their certificate?
2) Code 000 also states that all public entities, govt departments, State owned enterprises must obtain their own B-BBEE certificate. The new regulations emphasise this in their conditions by stating that if one agency procures from another the same 90/10 or 80/20 rule comes into affect and each government agency must supply a valid B-BEE certificate. Each government agency must use the specialised scorecard – because they do not have ownership. If the whole reason for excluding verification agencies from verifying EMEs is because they do not have accreditation for code 000, then they also do not have accreditation to verify specialised enterprises either! Therefore, at this point there are no agencies nor auditors able to issue valid certificates for any government enterprise or organ of state.
Tutu’s wealth tax and B-BBEE
Posted by Keith in BBBEE Knowledge, General, True Empowerment on August 17th, 2011
The recent comments by Archbishop Tutu caused some controversy. He complained that the rate of transformation is too slow and the inequalities in our economy still remain – the gap between rich and poor is still too great. He is of course correct. The recent release of the employment equity statistics by the commission for employment equity shows that management jobs are still dominated by white people.
Tutu then suggested a wealth tax. Please note he did not suggest a white wealth tax. The “white” was added by the media without foundation. His actual comments can be found here (courtesy of @gussilber via Twitter), and a video of his talk can be seen on Youtube. The Archbishop is probably not aware that B-BBEE is intended to solve all the problems he identified, in a far more elegant manner than a tax.
B-BBEE is not a tax, because it is voluntary and companies are encouraged to comply, by not necessarily only spending money. It is not a tax because it requests actions, rather than a pure monetary spend. In some ways it can be seen as a levy – e..g with regards to skills development it asks companies to spend 2% or 3% of their payroll on training of their own staff. With regards to enterprise development and socio-economic development it asks companies to spend between 1% and 3% of net profit after tax on those activities. The spend does not need to be pure money – it can be a monetary equivalent, e.g a company can spend time helping a smaller business, and this will be classed as enterprise development. There are other methods of earning B-BBEE points that do not require spending money (tax), like procurement where companies will encourage transformation by asking their own suppliers for their B-BBEE certificates. In this way every company will contribute towards transformation, leveling the playing fields, without the need for a wealth tax.
Some companies have done a wonderful job of complying with the B-BBEE codes and genuinely made a difference to the lives of the people they touched. Many other companies have a reluctance to achieve, and it is this reluctance that Tutu, and others are seeing. Their good, but slightly misguided intentions are a direct result at seeing slow transformation.
Some years back we wrote an article headlined “The alternative to B-BBEE is B-BBEE”, implying that when you look at it, and if transformation is needed the best alternate remains the B-BBEE codes, warts and all. Any other alternative proposed would not be as effective or efficient!
With regard to a wealth tax, government does not have a great record of spending our tax money. Given the option I’d far rather decide for myself whom to support, train than let government tell me, and possibly waste the money. This is what B-BBEE proposes. If you do have to spend 3% of profit after tax, why not decide for yourself how best to do it, in the way that works, and makes business sense to you?
For five years we have been saying that B-BBEE has to succeed – the alternative will be people proposing some outrageous solutions taht we are seeing right now, such as nationalisation or wealth taxes.
The lack of support for black businesses
Posted by Keith in BBBEE Knowledge, Enterprise Development, procurement on July 26th, 2011
One of the aims of transformation is to grow black business. For true transformation we need more black owned businesses and to support black businesses.
I came across a very typical situation just today. We analyzed procurement spend of a large company, part of a JSE listed business.
The company spends R592 million every year with local suppliers.
Of this, R23 million is spent with companies that are more than 50% black owned. This is 3.92% of their total procurement. Note that this could well imply that the companies are as little as 50.1% black owned and 49.9% white owned.
In addition they spent R2.6 million with companies that are more than 30% black female owned. This is 0.46% of their total spend. This could well imply that the company is 30% black female owned, and the remainder 70% white owned.
All other spend, 95.62% of their spend is spent with companies that are not majority black owned or 30% owned by black females.
In terms of the B-BBEE procurement calculation, the company obtained 16.46 points out of 20, which is relatively good – compared to the many companies we have analyzed.
Comments by Rob Davies dti minister during his budget vote
Posted by Keith in BBBEE Knowledge, Enterprise Development, Fronting, General, Interpretations, True Empowerment on April 20th, 2011
Minister Davies spoke about B-BBEE during his budget vote: He said the following:
“Regarding economic empowerment more generally, the BEE Codes of Good Practice were promulgated 4 years ago and we are now in a better position to assess their impact. The Presidential Advisory Council has made several policy recommendations to allow for greater participation by black people in productive activities and to tackle what is now emerging as increasingly complex practices of fronting. To this end, the dti and the Presidential Advisory Council are focusing on reviewing the BEE Codes of good practice and possibly amending the BBBEE Act. This could entail, amongst others, refinements to ensure greater policy coherence in the application of BBBEE across government and to strengthen access to procurement opportunities through the now approved and aligned PPPFA regulations. We are also looking at ways to strengthen our efforts to combat the fraudulent practice of fronting.”
Business Day – 20th April 2011 is reporting as follows :
“Department of Trade and Industry acting director-general Lionel October said yesterday the recommendations of the advisory council — now being considered by the economic cluster of government departments — would shift the focus of BEE away from equity investment and ownership towards productive activities.
Currently, companies scored high marks on the BEE scorecard for black ownership, which gave them a high overall score even when they performed poorly in areas such as enterprise development and procurement.
A proposal being examined by the economic cluster is that minimum scores would be required for enterprise development and procurement — or the overall score would suffer. This would compel companies to aim for achievement in all areas.
Mr Davies said what was under consideration was that points would be deducted from the overall score if minimum scores for enterprise development and procurement from small companies were not achieved.
It would also not be enough to merely hand over money for an incubator or enterprise development project. Companies would have to be actively involved in fostering small businesses.
“In Asia, small and big businesses have a symbiotic relationship where big business gets a lot of input from small business and works hard to ensure that it has the required capacity and the technology,” Mr Davies said.
Complex forms of fronting also had to be addressed.
“We have seen that people who participate in ownership deals imagine that they have one thing, but then when they look at the fine print, they have something else,” Mr Davies said.
“There is now a whole industry of lawyers and accountants who are structuring these deals in particular ways.”
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The above is not too different from our crystal ball gazing in our previous newsletter. This is what we said:
The dti has been looking at revising the codes, and recently issued a tender for companies, presumably law firms to take this further. Once the service providers are appointed, the process will take many months or even years to evaluate and then re-evaluate the B-BBEE codes. We are quite sure that this will not result in “canceling” B-BBEE, but gazing into a crystal ball we expect in one or two years time to see the following:
Ownership
Ownership indicators will change to award more points to broad-based and employee ownership schemes. Individual ownership will be awarded less points. Less emphasis will be placed on direct voting rights and more emphasis placed on a new form of economic interest to ensure that new owners get direct benefit out of their investment. To date many companies do not declare dividends so a minority owner has no benefit, other than when he sells his shares, and in private companies there is no good way to value shares like the JSE does.
Management Control
Will be worth less points than present. Currently one new black director can be “worth” up to 6 points. This is seen as only benefiting a few, it is not broad-based enough. Management may be reduced to 5 points or even consolidated into the Employment Equity element reducing the number of elements to 6.
Employment Equity
Definitions will be cleared up. Allowing a significantly more objective measure of “senior, middle and junior” management employees. More points will be awarded. There is a possibility to have the definitions expanded to broaden the reach of the management levels. It should be noted that as from next year the targets for EE go up anyway.
Skills Development
Skills is anticipated to be the biggest beneficiary of the re-evaluations and will certainly be worth more points. Additional indicators, similar to the excellent construction charter will be created. This will include a more detailed breakdown including mentorships and bursaries. The cost of Skills Development will not be a major discussion point, rather what does that spend get used for. The cost will therefore be targeted in more specific and beneficial areas.
Preferential Procurement
As from next year the targets for procurement go up anyway. Definitions and interpretations, especially around exclusions – imports, third party will be cleared up. The procurement element cannot change substantially as it is the theoretical driver behind Black Economic Empowerment.
Enterprise Development
Points may drop slightly. More indicators like those in the construction charter will be added. Some “easy” points, may decrease in importance. Mentorships for developing enterprises will be added. Increased emphasis will be placed on the type of beneficiary ensuring better Enterprise Development opportunities and not generic spend with any qualifying beneficiary.
Socio-economic Development
Points may drop slightly in favour of the EE and Skills elements.
QSEs may find that the “easy” points on ED and SED will have less value.
The thresholds on EMEs will rise.
The charters will also have to be re-evaluated, so there may be a recommendation to decrease the number of gazetted charters
Let’s re-look at this in two years time and see how accurate we were.
Dear Minister
Posted by Keith in BBBEE Knowledge, Charters, Fronting, Sarcasm, True Empowerment, Verification, politics on March 9th, 2011
Dear Minister,
Please advise urgently.
My client is a QSE BEP. If he follows the BEP scorecard his ED target is R22 500 because ED is based on leviable amount. His SED target is R11250.
If he follows the codes of good practice his ED target is R2800 because we will use indicative profit and R1400 for SED.
If he follows the BEP scorecard he will need to pay R33 750 for both ED and SED, but if he follows the codes his cost is R4200 – a differential of R29 550.
Since the dti and SANAS are still seeking clarity, apparently now from the DG, and you have not any statement either, I need to know if the dti will condone my client following the codes that most suit him. The precedents have of course been set and we all know that SANAS will not regard this as a non-conformance and dti will not withdraw the certificate…….
On the other hand I’ve got some clients who are NOT in the construction sector but tend to like the lower adjustment for gender so are going to follow the construction/BEP codes. Is this also okay?
I know of a company that signed the final gazetted forestry charter but wants to follow AgriBEE and will use generic until that happens. Is this ok?
Now that I think of it, another client who has a turnover of over R1billion would like to follow the QSE scorecard for tourism. Also, a difficult client (you know how clients are) likes the Construction generic ownership element, the freight transport management control (for QSEs), the codes for EE, the QSE codes for Skills, and forestry for the other elements. Can I please have special permission to change the codes to suit my difficult client? He also wants to use a verification agency that had a pre-assessment letter in Feb 2010 but has now expired.
Another client would like to use ArcelorMittal as their verification agency. According to SANAS, ArcelorMittal has been accredited (for legal metrology, specifically weighing instruments), and the client feels that since ArcelorMittal, like SANAS, has no BEE certificate, they are a good organisation to do their BEE verification. Is this possible?
Minister, in any event we know that the dti/BEE Council will never be able to identify and really does not care about fronting, but being law abiding I’d like your approval to recommend fronting to my clients, who are being hamstrung by my honesty.
Yours sincerely
Keith
A dti scandal – The beginning of the end of the sector codes and B-BBEE
Posted by Keith in Accreditation, BBBEE Knowledge, General, Interpretations on March 7th, 2011
The dti, gatekeeper of the BEE codes has wasted an enormous amount of taxpayers money in setting up the BEE codes, and the sector codes. Latest rumours are they are about to dump the sector codes.
Way back, before the B-BBEE act was gazetted, the financial sector came up with its financial sector code, and other sectors stated following suit. The B-BBEE codes specifically made allowances for sector codes. Many sectors, believing that they were being steamrolled into following a charter spent huge amounts of time and effort to try to create their charter, mostly without success. At the time we are totally anti the charters, as we said that it would cause more confusion and costs and not contribute towards transformation. At the time we were criticised by the dti.
It turns out were correct all the time: The sector codes have proven a total waste of time and money. Industry bodies, government and private enterprise have wasted our money, to create a non-functioning sector codes process.
The minister did indeed gazette four sector codes, construction, transport, tourism and forestry back in 2009. All four came into effect on the date of gazetting, and only one had a transitional period – but implying that all had to be followed from the date of gazetting. In 2009, no one bothered to follow those charters.Around about 10 other charters have been or are still in the process of gazetting including covering Financial services, ICT, property, accountants and legal.
Also in 2009, the minister stated that BEE certificates would only be valid if produced by a SANAS accredited verification agency. His initial notice gave a deadline of 31 July 2009. We pointed out to the minister that at the time SANAS did not have a methodology to accredit agencies based on the sector codes. It would imply that every company in the affected industry would be unable to produce a valid certificate. The minister then delayed the deadline to 1st February 2010. Even with this delay SANAS did not manage to accredit any agency to verify against the sector codes until March 2010. Only a small number of agencies ever managed to become accredited for the sector codes.
It did not really matter – most companies in the affected industries continued using the generic codes and passing that certificate off as a valid certificate – contrary to the regulations of SANAS and the codes. One need only look at certificates produced in 2010 for transport companies, hotels, freight and all the other affected industries to see that the sector codes and the minister’s notice was being completely ignored.
The rumours around BEE from SANAS is that “the dti may make a pronouncement as there have been complaints from the industries saying they should have a choice of utilizing the sector codes. Apparently the DG is aware of the complaints. There was a meeting in Cape Town last week where this was discussed, and from the SANAS point of view they will not view this as a non-conformance until clarity is given by the DTI.”
So legislation is being run by the DG “being aware of problems”, and SANAS, four years after the codes were gazetted is still waiting for clarity on an issue they have been accrediting agencies to do for over a year.
Is there anyone at the dti or SANAS who has the faintest idea of what is going on?
We knew this would happen. SANAS and the dti were unable to keep up with the sector codes. Most agencies did not even know about the sector codes, and failed to check the industry of their client when the client requested verification. Each sector code requires the formation of a sector council, so for example the Tourism Sector Council was formed to manage and report back on the progress the sector has been making in accordance with the sector codes. To date, no sector council has reported back to the minister of the BEE Council as to the progress made. It would be quite easy to do so: They would say “NO PROGRESS”. Every sector council is therefore in breach of their own sector code. If the dti, SANAS and sector councils can’t manage the process, it is not surprising that most measured entities have no idea what is going on, and their level of compliance is lower as a result.What is quite ironic is that even companies that were signatories to the sector codes have not even bothered to use them. For example both York Timbers and Hans Merensky were signatories to the forestry charter. Neither even follow the forestry charter.
It is exactly as we said many years back – sector codes are a waste of time and will result in lower levels of compliance. However, once the sector codes did come out we supported them, because that is what the codes say we must do. We are the consultancy raising these issues with the dti and SANAS. We are the people identifying the errors and inconsistencies. We are the people confronting the verification agencies, measured entities, the dti and SANAS about which scorecard to use.
The problem is that until the minister issues a notice removing the sector codes, any company in an affected sector that issues a certificate that bears the SANAS logo as its official BEE status will be misrepresenting its BEE status. The codes say that deliberate misrepresentation constitutes fronting and is fraud.
A COMPANY THAT ISSUES A CERTIFICATE CARRYING THE SANAS LOGO FOR THE WRONG SCORECARD IS FRONTING.
This is the beginning on the end for the sector codes, and I’m not sorry about that. I have to state that the only high profile person who agreed with us about the useless sector codes was Jimmy Manyi! Even as late as the end of last year Thabo Masombuko of the dti angrily confronted anyone who said that the sector codes serve no purpose. Well, his own DG had has to be brought into the fray, and SANAS, the organisation appointed by the dti still don’t know that a certificate issued in terms of the wrong scorecard is non-conformance.
What I am genuinely sorry about is if this debacle by the dti and SANAS is anything to go by, it looks like the B-BBEE codes could die a similar death. Many people will be only too happy to see the BEE codes go the same way. To them I say “Be careful what you wish for”. (I’ll explain this last statement in a future blog.) We personally will continue to support the codes until the very end.
Jimmy Manyi
Posted by Keith in BBBEE Knowledge, politics on March 3rd, 2011
Everyone has an opinion on the Jimmy Manyi interview issued by Solidarity. Strange then that as at this morning (3 March 2011) only 6474 people have actually viewed it. I have to suspect most critics of Jimmy have not seen it, and none have seen the entire interview nor the context in which he made these comments. The part that has been uploaded is only 47 seconds, and very selectively chosen.
The context is he was talking about was the employment equity act, and he is very well briefed on the B-BBEE codes.
He knows that companies earn BEE points by employing black people in various management, and sometimes non-management positions. Many companies will specifically try to find a certain profile person in order to improve their BEE scorecard. We ourselves always tell our clients that they will earn more points, if they were to employ a higher percentage of black people in certain management categories.
At the same time we tell our clients that for example a black female in a particular category will earn them more points, and therefore they should try to find the best person for the job, but be aware that they will earn or lose points based on their decision.
From the black person’s viewpoint, we can easily direct a particular person to where there are opportunities. We know that for example most construction companies would be keen to interview a black female civil engineer. We would not hesitate to advise a person on how best to market themselves to get a good job. At this very moment I have 1300 CVs in front of me from people who are desperate for a job as a junior admin clerk – a very sad state of affairs. I’d like to employ every single person, but obviously cannot.
Let’s look at Jimmy’s comment. The number of coloured people in the Western Cape is generally higher than the rest of the country, just as we would expect more Indians in KZN than the rest of the country. I would have no hesitation in advising a coloured person who is unsuccessfully looking for a job in Western Cape to look further – specifically target regions and companies than have poor employment equity scores.
Is this what Jimmy meant? Is this what Jimmy said? Please watch the video and decide if it leaves out the context.
Also decide if the context is as I have described.
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