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.

Section 10 of the B-BBEE act makes it compulsory for organs of state and public entities to take into account the B-BBEE status of the supplier in setting up preferential procurement policies. Virtually no public entity is doing this. Those that do not are in breach of the constitution.  A tender, license or disposal of state assets can only be awarded to a business if government takes into account the B-BBEE status of the tenderer. The act states further “..and as far as is reasonably possible apply any relevant code of good practice issued in terms of this act.”

Although the act does not give a clear definition of “take into account” or ” reasonably possible apply”, and does not state how it should be applied, what is clear is that every state entity MUST at least ask for a valid  B-BBEE certificate, and should give their own reasonable interpretation of how they are going to apply the codes to their particular tender or license.

Any government agency that does not do this is in breach of the act and therefore in breach of the constitution.

The act was signed into law in January 2004, and the Codes of Good Practice were gazetted in February 2007, so government has had more than 3.5 to implement its own policies.

There is no discretion at to whether or not government applies this clause.

Once they do, the affect will be that all organs of state will be asking all suppliers for their valid B-BBEE scorecards. This will result in focusing government on broad-based issues, rather than the old, discredited and annoying narrow-based method that they currently use.  It will result in more compliance and improved transformation.

BEE Procurement accounts for 20 points on the broad based BEE scorecard. Points are the by purchasing from suitable supplies who themselves are BEE compliant, and have a BEE scorecard. The score depends on the type of supplier (size, percentage black ownership) as well as other technical aspects, such as a concept called value adding supplier. “It is important to take all aspects into accounts in order to maximize procurement points earned” explained Keith Levenstein CEO of EconoBEE.

Procurement is one element of the codes that does not have a specific target of spend. There is effectively no cost to the company to earn procurement points, unlike, for example, skills development where the company needs to spend 3% of its payroll to earn points. The difference though is procurement is quite an admin intensive task, and if done incorrectly will cost the company many points.

EconoBEE produced BEE Procured as a cost effective solution to the admin issue.
BEE Procured is a complete system that contains a database that with many thousands of valid scorecards, saving the company from having to call all its suppliers to get scorecard.. The database correctly analyses the scorecard to ensure that any points earn are maximized. BEE Procured goes even further. It allows the company to capture, or even import the names of their suppliers and the value of spend with the supplier. Using Link Technology BEE Procured then allows the company to quickly find valid scorecards for each of its suppliers. BEE Procured automatically and instantly calculates the points earned for its procurement.

If there is no scorecard for that supplier, BEE Procured will attempt to contact the supplier and obtain his BEE scorecard or certificate. Once obtained, the system will automatically take the updated scorecard into account and recalculate the points earned.

Many companies see procurement as an insurmountable admin issue and often ignore procurement or lose points. BEE Procured will typically decrease the time and effort to do procurement by up to 80%.

The draft regulations now state that those 10 points or 20 points are based only on your BEE level. They have also increased the 80/20 threshold to R1million. So, if a company tenders for government business and it has achieved level 4, then it is automatically allocated 12 points out of the 20. If it is non-compliant then it earns zero points on the tender adjudication. On the other hand if it is level 1 then it earns 20 points on that tender. For tenders above R1million the 90/10 principle applies. The 10 points are allocated based on BEE level. A level 1 company earns 10 points, a level 4 gets 5 points and a non-compliant gets zero points.

With minor exceptions, this is exactly what we have been asking for over the past 4 years. The main difference is that a company’s BEE score is now used in evaluating their tenders, rather than the unscientific and arbitrary manner,usually based on the now discredited narrow based format.

A good scorecard will now become more important, and more useful to businesses, many of which had to try to comply with contradictory requirements.

See draft-preferential-procurement-regulations

The etc,etc,etc etc sometimes become just too much for many businesses and they just give up, or simply lack the time and skills to do the job properly. After all you job is to make a profit, not get tied down in admin. There is a solution: We are working on our BEE Procured system, which takes the admin and pain out of procurement and maximises your points.

Imagine making a list of suppliers and spend, uploading it to our BEE Procured system, spending a couple of minutes working on the system and already earning the points. Imagine not have to call every single supplier – we already have many scorecards, so why duplicate the effort by phoning the supplier again. Imagine the system automatically looking up in our system for scorecards, and once you have confirmed the right scorecard it takes into account all the right details, and calculates the score you have earned. It identifies the suppliers without scores to be followed up, optionally by ourselves and instantly produces a report, that is perfect for your verification agency ensuring you earn all the procurement points you deserve.
The above is no longer a dream. We have been working on this system for the past 6 months to make it so easy to use that it will, GUARANTEED (*), cut your time and effort of doing procurement by 80% or increase your scorecard points by 30%. Procurement is going to become the easiest element on which to earn points, and your cost per point will be the lowest of any element of the element on the scorecard.

(*) Your money back, no questions asked!
This amazing system is nearing completion and will be available in time for our forthcoming Procurement and ED Conference. Delegates who book and pay for the event get a free one year license. Everyone else will have the opportunity of purchasing an annual license at a very reasonable rate shortly.

In my many years of developing cost effective solutions this is the one that has excited me the most because it has the potential to save our clients more time and money than anything prior and ensure they earn the points. 8 years ago I developed EconoSMS, an SMSing system, that is still in use at many clients. Their computer gave in before the system did! I am very proud of EconoAccounting, also an 8 year old product that does your accounts in a way that others have never done before (we call it the 5 minute per day accounting system). Our popular EconoBEE V3 is an easy to use system that helps you calculates your own BEE score and understand how BEE works.However BEE Procured is going to save more time and remove more aggravation than all our other systems put together.

I’m really excited, you should be too!

One example is the calculation around early repayment of invoices. One agency believes that a company can claim a maximum of 15% of invoice value for paying COD while the other believes that 100% of the invoice value is claimable. Each produce a letter or email from someone justifying their position. Let’s say Agency A believes that 100% is claimable and Agency B follows the 15% rule while Agency A follows the 100% rule. We of course know that the 100% rule is the right one and have a letter from  the chief director of the dti’s BEE unit to prove it.

Now Agency A produces a certificate for “Company X” using their interpretation giving “Company X” 14 points more than Agency B would have. Now “Company X” is a supplier to “Company Z” and gives them a scorecard showing them to have a score from Agency B’s viewpoint that is 14 points too high.

What should Agency B do? When they do the procurement calculation for their client “Company Z”, do they reject the scorecard supplied to them by “Company X”? If they had principles they should reject that scorecard on the basis that the company is misrepresenting their score, ie fronting. If the boot was on the other foot, then Agency A acting for “Company X” should reject the scorecard produced by Agency B for “Company Z”, in this case on the strange basis that the scorecard is 14 points too low – misrepresentation nevertheless!

What happens in practice? Neither agency rejects the other’s scorecard, as long as they are fellow SANAS accredited agencies (even though the minister has extended the period for “non-accredited verification agencies” to continue issuing scorecards.

If an agency accepts a scorecard produced by an alternate calculation, does this mean that the agency accepts both calculations as being valid? If so, why would one agency chose to use a calculation that decreases its client’s score while accepting that calculation for one of its client’s suppliers.

A conundrum indeed!

See below for the dti’s comments on this issue:
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No,  nothing from them either!

Some time back we needed a whiteboard for our training room, but do not like the standard boards as they tend to stain, and the ink never really rubs out. Instead we asked Msizi to install a glass white board on our wall, and it works perfectly and looks really good. We can write on it with any marker pen, and a bit of windowlene is all that is needed to clean it. We started discussing ideas for Msizi around producing glass whiteboards. We have assisted him with equipment and he has now started production of glass boards: They are beautifully framed in aluminum and can easily be mounted by a DIYer on your wall. It is the most useful piece of office equipment we have.

Msizi is working very hard on the quality of his framed white board – and quality is still a problem, but Msizi wil not rest until he has produced “the Rolls Royce” of glass white boards.

We purchased his first board and our staff love it.

Our role has been a bit of finance for equipment and we have purchased all his “mistakes” which is good enough to us to use perfectly well. We also help him with his accounts, marketing and most of all we are a shoulder to lean on and able to help him with brain-storming. In a few years his product could well become a well-known brand.

Mabuya Glass Merchants is currently producing trial aluminum framed glass boards 80 cm by 60 cm at a price of R299 (excluding packing and shipping and installation which any DIYer can easily do). The size is perfect for every office. I’d love to take orders for him while he perfects his quality. Take this opportunity to support his enterprise, earn BEE points but more importantly help his business thrive.

We have obviously earned both enterprise development points and procurement points from our positive relationship with Msizi (he is level 3 and is a category A enterprise development beneficiary) so there is enhanced recognition on both our ED scorecard and procurement scorecard so we have great BEE benefits.

Moreover Msizi, is about to finally and able to reach his dream of running a sustainable business. He is not a “bigwig”, not being enriched, just a South African who cares and is beginning to feel good about himself. So do we! This is what true B-BBEE is all about!

The link between Enterprise Development (Mabuya Glass Merchants) and procurement (buying glass white boards) works very well, to find out more attend our Procurement and Enterprise Development conference.

Contact EconoBEE on 0861 11 3094 or info@econobee.co.za or Msizi Ngwenwa on 072 263 0130 for more info.

Preferential procurement encourages procurement opportunities to be made available to B-BBEE compliant suppliers. It is the immediate reason for companies and government entities to request B-BBEE scorecards from suppliers and potential suppliers and the B-BBEE cascading effect begins with preferential procurement. The self-regulation of B-BBEE is also centered on this element.

Companies can easily earn and continuously improve their points by preferring to procure from B-BBEE compliant suppliers. However in most cases earning points and calculating the preferential procurement score can be an administration irritation. A quick look at the top 200-empowerment companies on the JSE shows that only 1 company out of the 200 companies earned all the maximum 20 points on Preferential Procurement. According to President Zuma’s recent comments on B-BBEE “Access to government procurement opportunities by black firms has been raised as a serious challenge.” This undoubtedly is happening because enterprises and government departments do not have an understanding of Preferential Procurement and also do not have the proper systems in place.

With an understanding of preferential procurement and a system aligned to BEE initiatives, private companies and government entities can begin the kazien or improvement of preferential procurement and the procurement points. Our upcoming Procurement and Enterprise Development Conference can definitely help you in understanding preferential procurement, overcome the administration irritation and ultimately improve your B-BBEE points.

She also confirmed that no agency has been given accreditation to verify on any of the gazetted sector codes. This clearly means that any entity in the tourism, construction or forestry industry will not be able to produce a valid certificate and any certificate they do produce will NOT be able to be used to earn procurement points.

There is almost no chance that the dti will be able to produce an interpretive guide and verification manual for each of the sector codes by 1st August, and SANAS will not be able to accredit any agency by then. We would be surprised to see this happen before the end of the year.

The only alternative is for the minister to issue a notice allowing all entities in those industries to use the codes of good practice, or alternately granting an extension to companies in those industries from having to produce a valid scorecard.