amended b-bbee codes of good practice · 2014. 1. 27. · - national skills development strategy...

AMENDED B-BBEE

CODES OF GOOD PRACTICE

Gazetted: 11 October 2013

Effective Date: 11 October 2014

PREAMBLE to the B-BBEE Act, 2003

“Control and access to South Africa’s productive resources and skills was andstill is based on race.

Unless steps are taken to increase the effective participation of the majority ofSouth Africans, this will affect the stability and prosperity of the economy.”

2

B-BBEE ACT, 2003

• To achieve a change in the racial and gender composition of ownership

and control of businesses.

• To achieve change in the race / gender composition at all levels of

management, and in professional and technical occupations.

• To increase the extent to which Black persons have access to skills training.

• To develop Black entrepreneurs through preferential procurement,

and through small and micro enterprise development.

• To incentivise businesses to adopt social responsibility initiatives.

* “Black”: African, Indian/Asian, Coloured, South African citizens.

“NEW TRAJECTORY” FOR B-BBEE

• Concerted effort to link B-BBEE to other Government strategies:

- New Growth Path

- Industrial Policy Action Plan

- National Development Plan

- National Skills Development Strategy

• Changing SA’s business culture to be supportive of:

- entrepreneurship

- value chains

- shift towards localisation to stimulate growth of SA economy (NGP, IPAP).

• Focus on businesses and industries that result in:

- significant job creation

- address socio-economic challenges.

AMENDED B-BBEE ACT: MONITORING and POLICING

• B-BBEE Advisory Council

To provide guidance and overall monitoring of the state of B-BBEE performance

in the economy; and to make policy recommendations.

• B-BBEE Commission

- Oversee, supervise and promote adherence to the Act.

- Foster collaboration between the public and private sector.

- Promote & safeguard the objectives of B-BBEE.

- Investigate complaints.

• Penalties

Fronting is a criminal offence:

- jail up to10 years;

- and/or 10% turnover;

- no state tenders for up to 10 years.

KEY CHANGES / FOCUS AREAS

1. Commencement /Effective Date

- Compulsory measurement against the new Codes if the measured

period ends after 11/10/2014.

- May elect to be measured under old or the new up till then.

2. Sector Codes

- Must align with new Codes by 11/10/2014.

3. New Thresholds

- EME < R10 million pa.

- QSE R10 < R50m pa.

4. New Contributor Levels

- Significantly higher, eg, old Level 4 will now become a L 7.

- But, there are more points obtainable: old up to 107, new up to 118.

5. Only One Scorecard for Generics & QSE’s

- QSE’s must comply with all 5 elements, and

- Measured against the same criteria as Generics. (?)


6. Empowering Supplier

- Replaces ‘ value added supplier’.

- Must be an empowering supplier in order for BEE certificate to recognised.

- Requirements: must be a “good citizen” and comply with “all regulations”,

and meet new criteria. (?)

7. Exemption from Compliance

- Black Owned QSE’s/EME’s have automatic L2 or L1 recognition.

- Do not need to have be measured against the Scorecard. (?)

8. Three Priority Elements

- Ownership (net value), Skills Development, Enterprise & Supplier Development.

- Must obtain a 40% sub-minimum score, or downgrade a Level. (?)

9. Definition of “Black”

- Ownership and Top Management: as per present (Coloured, Indian, African).

- Senior/Middle/Junior: as per new Formula - each group measured separately

and pro-rated to economically active population demographics. (?)


10. Voluntary or Compulsory?

- The amended Codes and B-BBEE Act do not impose a legal obligation to comply.

- But… the amended Act does impose an absolute duty on Government & public

entities to incorporate the Codes in tender policies, and in the issuing licences.

UNCLEAR / UNRESOLVED ISSUES

1. Measured Period (Statement 000, clause 2.3)

- Financial year-end, or any 12 month period?

- All elements measured in same period, or choice of splitting, ie, Ownership/MC at date

of on site, other 3 in financial period? (200, 3.2)

2. Transitional Period (000, 10.4))

- Will measurement post 11/10/14 apply to financial periods ending after this date,

or to all verification conducted regardless of financial/measurement period?

3. QSE Scorecard (000, 3.2.2)

- Is there to be a separate scorecard for QSE’s? Is Clause 5.2 trumped by 5.3 (Statement 000)?

- Are Black owned QSE’s to be measured against the 5 scorecard elements?

4. Priority Elements (000, 3.3.3)

- Are Generics downgraded up to 3 times, and QSE’s 2 times, or once only?

NEW THRESHOLDS

• NB: Sector Codes: as per existing thresholds, until amended by

the Sector Councils.

10

NEW CONTRIBUTOR LEVELS

LEVEL RECOGNITION % CURRENT NEW

1 135% > 100 > 100

2 125 > 85 < 100 > 95 < 100

3 110 > 75 < 85 > 90 < 95

4 100 > 65 < 75 > 80 < 90

5 80 > 55 < 65 > 75 < 80

6 60 > 45 < 55 > 70 < 75

7 50 > 40 < 45 > 55 < 70

8 10 > 30 < 40 > 40 < 55

Non-Contributor

0 < 30 < 40

EXEMPTED MICRO-ENTERPRISES (EME)

• 100% Black-owned = automatic Level 1 Contributor to B-BBEE

• > 51% Black-owned = Level 2

• Other EME’s = Level 4

Documentary requirement: Sworn Affidavit confirming:

- Total annual Revenue is < R10 million.

- Percentage Black (as defined) Ownership.

12

QUALIFYING SMALL ENTERPRISES (QSE)

• 100% Black-owned = automatic Level 1 Contributor to B-BBEE

• > 51% Black-owned = Level 2

Documentary requirement: Sworn Affidavit confirming:

- Total annual Revenue is < R10 million.

- Percentage Black (as defined) Ownership.

HOWEVER: to qualify as an ‘Empowered Supplier’, QSE’s must achieve additional criteria.

BUT: to be clarified: “A QSE must comply with all the elements of B-BBEE for the

purposes of measurement” (emphasis added).

13

SCORECARD POINTS

Element Generic QSE

Ownership * 25

Management Control 19

Skills Development * 20 + 5

Enterprise & Supplier Development * 40 + 4

Socio-Economic Development 5

TOTAL POINTS 109 + 9 Same ?

* ‘Priority Elements’

14

PRIORITY ELEMENTS: 94 of the 118 Scorecard points

‘DISCOUNTING PRINCIPLE’: Must obtain a minimum score of 40% or be downgraded level/s.

1. OWNERSHIP

- Only applies to the Net Value* calculation (not to the other sub-categories).

(* Net Value: measures the debt free portion of Black ownership, using a formula

based on a time-based graduation factor.)

2. SKILLS DEVELOPMENT

- Applies to the total score for the element is required (not each of the sub-categories).

3. ENTERPRISE & SUPPLIER DEVELOPMENT

- Applies to each of the three sub-elements (not the total score).

“ DISCOUNTING PRINCIPLE”:

• GENERIC: All three elements.

• QSE: Two of the three elements - Ownership, plus one other.

Note: Even if score below the minimum, and downgrading occurs, the actual score obtained

is still recognised.

15

CLARITY REQUIRED

Application of “Discounting Principle”:

- Does the downgrade apply each time the measured entity fails to obtain the

minimum requirement?

- Or, does the ME downgrade only once even if scores below the minimum in more

than one element?

ELEMENT: OWNERSHIP

MEASUREMENT CATEGORYPOINTS:Current

TARGETS:Current

POINTS:New

TARGETS:New

Exercisable Voting Rights in the hands of Black people

3 25%+1 4 25%+1

Voting rights: Black Women 2 10% 2 10%

Economic Interest: Black people 4 25% 4 25%

Economic Interest: Black Women 2 10% 2 10%

Economic Interest: Black ESOP’s, Ownership schemes, Co-ops

1 2.5% 3 3%

Bonus Points:Economic Interest: New EntrantsESOP, Ownership scheme, Co-op

3 10% 2 2%

Realisation/ Net value 8 8 Same Formula

HIGHLIGHTS: OWNERSHIP

• Increased weighting: from present 23 points to 25 points.

• A ‘Priority Element’: must obtain at least 40% of the Net Value targets, if not then downgrade 1 level.

(NV example. Graduation formula: In Year 1, 10% of value of shares must be fully owned.

So, if amount of shares purchased is 25%, then 2.5% must have been repaid by end of yr. 1)

• If the actual score obtained is below the threshold, then will still score whatever points are achieved.

• ‘New Entrants’: increase from R20 million to R50 million, and incorporated into the main points.

• Black family owned trusts allow the Trustees to exercise discretion over beneficiaries, and the proportion and distribution of their entitlements to benefits.

ELEMENT: MANAGEMENT CONTROL


TARGETS:Current

POINTS:New

TARGETS:New

Board Participation: ARG

Exercisable Voting Rights of Black Board members as % total 3 50% 2 50%

Voting rights: Black Female - - 1 25%

Black Exec. Directors as a % of total 2 50% 2 50%

Black Female as % of total - - 1 25%

Executive Management: ARG

Black Exec. Management as % total - - 2 60%

Black Female as % total - - 1 30%

Black Senior Top/ Other Top/ Independent non-Exec 3 / 2 /1 40% - -

ELEMENT: MANAGEMENT CONTROL - continued


TARGETS:Current

POINTS:New

TARGETS:New

Senior Management: (ARG)

Black employees at Senior Management as % total 5 60% 2 60%

Black Female employees as % total - - 1 30%

Middle Management: (ARG)

Black employees 4 75% 2 75%

Black Female employees - - 1 38%

Junior Management: (ARG)

Black employees 4 80% 1 88%

Black Female employees - - 1 44%

Black Disabled Employees as % ee’s 2 3% 2 2%

Bonus Points for EAP targets 3 - -

HIGHLIGHTS: MANAGEMENT CONTROL

• Pre-requirement: to be measured must comply with the Employment Equity Act. (000,3.4)

• Not a Priority Element, but a minimum (40%) threshold required to score any points.

• Measurement period: “ must use the current payroll data” (200, 3.2)

• Compliance targets based on the EAP demographic representation, and are calculated separately for African male/female, Indian, male/female, Coloured male/female. (200, Annex 200A)

• ARG (Adjusted Recognition for Gender) calculation removed: Black females measured separately.

• Senior and Other Top Management combined into one category - ‘Other Executive Management’: points reduced from 5 to 3.

• If no distinction between Other Exec Management and Senior Management, then can measure as one category – 6 points.

• Total points for old Employment Equity reduced from 18 to 8:- Senior Management reduced: to 2 from 5.- Middle Management/Professionally Qualified reduced: to 2 from 4.

- Junior Management/Technically Qualified reduced: to 2 from 4.- Bonus points for EAP targets removed: to 0 from 3- Disabled Employees the same: 2 stays 2.


• Employment Equity reporting requirement (000, 3.4)

- Does this apply to only + 50 employees, or also to above industry (Revenue) thresholds?

• Is demographic representation National or Provincial EAP? (200/300, Annex A):

- Statement 200, clause 2.1 says compliance targets are “ based on the overall

demographic representation of black people”.

- Black “people”: presumably means economically active?

• Middle & Junior Management: Can these be collapsed into one level if there is no distinction between these 2 levels?

CALCULATING COMPLIANCE - Annexure 200C

AM + CM + IM + AF + CF + IFA = C C C C C C

6

A : Score for each Occupational category/ level.

AM, etc.: % employees in ‘Measured Category’ that are African Males, etc.

C : Target for each Measured Category.

ECONOMICALLY ACTIVE POPULATION (EAP)

APPLICATION:

NATIONAL: Measured entity has a national footprint, physical locations in more than one

province.

PROVINCIAL: ME has presence in one province only.

CALCULATING COMPLIANCE

AM + CM + IM + AF + CF + IF

A = C C C C C C6

EXAMPLE:

% Total: 1/11 = 9.1; 0/11 = 0; 3/11 = 27.3; 2/11 = 18.2; 1/11 = 9.1; 1/11 = 9.1; 2/11 = 18.2; 1/11 = 9.1

% EAP: 9.1 = 22.6; 0 = 0; 27.3 = 6.5; 18.2 = 3.8; 9.1 = 23.6; 9.1 = 0.6 ; 18.2 = 4.4; 9.1 = 3.2

42.4 0.6 6.5 3.8 38.5 0.6 4.4 3.2

Calculation: Black 64.7 / 6 = 10.8 / 75 x 2 = 0.29 0.66 points (Old Codes: 3.88 points)

B/W 42.5 / 3 = 14.2 / 38 x 1 = 0.37

(Alternative? EAP % to be proportionate to target)

AM CM IM WM AF CF IF WF Total

Middle Managers 1 0 3 2 1 1 2 1 11

ELEMENT: SKILLS DEVELOPMENT


TARGETS:Current

POINTS:New

TARGETS:New

Expenditure on Learning Programmes in LPM for Black people, as % of LeviableAmount

(ARG)6 3% 8 6%

Expenditure on Learning Programmes in LPM for Black Disabled employees, as % of Leviable Amount

3 0.3% 4 0.3%

No. of Black people on Learnerships, Apprenticeships, Internships as % total employees

6 5% 4 2.5%

No. of unemployed Black people on Learnerships, Apprenticeships, Intern. In Above - 4 2.5%

Bonus: No. of Black people absorbed by the Measured entity/industry at the end of the Learnership programme

- - 5 100%

HIGHLIGHTS: SKILLS DEVELOPMENT

• As a ‘Priority element’ must obtain overall score of 40%, or drop 1 level.

• Substantial increase in obtainable points - from 15 to 24:

- However, overall spend on SD increases to 6% from 3%.- But, there is recognition for training of unemployed people (previously under SED).

• No ARG, and no separate measurement of Black females.

• Provision for ‘Internships’ on top of Learnerships & Apprenticeships.

• Increase in points for Learners/Apprentices/Interns from 5 to 8, same target (5%).

• Salaries of Learners/Appies/Interns can be included.

• Limited recognition (15% of total spend) for in-house/informal training, and now also for short courses, conferences, travel/accommodation/catering.

• Mandatory training not recognisable.

• No enhanced (x 1.25) recognition of ABET training.

• 5 points for ‘absorbing’ (employing) Learners after completed training, or for continuing funding further education and training.


Unemployed person (300, 2.1.2.2)

- Who qualifies as unemployed? (BCEA: Over 15 years and not subject to schooling)

Absorption (300, 2.1.3)

- How is Learner absorption measured? Within a certain period of concluding the programme, eg, 3, 6, 12 months? And, can it carry over to next measured period?

ELEMENT: ENTERPRISE & SUPPLIER DEVELOPMENT


TARGETS:Current

POINTS:New

TARGETS:New

1. Preferential Procurement

Spend from all BEE certificated Empowering Suppliers as % total measurable spend

12 70% 5 80%

QSE 3 15% 3 15%

EME In above 4 15%

51% + Black owned 3 12% 9 40%

30% + Black Woman owned 2 8% 4 12%

Black Designated Groups - - 2 2%

‘EMPOWERING SUPPLIER’ (replaces Value Added Supplier)

• Applies to both Generics and QSE’s (EME’s automatically qualify)

Qualifying Criteria:

1. Must be “a good South African citizen entity”.

2. “Comply with all regulatory requirements of the country”.

3. Meet the following*:

- 25% of cost of sales (excl. labour & depreciation) to be locally procured.

- 50% of jobs created are for Black people.

- 25% transformation of raw material/beneficiation.

- 12 days a year on assisting Black EME/QSE to increase operational or

financial capacity.

* Generic: 3 of the 4 criteria

QSE: 1 of the 4

Effect of not being an Empowering Supplier: Clients will get No Recognition of their spend under 2.1 Preferential Procurement: a total of 25 points.

30

ELEMENT: ENTERPRISE & SUPPLIER DEVELOPMENT – contd.


TARGETS:Current

POINTS:New

TARGETS:New

2. Enterprise & Supplier Development:

Annual value of all Supplier Development contributions, as a % of target (NPAT) - - 10 2%

Annual value of all Enterprise Development contributions, % target 15 3% 5 1%

Bonus points:

New venture created (to become a value-adding supplier)

- - 1 EDSD Plan

Graduation from ED to SD beneficiary - -1 “

Jobs created by supported Supplier from ED to SD

- - 1 “

HIGHLIGHTS: ENTERPRISE & SUPPLIER DEVELOPMENT

• ‘Priority element’: 40% minimum compliance target, or downgrade level/s.

• If below the compliance target, can still score points .

• No more cumulative recognition of contributions, measured year-on-year.

Preferential Procurement:

- All suppliers are required to be ‘Empowering Suppliers’ in order to qualify for

measurement on this element.

- Substantial increase in recognition for procurement from QSE/EME (3 to 7 points), and

from Black and Black Woman-owned suppliers (5 to 13). But, much higher targets .

- Qualifying imported goods and services may be excluded - but have an ‘ Enterprise &

Supplier Development Plan’ to replace imported with local goods and services.

Enterprise & Supplier Development:

- Enterprise Development and Supplier Development measured and awarded points

separately.

HIGHLIGHTS: ENTERPRISE & SUPPLIER DEVELOPMENT - contd.

Enterprise & Supplier Development:

- Supplier development only applies to Black owned QSE/EME’s, ie, ED Cat. B is removed.

- Must have an “Enterprise and Supplier Development Plan”: written objectives, priority

interventions, key performance indicators, implementation plan with milestones.

- Enhanced recognition for procurement from :

- Supplier Development beneficiaries where there is a 3 year + contract in place ( x 1.2).

- Black owned QSE/EME’s where there is a 3 year + contract ( x 1.2).

- 1st time (Black owned) suppliers ( x 1.2).

- Bonus points (3) for initiatives resulting in:

- the promote/creation of new businesses;

- graduating from an ED to SD supplier;

- the creation of jobs.


Empowering Supplier (400)

- What is a ‘ good SA citizen’, and to “ comply with all regulatory requirements? (3.3)

- Clause 3.3c only applies to manufacturing concerns - can non-manufacturing Generics

elect to be measured against 2 of the other 3 options?

Procurement (400, 3.6)

- Does ‘ vice versa” mean one cannot measure goods/services procured from ED and SD

beneficiaries?

Enterprise Development and Supplier Development (400, scorecard 2.4.2)

- How to establish that jobs have been created directly due to these contributions?

ELEMENT: SOCIO-ECONOMIC DEVELOPMENT


TARGETS:Current

POINTS:New

TARGETS:New

Annual value of all SED contributions as a % of NPAT 5 1% 5 1%

HIGHLIGHTS: SOCIO-ECONOMIC DEVELOPMENT

• No more cumulative recognition of contributions, measured year-on-year.

• To obtain the maximum points, 75% of the beneficiaries must be Black.

Focus of contributions:

- Contributions are “with the specific objective of facilitating income generating

activities for targeted beneficiaries” (500, 3.2.1).

- But, also qualifying beneficiaries are the same as before, ie, see the wider

interpretation/ application (in Definitions).

UNCLEAR / UNRESOLVED ISSUE

Socio-economic Development (500, 3.2.1)

- Appears to limit/restrict qualifying beneficiaries to only “facilitating income generating activities”, and is in contradiction with Definitions (which is the wider, existing application).

(Perhaps the limitation is aimed at sector initiatives, as in the 2012 Drafts, the following was stated: “Initiatives that are sector specific and facilitate income generating activities for beneficiaries.”

This was amplified with examples: improvement of capacity to work, including self-employment, by provision of training/mentoring to improve employability.

COMPARISON NEW vs. OLD CODES

ELEMENTOLD

POINTSNEW

POINTSCHANGE TARGETS

Ownership 23 25 + 2 Same

Management Control /

Employment Equity

11

18

9

10

- 2

- 8

Small increase

% Bl. Snr. & Mid. Mgt. = Same % Jnr. Mgt. = Small increase

Skills Development 15 25 + 10 Total Spend: DoubleDisabled spend: Same

No. Learnerships: Same

Preferential Procurement /

Enterprise Development /

Supplier Development

20

15

-

27

7

10

+ 7

- 8

+ 10

Higher, especially BO & BWO

Lower

New sub-category

Socio-Economic Development 5 5 0 Same

RE-FOCUS UNDER NEW CODES

ELEMENTNEW

POINTSCHANGE NEW FOCUS

Ownership 25 + 2 Net Value aligned to graduation formula

Management Control

(Employment Equity)

9

10

- 2

- 8

Increase Black representation

Increase Senior/ Mid representation

Skills Development 25 + 10 - Learner/Apprentice/Internships- Absorption

Preferential Procurement /

Enterprise Development /

Supplier Development

27

7

10

+ 7

- 8

+ 10

- 50% + Black/ 30% + Black Women - ‘Empowering Suppliers

Implement - link to Supplier Dev.

Implement!

Socio-EconomicDevelopment

5 0 Maximise

THANK YOU

Please contact us for more information on our new service to assist clients:

• Conducting a comparative analysis of your Scorecard.

• Measuring the relative performance between the current and the amended Codes.

• Generic recommendations on key focus areas.

Remember: you have to make the necessary changes during the transition period.

amended b-bbee codes of good practice · 2014. 1. 27. · - national skills development strategy...

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