Construction B-BBEE Sector Code sets new targets for Supplier Development
The New Construction Sector B-BBEE Code, which came into effect on 21 November 2017, features a highly prescriptive “Preferential Procurement and Supplier Development Scorecard”, which contains two categories other than the one for procurement, focusing on “Supplier Development Programmes” and “Supplier Development Contributions” respectively.
It must also be noted that “Preferential Procurement and Supplier Development” is categorised as a “Priority Element” with a “sub-minimum of 40% of the total weighting points (excluding bonus points) of each of the three broad categories, namely ‘Preferential Procurement’, ‘Supplier Development Programmes’ and ‘Supplier Development Contributions.”
The new Code could also have a negative impact on the actual scores of companies going for verification in the near future since the “Supplier Development Programmes and Supplier Development Contributions” categories jointly allocate 15 points for “Contractors” and 8 points for “Built Environment Professionals (BEP)” under stringent compliance requirements.
Failing to score sufficient points under these two categories, could lead to companies being “discounted” between 1 and 2 Contributor Levels with a further potential “discounted level” for not achieving the “sub-minimum of 40%” for this Priority Element. Any “discounted level” may severely impact on its ability to do business with both the private and public sectors.
Firstly, the “Supplier Development Programmes” category has different weightings and targets subject to whether your business is classified as a “Contractor” or that of ‘Build Environment Professionals (BEP)”, affording a total of 5 and 4 weighting points respectively.
Further, the weighting points will only be afforded if companies implement “Compliant Supplier and Contractor Development Programmes” with “Qualified Beneficiaries” to advance the latter’s capacity through “structured co-operation and assistance.”
The directive for this “Programme” is very specific in that a company may not “hold more than 20%” equity, as per a specific calculation under the normal “flow-through principle”, which relates to the “rights of ownership”, in the “Qualifying Beneficiary”.
The beneficiary must also have no less than three permanent people in its employ, possess a valid tax clearance certificate and have documentary proof of its required and valid B-BBEE status at the time of “entering into the agreement”, to become such a “Qualifying Beneficiary” under this “Programme.”
Further, documentary proof must also be supplied inclusive of a “written agreement”, a “needs analysis” as well as a “Supplier Development Plan” as signed between both the company and the beneficiary.
A further document is required, as signed by both parties, which must also make specific reference to the period for which the support would be rendered for, a set of objectives containing at “least three needs” as identified per the “needs analysis” from “at least two areas that were identified for development.”
The “Programme” directives are very specific in its explanation that “a developmental need is a specific requirement to be implemented under a development area, and this specific need requires defined objectives”.
The Scorecard further provides and extensive list of “development areas” covering management, administration, training in tendering and procurement skills, credit and finance support, marketing, etc.
It also stipulates that the focus should be on the “Priority interventions (activities) to address the objectives identified” and that all the amounts payable under the “Supplier Development Programme” must be paid within the period of verification and “if not, this requirement has not been met”.
It is also required from companies to appoint an “Enterprise Supplier Development Champion”, who is a staff member from either Senior Management or higher up in the company to take responsibility for the implementation and monitoring of the “Supplier Development Programme”. Such a person must have the required skills and experience to fulfill this role as well as having to “complete a portfolio of evidence for verification”.
The required spend calculation under the “Programme”, in the main, is determined by your total annual revenues, the number of “Qualifying Beneficiary Entities” in the “Programme”, their individual “total annual revenues” as well as the “allocated weighting points.”
Secondly, and in addition to the “Supplier Development Programmes” category, the “Preferential Procurement and Supplier Development Scorecard” also prescribes that companies must implement “Qualifying Supplier Development Contributions”.
The first sub-element of this category deals with the general spend of all “Qualifying Supplier Development Contributions” incurred as a percentage of the target, i.e. 3% of NPAT, which will afford companies a maximum of 8 points if they are a “Contractor” and 4 points for a “BEP”. However, it must be noted that only the “Qualifying Contributions” made during the verification period will be considered. Further, all payments must also be made within the period under verification in order to qualify for these target points.
The second sub-element prescribes a 20% spend of the 3% mentioned above for “Qualifying Supplier Development Contributions” made towards “51% Black Women Owned entities”, which will afford a maximum of 2 points for a “Contractor” and 1 point for a “BEP”.
A non-exhaustive list of “Qualifying Supplier Development Contributions” is featured in the Scorecard.
Overall, the demands of the Sector Codes have now placed a bigger administrative burden on entities in the construction sector, inclusive of “Contractors”, “BEPs” and “Construction Material Suppliers” to manage the implementation and reporting of both the “Supplier Development Programmes” and “Supplier Development Contributions” in a very prescriptive manner.
Send your Suppliers on a Tendering Course and claim it as part of your “Supplier Development Contributions”.
Please Note: Your nominees will be part of a public workshop and it’s advisable to contact your B-BBEE Verification Agent to calculate your spend for this “Sub-Element”.
Alternatively, you could host them in an in-house workshop presentation where only they would attend.
Your Staff are also most welcome to attend the Workshop since it covers the key principles of compliant and winning tenders.
For further details contact:
Gerrit Davids | Lead Consultant
TaranisCo Advisory CC
Tel. 011-026 4891
Cell. +27 (0)82 496 1657