Tendering for government contracts will once again undergo a seismic shift when Cabinet finally signs off on the long-awaited Procurement Bill, which will overhaul much of the current system of public sector procurement.
President Cyril Ramaphosa, in his SONA, announced that, “The Procurement Bill will soon be presented to Parliament as part of our efforts to empower black and emerging businesses and advance radical economic transformation.”
He also pointed out that the aim of the Bill is, “To create a larger market for small businesses, we plan to designate 1 000 locally produced products that must be procured from SMMEs.”
It must be noted, that the President did not refer to Exempted Micro Enterprises (EMEs) or Qualified Small Enterprises (QSEs), which are categories relevant to classification in the B-BBEE arena.
The adoption of the Bill will create two distinctive challenges for those looking to do business with government.
Firstly, the current list of designated sectors and included products will increase from less than 100 to more than a 1000 items, which will stipulate a minimum percentage of local production and content respectively for these products in government tenders.
Secondly, suppliers who are not classified as Small, Medium and Micro-Enterprises (SMMEs) will not “Pre-Qualify” to submit tenders for any of these 1000 products listed in the applicable designations.
This would leave these types of companies with no choice but to enter into Joint Venture (JV) agreements with SMMEs, who will “Pre-Qualify” to submit tenders under this new regulation.
Larger companies will still have the choice to either incorporate a JV with an SMME as a legal entity, for which a B-BBEE certificate will have to be obtained in the name of partnership per se.
However, on the other hand, partners to the JV could also consider to form an “Unincorporated” entity to jointly submit a tender, and they would be required to obtain a “Consolidated B-BBEE Certificate” for purposes of showing their credentials to “Pre-Qualify”.
Where the partners opt to use an Unincorporated JV, their respective individual B-BBEE scores will be weighted according to their proportionate share in the joint venture and added together for a combined score out of 100.
However, the JV must also qualify to be classified as an SMME, especially where it’s already in existence and based on the total staff employed as well as the annual turnover respectively.
Also, it must be noted, that JV B-BBEE Certificates are only valid for 12 months and can only be used for a specific tender.