Effective 7 December 2011, government departments will be forced to consider compliance to the Codes of Good Practice when evaluating tenders for government business. The publication of the amended Preferential Procurement Regulations, issued in terms of the Preferential Procurement Policy Framework Act (PPPFA), has been eagerly anticipated following the circulation of draft amendments for public comment in August 2009. The new regulations are the last component in executing B-BBEE as contemplated in the Broad Based Black Economic Empowerment Act and require that all tenders be accompanied by a valid B-BBEE certificate, issued by an accredited verification organisation.
Wade van Rooyen of iquad verification services discusses the changes in this month’s SmartProcurement.
The regulations require organs of state, public entities (major and minor, national and provincial), and government business enterprises (major and minor, national and provincial) to consider the submitted B-BBEE status of bidding organisations in awarding contracts for government business. Currently, and until 7 December 2011, government applies a set of criteria unrelated to the B-BBEE codes of good practice when evaluating bids on tenders.
The new process of evaluation retains the principle of evaluating tenders on the basis of functionality local content, and an 80/20 or 90/10 approach to awarding points for price and ‘HDI status’. The previous ‘HDI status’ is however replaced with a requirement to consider the tenderers B-BBEE compliance level.
Tenders are evaluated in two stages, first on Functionality and Local Content, then on Price and B-BBEE Status. Each invitation to tender is required to stipulate the criteria for which functionality and local content will be determined. If a tender meets the requirements for functionality and local content (Stage 1), then points are allocated for achievement in price and B-BBEE (Stage 2), with price counting 80% and B-BBEE compliance 20% of the Stage 2 points allocation. For tenders above R1 000 000, price counts 90% and B-BBEE 10%.
Price points are allocated by considering the differential between the tender price and the lowest tender price submitted. The lower the price the more points are allocated to the tender.
B-BBEE points are awarded on the basis of the B-BBEE Status Level of the bidder.
In the event that two or more tenders have scored equal points, the successful tender must be the one scoring the highest number of preference points for B-BBEE.
A bidding organisation must submit its original (or certified copy), valid B-BBEE status level verification certificate substantiating its B-BBEE rating. Exempt Micro Enterprises (EME’s) must submit a certificate issued by a registered auditor, accounting officer, or an accredited verification agency.
The validity of B-BBEE certificates will be determined by its compliance with the requirements of instructions and guidelines issued by the National Treasury and any notices published by the Department of Trade and Industry in the Government Gazette.
Fraud / Fronting
Where the claimed B-BBEE status level has been found to be claimed or obtained fraudulently, the organ of state may disqualify the tender, claim costs and damages, cancel the contract, restrict future business, and institute criminal proceedings against the bidder.
Joint Ventures and Consortiums (JVs collectively)
Incorporated JVs must submit the B-BBEE status of the entity. Unincorporated JVs must submit a consolidated B-BBEE scorecard as if they were a group structure for every separate tender.
Limitations are placed on subcontracting of services, where the value of subcontracted services exceeds 25% of the contract. In such instances, the organ of state may not award points for B-BBEE status if the subcontractor does not qualify for at least the same points as the principal bidder. The organ of state may also not award the contract if the subcontractor does not have an equal or higher B-BBEE status level than the principal bidder.
These limitations do not apply where the subcontractor is an EME that has the capability and ability to execute the subcontract.
It follows that the subcontractor would also have to produce a B-BBEE certificate to facilitate evaluation of this criteria.
Subcontracting to EME’s is, therefore, being encouraged, consistent with the procurement objectives in the Codes of Good Practice.
Get your house in order
There can be no more excuses after 7 Dec 2011. There’s never been a more important time to obtain your B-BBEE certificate.