Framework for measurement of BBBEE (Code 000)

Code 000 provides an outline of the framework in which the measurement of BBBEE must transpire, as well as a means to decipher significant principles concerning BBBEE and its application. Code 003 allows for legally binding sector charters that permit sectors to take into account their distinctive industry-specific characteristics when executing BEE. The most important generic measurement principles that are provided in code 003 include:

• Measurement of BEE principles based on the actual level of compliance at a specific date;

• All claims with regard to BEE by a measured enterprise must be supported by evidence;

• Any enterprise that is found guilty of misrepresenting its BEE status will be stripped of any BEE points and its whole scorecard may be disqualified; and

• Any incidences of fronting or circumvention of the principles of the BBBEE Act should be reported to the minister of the DTI (SA, DTI, 2005b:12-13).

Government bodies

First tier economic beneficiaries

Other economic participants

Licensing Procurement Financing PPPs

Procurement Financing PPPs

Procurement

PPPs

Financing

Monitoring

Other economic participants

Table 3.5 provides an overview of the impediments, implications and solutions provided by the BBBEE Codes of Good Practice.

Table 3.5: Impediments, implications and solutions provided by the Codes of Good Practice for BBBEE may have received different BEE recognition by different state departments and verification agencies

Sectors are often locked in debates concerning particular aspects of BEE, thus delaying the implementation of BBBEE initiatives diluted or negated the impact of the strategy and principles of the BEE Act

Specification of provisos for the

Confusion and delays in BEE execution resulted as entities were uncertain about the status and application of charters

Several BEE deals boasted high levels of Black ownership, but the actual economic benefits accruing to Black shareholders proved to be drastically lower

Provision of a balanced ownership scorecard, which measures voting rights and net economic interest in the hands of Black individuals

Fronting owing to lack of guidelines

Little understanding of BEE elements often resulted in fronting and hence fronting was not easy to detect

Clear stipulation of definitions, principles and processes to implement proper BEE initiatives

Lack of transformation

in management levels Attempts at transformation within entities failed, hence there was a lack of representation of Black individuals at management level

Skills spend may not have been aligned to a specific learning outcome

A small number of Black individuals have profited

from BEE The Codes promote BBBEE by

Enterprise development is a new concept specific to BBBEE, hence there is little documentation on what constitutes enterprise development

A Black majority were excluded from the mainstream economy

Small businesses were inclined to pay no attention to BEE or resorted to fronting in order to preserve customers for business purposes

Entities with turnovers of less than R5 million are exempted from BBBEE provisos and QSEs only need to comply with four BBBEE elements (Adapted from SA. DTI, 2007a:6-7)

The BBBEE Codes of Good Practice have cleared up much confusion surrounding BEE and have gone a long way to overcome several issues, but this BEE study will show that some of the impediments in Table 3.2 remain problematic for advertising agencies in the Cape Peninsula, especially in terms of the delays owing to legislate interpretations, fronting and a lack of transformation at management level. Several others will be raised in the “Challenges and benefits of BEE”, “Recent criticism and praise levelled at BEE” and “Discussion of results” sections.

As mentioned previously, statement 000 provides an overview of what each BBBEE element measures and the score that is allocated via the BBBEE’s generic scorecard. An enterprise’s score is calculated out of 100 BEE contribution points, which will establish its BEE status and contribution level. Refer to Table 3.6 to view BBBEE contribution and procurement recognition levels.

Table 3.6: BBBEE procurement recognition levels

Contribution level (BEE rating) Qualification Procurement recognition level Level one contributor (AAA+) ≥100 points on the scorecard 135%

Level two contributor (AAA) ≥85 but <100 points on the scorecard 125%

Level three contributor (AA) ≥75 but <85 points on the scorecard 110%

Level four contributor (A) ≥65 but <75 points on the scorecard 100%

Level five contributor (BBB) ≥55 but <65 points on the scorecard 80%

Level six contributor (BB) ≥45 but <55 points on the scorecard 60%

Level seven contributor (B) ≥40 but <45 points on the scorecard 50%

Level eight contributor (C) ≥30 but <40 points on the scorecard 10%

Non-compliant contributor (D) <30 points on the scorecard 0%

(SA. DTI, 2007a:16 and SA, 2008a:10)

“Level One” is the maximum contribution level for entities that achieve over 100 points, while the lowest contribution level is eight (entities achieve 30 points to 40 points) and those enterprises that score less than 30 points receive a “non-compliant contributor” status. The higher the BBBEE score, the greater recognition another enterprise will receive for conducting business with this enterprise owing to the BEE preferential procurement component. For example, if an enterprise conducts business with a level three contributor, they can claim R1.10 for every R1.00 spent with this entity as BBBEE procurement spend. Whereas, if the enterprise were to conduct business with a Level Six Contributor, the BBBEE procurement spend would decrease to 60 cents for every R1.00 spent. Therefore, enterprises prefer to conduct business and to procure from entities with a higher BEE status, as this strengthens their own BEE position (SA. DTI, 2007a:16). The aforementioned BEE procurement recognition process is identical in the MAC Transformation Charter.

BBBEE Codes of Good Practice Act (Section 9(1)): Code 000 (statement 000) Paragraph 10 advocates that BEE data and suppliers should be verified by accredited BEE verification agencies in order to validate such data. A public entity, the South African National Accreditation System (SANAS), has been commissioned to accredit the verification agencies and to develop the accreditation standards (SA. DTI, 2007b:11-12). Furthermore, the transitional period for the implementation of BEE is over, since it expired on 31 August 2008. Companies were allowed to assess ownership and management control on more narrow elements in their BBBEE scores, but are now required to use the full generic and QSE BBBEE scorecards (Stewart, 2008a:4).