BEE is customer driven:
BEE trickles down from government tenders to suppliers to their suppliers. The reality is that BEE scorecards matter mostly to your customers. Your scorecard determines how much ‘recognition’ your customers get from trading with you, which means that they are incentivised to spend more with companies who have higher BEE scores.
Different level of BEE (achieved through summing all the scorecard points) result in different procurement recognition levels as per the table below:
BB-BEE status & procurement recognition level
|B-BBEE status||BEE Scorecard Points||Recognition level|
What this means is that a business scoring 80 points (out of 109) counts as 100% BEE. i.e. R1 spent on that business counts as R1 of BEE procurement spend. Companies that achieve level 1 count far more (135% recognition of spend) meaning that big customer who buys from that business can afford to spend less (elsewhere) on BEE and still achieve the BEE procurement points it needs. Similarly, a company with only 40 points (level 8) is only worth 10c per Rand of spend. i.e. they may as well be non-compliant.
For most industries, a level 4 is the start at which BEE becomes ‘competitive’. This implies that at least 80 scorecard points must be earned.
BEE points are achieved through the scorecard:
BEE compliance is measured against the BEE scorecard. The scorecard contains different elements, some of which are ‘priority’ elements where sub-minimums apply and varies by company size and industry sector. Reporting requirements (affidavit or specialist audit) also vary by company size. Adding to this, there is the YES (Youth Employment Scheme) which can raise your scorecard by 2 levels. Lastly, the scorecards and legislation around them are subject to change (most recent changes published May 31 2019) making for moving targets. This makes it all a bit confusing, which has created opportunities for a range of specialist BEE advisors and solution providers.
The Generic Scorecard:
In order to keep things simple, in this article we focus only on the generic scorecard i.e. the scorecard for all players not covered by a specific industry sector scorecard (and from which industry scorecards are based). This is not to be confused with ‘Generic’ size companies i.e. those with sales >R50M.
BEE compliance is measured across the following scorecard elements:
Generic BEE scorecard
|Enterprise & Supplier development||40||4|
Given the bonus points, a business can score a maximum of 118 out of 109 points on this scorecard. It’s easy to get confused.
Treatment of different sized companies:
BEE scorecards are broken down into 3 size categories:
- EMEs (Emerging Micro Entreprises). Turnover <R10M
- QSEs (Qualifiying Small Enterprises). Turnover R10M to R50M
- Generic. Turnover R50M+
The main points here are that every EME is treated as an automatic level 4 irrespective of its actual scorecard until it hits the R10M turnover threshold. i.e. a small white company still gets 100% procurement recognition and can effectively ignore the BEE scorecard until it’s firmly on a growth path. However, a 51% black-owned (on a flow-through basis only) company gets elevated to a Level 2, and 100% black-owned to Level 1 – making them far more attractive to customers. The scorecard is self-administered and confirmed by written affidavit. Lying on this affidavit is a criminal offence.
QSE’s are measured against the entire scorecard, and they earn points by sorting out their ownership, management control, spending on preferential procurement, spending on skills development and socio-economic development. They too submit proof via affidavit and no formal audit is required. Again, special compensation exists for QSEs that are 51% black-owned (on a flow-through basis only) as they can become Level 2 without the need to invest/spend anything else on the BEE scorecard. Likewise for 100%/Level 1.
Generic companies are measured against the entire scorecard, get no special dispensation for 51% direct black ownership, and must be audited independently. It’s at the generic level where empowerment really hits the road.
Note that the levels for QSE/Generic vary by industry charter.
Ownership is worthy of special mention:
Since ownership alone counts for 25 points (of 109), it implies that without ownership the best one can achieve is 84 points i.e. a Level 4. However, ownership is a priority element – meaning that unless a sub-minimum is achieved in ownership then the BEE score achieved through other scorecard elements drops a Level. i.e. without any ownership points, the best a company can achieve is Level 5.
While the target in the ownership scorecard is 25.1% (both in terms of voting rights and economic interest) and 25 points are available for this, that changes when one looks at the Enterprise and Supplier Development scorecard from your customers’ point of view.
The Enterprise and Supplier Development scorecard is split into Preferential procurement (25 points can be earned by procuring from ’empowering suppliers’); 10 points can be earned for supplier development contributions; and 5 points for Enterprise Development. While a company need only be 25.1% BEE owned to score full points on the ownership scorecard, most companies need to procure from 51% BEE owned companies to get the points there. The result is that the real ownership target for most companies sits at 51% because that’s the level at which your customers get the most points on their scorecards.
Note that no matter what your BEE score, unless you’re 51% BEE owned you won’t get the preferential procurement points on your customers’ scorecards.
Given this brief introduction to the generic scorecard, we now need to understand how best to achieve those BEE levels. This is the focus of our next article.
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