Don't ignore the amended BEE Codes

November 23, 2016
For many companies, focus is placed on the B-BBEE Codes of Good Practice, in essence the measurement tool for B-BBEE. The Codes of Good Practice (COGP) set out the targets and weightings for all the elements of the B-BBEE Scorecard and provides for the final B-BBEE Score and Status for the company. Therefore, it is not surprising that little reference is made to the actual B-BBEE Act, the overarching legislation which governs B-BBEE in the country, says Brigitte Brun of AQRate Verification Services.

The B-BBEE Act was amended in 2015 with some important considerations which companies cannot afford to ignore, says Brun.

1. Firstly one needs to recognise that the B-BBEE Act has a trumping provision which states:

"In the event of any conflict between this Act and any other law in force immediately prior to the date of commencement of the Broad-Based Black Economic Empowerment Amendment Act, 2013, this Act prevails if the conflict specifically relates to a matter dealt with in this Act."

This places the B-BBEE Act as the second most important Act in the Country after the Constitution.

2. The B-BBEE Act defines a 'fronting practice' as:

"means a transaction, arrangement or other act or conduct that directly or indirectly undermines or frustrates the achievement of the objectives of this Act or the implementation of any of the provisions of this Act".

It continues to give clear examples of what constitutes fronting practices. Of importance is to note the penalties for fronting, which include:

  • Cancellation of contract with any organ of state or public entity and prohibition to contract with any organ of state for 10 years if convicted of an offence.
  • 10 years in jail and 10% of turnover, for fronting, providing false information to a B-BBEE Verification Agency or to any organ of state or public entity.
  • 1 year in jail for any B-BBEE verification professional or official of state who becomes aware of a fronting offence and does not report it to an appropriate law enforcement agency.

3. The B-BBEE Act provides for the appointment of a commissioner who will have far-ranging powers, which include:

  • To oversee, supervise and promote adherence with this Act in the interest of the public.
  • To receive complaints relating to broad-based black economic empowerment in accordance with the provisions of this Act.
  • To investigate, either of its own initiative or in response to complaints received, any matter concerning broad-based black economic empowerment.
  • To promote advocacy, access to opportunities and educational programmes and initiatives of broad-based black economic empowerment.
  • To maintain a registry of major broad-based black economic empowerment transactions, above a threshold determined by the Minister by notice in the Gazette.
  • To receive and analyse such reports as may be prescribed concerning broad-based black economic empowerment compliance from organs of state, public entities and private sector enterprises.

4. The B-BBEE Act now also places a compulsory reporting requirement on all organs of state, government departments and public entities as well as all JSE-listed entities and the Sector Education and Training Authorities (SETA) to report on their verified B-BBEE status annually. Subsequently, the draft B-BBEE Regulations were issued which furthermore requires that this report is submitted to the Commission within 30 days of their financial reports being approved.

5. Importantly, the amendments now allow the Minister to:

"permit organs of state or public entities to specify qualification criteria for procurement and other economic activities which exceed those set by the Minister in terms of (the Codes)".

The Minister will need to gazette what these specific qualification criteria will be and the additional criteria will become immediately applicable on the day of the publication of the gazette. Companies will need to remain aware of which organ of state has applied for an additional criteria and be mindful of this in their tendering processes.

Highlighted in this article are some of the important considerations to the Amendments to the B-BBEE Act, but it is highly recommended that companies spend some time reviewing the Act in its totality and not only focus on the Codes of Good Practice.

Some of the expected consequences of the amendments to this act may well be:

  • Increased pressure by organs of states and public entities to reflect a good B-BBEE status, therefore putting more pressure on B-BBEE compliant procurement on the private sector.
  • Increased reporting of suspected B-BBEE misdeeds and fronting to the B-BBEE Commission and more investigations into B-BBEE suspicious activities.
  • Additional B-BBEE criteria to comply with as per individual organs of states.

Ignoring the Amended B-BBEE Act and its consequences is not recommended.

For more information contact Brigitte Brun