In their briefing note on the regulations, National Treasury has indicated that the revised regulations will also apply to public entities that were previously exempt from the old regulations.

One of the main amendments is that organs of state must consider the Broad Based Black Economic Empowerment ("BBBEE") of any entity that submits a tender. As a result, tenders can no longer be awarded based on just one or two elements of BBBEE such as ownership or management control; the overall BBBEE scorecard must be considered.

"Businesses that remain mainly white owned and controlled but who score well on the other elements of the BBBEE scorecard will therefore now be able to compete on a better footing against firms who in the past applied only narrow, based-black economic empowerment through ownership and control without working on the other elements of the scorecards," says Dirk Kotze, tax partner at audit, tax and advisory firm Mazars.

Moreover, businesses that focussed on ownership and control in the past will also now have to work on the other five elements of the scorecard.

The effective date of the regulations is 7 December 2011, and they will apply to all tenders submitted after that date. The regulations require that tenderers must submit a valid BBBEE certificate as part of the tender documents.

Depending on the sector of operation and their turnover level, businesses must undergo a BBBEE verification at least once a year in order to retain their BBBEE certificates. For businesses that qualify as Exempt Micro Enterprises ("EME") due to their low turnover, verification may be as simple as obtaining a letter from their accounting officer or auditor confirming the turnover level achieved and whether that level is below the EME threshold for that sector or below R5 million if the business sector has not yet gazetted its sector scorecard. Businesses that do not qualify as EMEs must engage a duly accredited agency to conduct their verification.

For tenders below R1 million in value, the BBBEE scorecard points will range between 0 and 20 depending on the BBBEE score achieved. The remaining points (maximum 80) will be awarded for other tender requirements such as price, quality, experience, etc. In respect of tenders in excess of R1 million, the BBBEE score is a maximum of 10 with the balance of 90 points being attributed to other factors.

The regulations further provide that no tender points can be awarded to any tenderer if that tenderer indicates that it will subcontract more than 25% of the value of the contract, and the subcontractor cannot produce a BBBEE scorecard of at least the same level as that tenderer, except if the subcontractor is an EME.

"These changes should bring about a more uniform application of BBBEE criteria when tenders or contracts are awarded by public entities. Hopefully, this will also result in more uniformity between the ideals behind BBBEE and the decision-making process surrounding tenders. The regulations should also prevent various fronting practices focussed on ownership, as it will no longer be the only criteria that count."

It is important to note that non-public entities calling for tenders are not obliged to adhere to these regulations and therefore businesses must still consider industry and sector specific requirements when non-public tenders or contracts are called for.

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Issued by: Claire Densham Communications on behalf of: Mazars

Contact Mazars: Dirk Kotze or Noleen Hepburn 021-818-5000; noleen.hepburn@mazars.co.za