Amended B-BBEE Codes of Good Practice
A strategy for Built Environment Professionals
30 July 2014
01
INTRODUCTION
02
BEE IN CONTEXT
BEE in context
34118
11871
924 021 entities
registered for VAT
<R10m
R10-R50m
>R50m
878032
03
LEGISLATION
Preferential Procurement Policy Framework Act
(PPPFA)
7 December 2011
PPFA Points for BEE Level
B-BBEE Level
80/20
90/10
Level 1
20
10
Level 2
18
9
Level 3
16
8
Level 4
12
5
Level 5
8
4
Level 6
6
3
Level 7
4
2
Level 8
2
1
Non-Compliant
0
0
BBBEE Amendment Act
24 January 2014
Section 10: Status of Sector Codes
1.
Every organ of state and public entity must apply relevant code of
good practice in:
–
–
–
–
–
2.
3.
issuing of licenses, concessions
developing and implementing a preferential procurement policy;
determining qualification criteria for the sale of state-owned enterprises;
developing criteria for entering into PPPs
awarding of incentives, grants, and investment schemes in support of broad-based black
economic empowerment.
An enterprise operating in a sector with a S9(1) Code may only be
measured in accordance with that code
An enterprise must report annually on their compliance to the Sector
Council.
Section 1: Fronting Practice
means a transaction, arrangement or conduct that directly or indirectly
undermines or frustrates the achievement of the objectives of this Act;
includes
• black persons discouraged or inhibited from substantially participating in
the core activities;
• economic benefits received as a result of the BEE status do not flow to
black people in the ratio specified;
• legal relationship with a black person to achieve a certain BEE level
without granting commensurate economic benefits expected;
• an agreement with another enterprise to achieve enhanced B-BBEE status
in circumstances in which –
–
–
–
significant limitations on identity of suppliers, service providers, clients or
customers;
maintenance of business operations that are improbable having regard to
resources;
terms and conditions not negotiated at arm’s length on a fair and reasonable
basis;
Section 20: Offences and Penalties
A person is guilty of an offence if that person knowingly
• misrepresents or attempts to misrepresent the B-BBEE status of an
enterprise;
• provides false information to Verification professional / any organ of state.
A BEE Verification professional or any procurement officer or other official of
an organ of state or public entity who becomes aware of fronting and fails to
report is guilty of an offence.
Any person convicted of an offence is liable
• to a fine or imprisonment for a period not exceeding 10 years or both;
• in the case of an enterprise, to a fine of 10% of annual turnover.
Any person and/or entity convicted of an offence shall be banned from
transacting with any public entity, and shall be entered into the National
Treasury register of tender defaulters.
04
NEW BEE CODES
Key principles
•
•
•
•
Substance over form
Compliance measured “at the Date of Measurement”
Any misrepresentation OR attempt = fronting
Any initiative to split, separate, divide to qualify as EME, QSE or Start-up
= fronting
Application of the Codes
3.1.1
All Organs of State and Public Entities are measureable
3.1.2
All Measured Entities that undertake any economic activity with
any organ of state or public entity are measureable
Priority elements
Ownership
Sub-minimum = 40% of Net Value points
=
3.2 points
Skills Development (SD)
Sub-minimum = 40% of total weighting points
=
8 points
Enterprise and Supplier Development (ESD)
Sub-minimum = 40% of EACH of categories
=
16 points
Generics must comply with all 3 priority elements
QSE must comply with ownership + 1 priority element
Application of the new Codes

Transitional period exists until 30 April 2015

All sector Codes must be aligned by this time

An entity may elect to be measured on amended Codes of Good
Practice or on existing Codes of Good Practice during the transitional
period

An entity operating under a Sector Code must apply that code until
30 April 2015 – thereafter the Generic Codes if the Sector Code has
not been aligned
New Thresholds
EME
QSE
Generic
New Thresholds
< R10m
R10 – R50m
> R50m
BEP Thresholds
< R1,5m
R1,5 – R11,5m
> R11,5m
100% Black Owned
Level 1
Level 1
Get rated
51% - 99% Black Owned
Level 2
Level 2
Get rated
0% - 50% Black Owned
Level 4
Get rated
Get rated
Affidavit
Affidavit / Cert
Certificate
Evidence
New Scorecard
Element
Code series
Current Weighting
Proposed Weighting
Ownership
100
20
25
Management Control
200
10
19
Employment Equity
15
Skills Development
300
15
20 + 5
Enterprise and Supplier Development
400
20
40 + 4
15
Enterprise Development
Socio-Economic Development
TOTAL
500
5
5
118
BEE recognition levels
B-BBEE Status
Current Qualification
New Qualification
B-BBEE recognition level
Level One
≥100 points
≥100 points
135%
Level Two
≥85 but <100 points
≥95 but <100 points
125%
Level Three
≥75 but <85
≥90 but <95
110%
Level Four
≥65 but <75
≥80 but <90
100%
Level Five
≥55 but <65
≥75 but <80
80%
Level Six
≥45 but <55
≥70 but <75
60%
Level Seven
≥40 but <45
≥55 but <70
50%
Level Eight
≥30 but <40
≥40 but <55
10%
<30
<40
0%
Non-Compliant
OWNERSHIP
OWNERSHIP
Weighting
Points
Compliance
Target
2.1 Exercisable Voting rights in the hands of the following black people:
2.1.1 Black People
4
25% + 1
2.1.1 Black Women
2
10%
2.2.1 Black People
4
25%
2.2.2 Black Women
2
10%
2.2.3 Economic Interest of the following black natural
people (broad-based groupings) in the Enterprise:
3
3%
New Entrants
2
2%
2.3.1 Net Value
8
2.2 Economic interest in the hands of the following black people:
- black designated groups;
- black Participants in Employee Ownership Schemes;
- black beneficiaries of Broad based Ownership Schemes; or
- black Participants in Co-operatives
2.3 Realisation Points:
TOTAL
25
What the research says about ESOPS
Operating cash
flow per
employee
Operating cash
flow to sales
Debt ratio
Market-to-book
ratio
Return on equity
Operating cash
flow to assets
Net profit
margin
12
10
8
6
4
2
0
-2
-4
Return on assets
In "The ESOP Performance Puzzle in Public Companies," published in 2006 issue of the Journal of
Employee Ownership Law and Finance, Robert Stretcher, Steve Henry, and Joseph Kavanaugh.
Points earned by 10% ESOP or BBOS
Category and Ownership Indicator
Weighting
Points
Compliance
Target
10% ESOP
Points
Black People
4
25% + 1
10%
1.6
Black Women
2
10%
5%
1.0
Black People
4
25%
10%
1.6
Black Women
2
10%
Economic Interest of the following black natural people
(broad-based groupings) in the Enterprise:
- black designated groups;
- black Participants in ESOP; black beneficiaries of BBOS; or
- black Participants in Co-operatives
3
3%
10%
3.0
2
2%
10%
2.0
2.1 Exercisable Voting rights in the hands of black people:
2.2 Economic Interest in the hands of the following black people:
1.0
2.3 Realisation Points:
2.3.1 Net Value
Total
8
3.2
25
13.4
MANAGEMENT CONTROL
Management Control
MANAGEMENT CONTROL = MANAGEMENT CONTROL + EMPLOYMENT
EQUITY
•
•
•
•
•
Aligned to the EE Act (targets, reporting and definitions)
Must use current payroll data
Must apply sub-race group demographics for SM, MM, JM (not to
Board / Executives or Disabled)
The description of each of the measurement categories is aligned
with the EE Act
Adjusted recognition for gender collapsed into specific targets for
women
Management Control
Generic Points
Generic Targets
2.1.1 Exercisable voting rights of black board members
2
50%
2.1.2 Exercisable voting rights of black female board members
1
25%
2.1.3 Exercisable voting rights of black executive directors
2
50%
2.1.4 Exercisable voting rights of black female executive directors
1
25%
2.2.1 Black Executive Management
2
60%
2.2.2 Black Female Executive Management
1
30%
2.1 Board Participation
2.2 Executive Management
BEP’s measured on a
single management
target of 60%
Managemet Control
Generic Points
Generic Targets
2.3.1 Black employees in Senior Management
2
60%
2.3.2 Black female employees in Senior Management
1
30%
2.4.1 Black employees in Middle Management
2
75%
2.4.2 Black female employees in Middle Management
1
38%
2.4.1 Black employees in Junior Management
1
88%
2.4.2 Black female employees in Junior Management
1
44%
2.6.1 Black disabled employees as a percentage of all employees
2
2%
Total
19
2.3 Senior Management
2.4 Middle Management
2.5 Junior Management
2.6 Employees with disabilities
Other changes in Management Control
•
•
•
•
Definitions for Senior Top and Other Top removed
Executive management defined: CEO, COO, CFO
Other Executive management defined: HR, Transformation and others
If an entity does not distinguish between Executive Management and
Senior Management, then:
-
Measure Executive and Senior out of 6 points
Apply the Executive Management target
(Avoid the sub-race group classification?)
SKILLS DEVELOPMENT
General Principles
• Contribute to country’s economic and social development goals by
developing skills that enrich decent work and sustainable
livelihoods
• Promote development of industrial skills base in critical sectors
(production and value adding manufacturing that are labour intensive)
• Support ‘Professional, Vocational, Technical and Academic Learning’
programmes through work integrated learning (apprenticeships,
learnerships, internships, PP)
• Strengthen skills and human resource base to support employment
creation
Skills Development requirements
WSP, ATR and Pivotal Report which are SETA approved
Implementation of Priority Skills Programme
Claim external training spend on unemployed
Trainee tracking tool for ‘absorption’
Skills spend & Learnerships use demographic representation of black
people (not for disabled or absorption)
• For scoring purposes the targets should be further broken down into
the race sub groups as defined in the EE Act.
• Threshold requirement:
•
•
•
•
•
-
The measured entity must achieve a sub-minimum of 40% of the target
BEP’s SD target spend
= 1,5% + 0,3% = 1,8%
Weighting
Points
Skills Development
Compliance
Targets
2.1.1 Skills Development Expenditure on any program specified in the Learning Programme Matrix for black people
as a percentage of Leviable Amount
2.1.1.1 Skills Development Expenditure on Learning Programmes specified
in the Learning Programme Matrix for black people as a percentage of
Leviable Amount
8
6%
2.1.1.2 Skills Development Expenditure on Learning Programmes specified
in the Learning Programme Matrix for black people with disabilities as a
percentage of Leviable Amount
4
0.3%
2.1.2.1 Number of black people participating in Learnerships,
Apprenticeships and Internships as a percentage of total employees
4
2.5%
2.1.2.2 Number of unemployed black people participating in Learnerships,
Apprenticeships and Internships as a percentage of total employees
4
Total
20
2.1.2 Learnerships, Apprenticeships and Internships:
2.5%
BONUS POINTS
2.1.3 Number of learners absorbed by the Measured Entity and industry
at the end of the learnership program
BEP’s target =
1,5%
5
100%
Other changes
• Category F + G treated as informal = limited to 15% of total spend
• Accommodation, travel, catering, administration = limited to 15% of
total spend
• Mandatory sectoral training does not count:
-
Health and safety, First Aid? Fire?
• Training outside SA must meet SAQA recognition to count
• Measured entity no longer gets:
-
1.25 enhancement of ABET
• Salaries or Wages of employees still count if Learnership, Internship
or Apprenticeship (B,C or D)
SCORE 20+5 points
Skills provider is black
owned supplier
providing for ESD
contributions.
Spending 2% of NPAT
secures maximum
points.
SCORE 10 points
Employment Equity
SETA accredited
learnerships,
internships for abled
and disabled learners
to ensure maximum
points for each subelement.
Enterprise Development
Skills Development
Score maximum BEE points
Training of PWD
learners at 2% of total
number of employees
secures maximum
points.
SCORE 2 points
Maximum Tax benefits
S 11(a) deduction
All spend is fully deductible
for normal tax.
Tax saving = 28%
S12H learnership rebate
Disabled learners qualify for Youth wage subsidy
R100,000 tax rebate per
learner per annum
Abled learners qualify for
R60,000 tax rebate per
learner per annum
Tax saving =
R28,000 (disabled)
R16,800 (abled)
Up to 50% of learner
stipends are deductible as a
special subsidy. For learners
paid R2,000 per month this
results in a R1,000 per
month tax subsidy on your
PAYE
Tax saving = 50% of
stipend
Minimum net cost of learnerships
Learnership cost
Tax saving
= R30,000
= R1,500
= R4,500
= R24,000
S11(a) = R16,800
S12H = R28,000
YWS = R12,000
Total = R60,000
Per learner per annum
Total = R56,800
Per learner per annum
(RA = reasonable
accommodation for
disabled learners)
Net cost PWD = R3,200
Course
Sourcing
RA
Stipend
SETA grants
Claim 20% of the
mandatory grant back
from the SETA
Qualify to claim
discretionary grant
back from the SETA
Tax deductible learnerships
Abled
Disabled
Learnership cost
30,000
30,000
Sourcing
1,000
1,500
-
4,500
Stipend (R2,000pm x 12)
24,000
24,000
Cost per learner
56,000
60,000
S11(a) Deduction
15680
16800
S12 H Rebate
16800
28000
Youth wage subsidy
12000
12000
Mandatory SETA Grant
2000
2000
Net cost per learner
9,520
1,200
PLWD accommodation
Average Net Cost per Learnership
5,360
Maximum points for minimum cost
Example
Co. with 200 employees
Net cost per learnership
5% of workforce =
10
R5360
Total net cost
R53,600
Points earned
27
Net cost per point
R1,985
ENTERPRISE &
SUPPLIER
DEVELOPMENT
Weighting
Points
Compliance
Targets
2.1.1 BEE Procurement Spend from all Empowering Suppliers based on
the BEE recognition levels
5
80%
2.1.2 BEE Procurement Spend from Empowering Suppliers QSE’s based
on the applicable BEE recognition levels
3
15%
2.1.3 BEE Procurement Spend from Empowering Suppliers EME’s based
on the applicable BEE recognition levels
4
15%
2.1.4 BEE Procurement Spend with Empowering Suppliers that are at
least 51% black owned
9
40%
2.1.5 BEE Procurement Spend with Empowering Suppliers that are at
least 30% black women owned
4
Total
25
BONUS POINTS
BEE Procurement Spend with Designated Groups that are > 51% black
Owned
2
2.1 Preferential Procurement
12%
BEP’s ED target spend
= 0,75% of leviable
amount
Weighting
Points
Compliance
Targets
10
2% of NPAT
2.3.1 Annual value of all Enterprise Development Contributions and
Sector Specific Programmes as a percentage of the target
5
1% of NPAT
2.4 Bonus Points
One or more ED beneficiaries graduate to SD
1
Creating one or more jobs as a result of ED and SD
1
2.2 Supplier Development
2.2.1 Annual value of all Supplier Development Contributions as a
percentage of the target
2.3 Enterprise Development
Empowering Supplier

A B-BBEE compliant entity which is a good citizen, and who complies
with all regulatory requirements of the country and meets 3 of the


following criteria:
At least 25% of Cost of Sales excluding labour and depreciation
must be procured from local producers or suppliers, service
industry labour costs capped at 15%
Job creation 50% of jobs created are for black people provided
the number of black employees since the immediate prior
verified B-BBEE measurement is maintained.
Empowering Supplier

At least 25% transformation of raw material/beneficiation
which includes local manufacturing, production and/or assembly
and/or packaging

Skills transfer – 12 days per annum of productivity deployed in
assisting black owned EME and QSE beneficiaries

EME’s and Start up Enterprises are automatically given Empowered
Supplier status

QSE’s are required to meet 1 critieria.
Enhanced recognition
Criteria
Enhancement
3 year contract with supplier
x spend by 1.2
Black owned QSE or EME that is not an SD beneficiary but
has a 3 year contract
x spend by 1.2
First time supplier
x spend by 1.2
SOCIO-ECONOMIC
DEVELOPMENT
Socio-Economic Development
Criteria
Annual (not average) value of all Socio-Economic
Development Contributions by the Measured Entity as a
percentage of the target
BEP’s SED target
spend = 0,25% of
leviable amount
Weighting Points
Compliance Target
5
1% of NPAT
Socio Economic Development

Beneficiaries must be 75% black

Access to the economy

Priorities in this element are to redress the issues of education,
poverty, unemployment, health for those communities who remain
disadvantaged
05
TOTAL BEE STRATEGY
Level 4 is achievable
Ownership (10% ESOP / BBOS)
Management Control
Board (1 x BW non-exec)
Management (2/3 easy)
Skills Development (tax funded)
ESD
All ED ½ Procurement, Bonus point
SED
LEVEL 4
=
13
=
=
=
2
5
25
=
=
=
31
5
81