The Broad Based Black Economic Empowerment Act No 53 of 2003 (The Act) governs B-BBEE (BEE)compliance together with the Construction Sector Codes of December 2017. A Contractor cannot do business with a government entity without a BEE certificate.

WHAT IS B-BBEE COMPLIANCE

An entity is certified in terms of the Act as B-BBEE compliant and given a certain BEE level. It is rated according to the BEE codes of good practice and a certificate is issued indicating the level (1 to 9) that the entity has obtained. A business is BEE compliant if it is BEE level 1 – 8. Level 9 is non-compliant.

CONSTRUCTION SECTOR CODE

Contractors are included within the Construction Sector Code, which code has recently been revised. The code refers to three types of entities. A contractor whose total annual revenue is R10 million or less qualifies as an exempted micro enterprise(EME). A contractor whose total annual revenue is more than R10 million but less that R50 Million per annum qualifies as a Qualifying Small entity (QSE). A contractor whose total annual revenue is more R50 Million per annum qualifies as a large entity.

The Construction Sector Code refers to 5 elements which must be complied with by qualifying entities. Each element measures the effective extent to which the entity has:

1. Ownership: effective ownership of entities by Black people.
2. Management and control: effective control of the entity by Black People.
3. Skills development: Employers initiatives designed to develop the competencies of Black People (employees and non-Employees).
4. Preferential procurements and supplier development: Entities support Suppliers with minimum BEE recognition levels and promote development initiatives to assist and accelerate the growth and sustainability of entity’s that are at least 51% Black Owned.
5. Socio-Economic Development: Carry out initiatives that contribute towards Socio-Economic Development or sector specific initiatives that promote access to the economy for Black People.

Ownership,Skills development, and Preferential procurements and supplier development are referred to as priority elements.

Discounting Principal

Non-Compliance with any of the priority elements will result in the entity being penalised by being discounted by one BEE level. The discounted BEE status level will appear on the face of the BEE certificate.

ELIGIBILITY FOR MEASUREMENT AS AN EXEMPT MICRO-ENTERPRISE (EME)

A contractor whose total annual revenue is R10 million or less qualifies as an EME.

An EME with total revenue of less than R3 million do not have to comply with the QSE skills development element. An EME is not required to have an authorised B-BBEE verification certificate and may present an affidavit or certificate issued by the CIPC in respect of their ownership and annual turnover.

An EME that qualifies for an automatic BEE status level (1,2,4 or 5) is required to comply with at least 40% of the QSE Skills development expenditure target. An EME is deemed to have the following B-BBEE Status:

1. If less than 30% Black owned, a level 5 contributor, having a recognition level of 80%;
2. If at least 30% Black owned but less than 51%,a level 4 contributor, having a recognition level of 100%;
3. If at least 51% Black owned but less than 100%,a level 2 contributor, having a recognition level of 125%;
4. If 100%, a level 1 contributor, having a recognition level of 135%;

An EME that is less than 100% black owned is allowed to maximize their points and move to a higher B-BBEE recognition level.

ELIGIBILITY FOR MEASUREMENT AS A QUALIFYING SMALL ENTERPRISE (QSE):

A contractor whose total annual revenue is more than R10 million but less that R50 Million per annum qualifies as a QSE.

A QSE is required to comply with 2 of the Priority Elements.  The Ownership element is a compulsory element.

A QSE must comply with all the elements of the Construction Sector QSE Scorecard for the purpose of measurement. The measurement is as follows:

1. If 100% Blacked owned, the QSE qualifies as a level 1 contributor.
2. If at least 51% Black owned the QSE qualifies as a level 2 contributor

If a QSE is at least 51% Black owned and it achieves full points for the skills development element of the QSE scorecard or the Preferential Procurement and supplier development, the B-BBEE recognition level will be enhanced with one level

START UP ENTITY

A start up entity is not subject to the discounting principal and does not have to comply with any priority element. It must be measured as an EME for the first year following the commencement of its operations regardless of its expected total revenue. It must however submit a QSE scorecard when tendering for any contract with a value of higher than R10 million but less than R50 million. For a contract of 50 Million or more the EME should submit a large entity scorecard.

LARGE ENTITY

A large entity is required to comply with all the priority Elements.

It is important for all Contractor who do business with government entities and who are involved in the tendering process to determine their BEE compliance level.