Role of Procurement in aiding Black

Economic Empowerment(BEE)

in South Africa

Selvan Govender

Contents 1. Introduction 2. Some SA Facts 3. BBBEE Definition 4. BBBEE Scorecard 5. BBBEE Recognition Levels 6. PURCO SA Facts 7. Tender Process 8. Tender Evaluation Process 9. Factors for Success Collaboration

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Introduction Democratic Government was elected on 27April 1994 20 years later –a good time to evaluate progress of economic

transformation Address redistribution of wealth and inequality of opportunity 2 possible routes to economic transformation

Affirmative Action through Employment Equity Legislation- relatively successful

Black Economic Empowerment (BEE) - ( moved from persuasion to legislation)- less successful

2nd approach –provision of key services ( water, electricity, sanitation, housing, health and basic education)-improved living conditions but did not narrow the gap between rich and poor.

Broad Based Black Economic Empowerment seek to close this gap.

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Some SA Facts Population is 52m (51%F & 49%M) By Race 80%B;9%W ;9%C;2%A 11 Official Languages Unemployment rate at 25% CPI range 4-6% pa GDP $385B (2013) GDP growth 2.0% pa (2013) Vat 14% Top personal income tax rate 40% Corporate tax rate 28% Bank lending rate 9% pa

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20 Years into Democracy Tripled GDP to $385B JSE rose to be the 15th largest Capital Market Black middle class doubled from 1993 to 2008 R600B of BEE transactions recorded Black People and Women in senior management positions

increased from 10% to 40%. Access to water and electricity increased from 50 to 80% Access to social grants increased from 2,7m to 16m

people. GDP grew at a average annual rate of 3,2%

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Continue working towards Reducing gap between rich and poor Up-skilling the labour force Improving productivity Minimising labour conflicts Reducing high unemployment rate Increasing electricity capacity Improving the deteriorating infrastructure Reducing incidents of corruption and crime

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What is Broad-Based Black economic Empowerment(BBBEE)? SA socio-economic policy aims to grow the economy

through the inclusion and empowerment of HDI to ensure the equitable distribution of wealth and resources amongst all SA citizens.

BBBEE Act – legislated in 2003

Codes of Good Practice – gazetted in 2007 – A framework to implement and measure BBBEE performance using a tool called- The Generic BBBEE Scorecard

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How is BBBEE performance measured?

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ELEMENT WEIGHTING CRITERIA COMPLIANCE TARGETS

OWNERSHIP 25 POINTS VOTING RIGHTS/ ECONOMIC INTEREST

MANAGEMENT CONTROL

15 POINTS Board/Senior/Middle/ Junior/disabled

SKILLS DEVELOPMENT

20 POINTS Bursaries/Internships/ Apprenticeships

ENTERPRISE AND SUPPLIER DEVELOPMENT

40 POINTS Spend with BEE suppliers/EME /QSE/BOB/BWOB/Supplier development( 2%NPAT) /Ent.Dev.(1% NPAT)

SOCIO –ECONOMIC DEVELOPMENT

5 POINTS 1%NPAT /Grants/ discounts/ over-head costs/Professional services/Time spent by employees

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2.3 2.3

How do you contribute to ED and SD?

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Invest in entities Make loans available at lower interest rates Give guarantees or provide security for entities Provide preferential credit terms Settle accounts over a shorter period of time – pay in 15 instead of

30 days. Measure the costs in directly assisting development of entities Discounts for franchises, licences ,distribution agreements, etc. Mentoring and coaching entities in financial and operational capacity

building Back office assistance for especially IT and financial services to

developing entities

Challenges of BBBEE

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Fronting – dishonest means of getting a BBBEE certificate-Blacks are listed as shareholders without their knowledge ( eg.drivers;gardeners)

Additional Cost – need additional resources to manage Too complex to implement Compliance by Multinationals in SA- especially

ownership element of the scorecard Tenderpreneurs-politically connected people getting

government tenders

BBBEE Recognition Levels

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BBBEE STATUS LEVEL

QUALIFICATION (POINTS ON THE SCORECARD)

BBBEE RECOGNITION LEVEL

1 ≥ 100 135%

2 ≥ 95<100 125%

3 ≥ 90<95 110%

4 ≥ 80<90 100%

5 ≥ 75<80 80%

6 ≥ 70<75 60%

7 ≥ 55<70 50%

8 ≥ 40<55 10%

Non-Compliant <40 0%

BBBEE - audited annually by a Verification Agency BBBEE Scorecard is valid for 12 months

Higher Education Sector 23 Public Universities + 2 new being built 940000 students Target 1,6m students by 2030 R50b Public HE Sector Employs 49000 permanent staff

Challenges High drop out rate Uneven quality between rural and urban Institutions Infrastructure capacity constraints Students fees and funding Low post graduate numbers Attract high level academics Diversifying skills to meet workplace needs

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PURCO SA Facts ISO 9001:2008 Certified Company Section 21 company – Non Profit Organisation Created in 1978 by members of Higher Education to serve

the members Annual Membership Fees Alliances –HESA/HEFMA/ASSETS/ASAUDIT/TENET/FEF Voluntary participation in contracts 3 Categories of Contracts

Collective Individual Negotiated

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PURCO SA Facts 41 Members- target to reach100 Full and Associate Members R1b collaborative spend Strategy built on 3 pillars

Quality- ISO 9001:2008 listed Technology- E-procurement platform for HE Professional training and development – Training Academy / CIPS

Biggest challenge – to improve participation Centralised vs decentralised procurement Lack of support from top management Job security- outsource to PURCO SA Fear of exposure of mal-administration

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PURCO SA Business Model Public tender processes and contract negotiations Incentives to members- best prices upfront and

annual rebate disbursements Independent benchmarking Savings reporting Member visits 4 Board Meetings pa - Governance Regular member meetings-planning and feedback Annual Conference AGM-to report back and elections of board

representatives

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Tender Process for an Individual Contract Invitation from Member Meeting with Specification Committee Draft and finalise tender document / project plan Public tender/advertise Receive tenders Evaluate tenders Produce draft report & present to Evaluation Committee Finalise recommendations & present to Award Committee Award Committee-approves &/or send to EMC depending on

value of tenders Appointment made /sign contract and SLA Assist with annual escalations/performance management of

suppliers Contract cycle begins after 3 years

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Tender Evaluation Process Mandatory Documents Income tax / VAT / BBBEE / WCA /

Fin.statements / lndustry specific licences Non-compliant tenders rejected

Functionality Evaluation References/ Experience /Quality /Maintenance

& Support / Training / Locality Threshold is 70% Rejected if < 70%

Price and BBBEE Evaluation Tender <1Rm 80:20 Tender >1Rm 90:10

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90:10 Tender Evaluation Process Price Points Calculation 𝑃𝑃 = 90 1 − 𝑃𝑃−𝑃 𝑚𝑚𝑚

𝑃 𝑚𝑚𝑚

Ps = Points scored for comparative price of tender under consideration;

Pt = Comparative price of tender under consideration; and

Pmin = Comparative price of lowest acceptable tender

BBBEE Points Allocation

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B-BBEE Status Level of Contributor

Number of points (90/10 system) Number of points (80/20 system)

1 10 20

2 9 18

3 8 16

4 5 12

5 4 8

6 3 6

7 2 4

8 1 2

Non-compliant contributor 0 0

Example of Tender Result

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No. Company name Price(VAT incl.)

Price scored (90

points)

BBBEE Level

BBBEE Score (10

points)

Total score (100

points)

1 PC Palace Gauteng cc R 2 292.60 90.00 2 9 99.00

2 First Technology (Central) (Pty) Ltd R 2 330.75 88.50 2 9 97.50

3 Ecotech Converge (Pty) Ltd R 2 333.10 88.41 3 8 96.41

4 Tshwane Computer Solutions cc R 2 833.00 68.79 6 3 71.79

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Factors for Successful Collaboration 1.Collaboration is not “Outsourcing” Outsourcing seeks to achieve the lowest price A tactic PRIMARILY to reduce costs

Collaboration in addition to low prices seeks to access dispersed knowledge leverage new capabilities share risk with partners strategic partnership creates differentiation and new sources of value.

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2.Senior management involvement Collaboration is an integral part of the business

strategy Senior Management support is vital for success

3.Treat partners as partners and not "suppliers” This mind-set is reflected in the organisational

structures In management policies and contracts. Seen as extensions of their organisations Participate in meetings and include them in internal

communications.

Key Success Factors

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4.People Effective communication – as important as procurement

skills Skills-variety of skills are required. Performance monitoring and management

5.Technology platforms Improve efficiencies in communication ( common formats

and software versions) Seamless integration of systems

Key Success Factors

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6.Quality and efficiency in exchange of information Incorrect/incomplete and delays in transfer of

information , can be costly in expensive rework and reduced trust.

Key Success Factors

“Political Emancipation without Economic Transformation is Meaningless”

President Jacob Zuma at the ANC 99th Anniversary Celebration –Polokwane 8 January

2011

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THANK YOU

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