Exploring a worrying misalignment of the B-BBBE and PPPFA | by Sibongile Shongwe

Sibongile ShongweBy way of a bit of background, for non-South Africa readers or those new to the topics, the history of South Africa necessitated intervention to address past imbalances which affected the majority of citizens who were side-lined and excluded legally, socially, and economically. Black South Africans were discriminated against in employment, skills development, in ownership and control of business as well as in access to basic social and physical infrastructures (Engdal & Hauki 2001). By the fall of apartheid, South Africa was an unequal society and dysfunctional economy. Since then there has been many attempt to address these fundamental inequalities, to redistribute wealth, and to enable economic participation by previously disadvantaged citizens.

The Broad-based Black Economic Empowerment Act (B-BBBE) and Preferential Procurement Policy Framework Act (PPPFA) are two of the policies envisaged at ensuring economic inclusion of black people into the economy.

B-BBEE was implemented in the 1990s after democracy. The purpose was to reduce inequality and poverty, increase the number of black people who own, manage and control the economy (BEE Commission 2001), and therefore grow the black middle class in South Africa, thereby stabilising the country (Woolley 2005). Although the BEE Act does not place a legal onus on the private sector to comply with its provisions, it does, however, place a legal onus on organs of state to contribute to BEE, including among other aspects, when developing and implementing a preferential procurement policy (PPPFA Regulations).
Organs of state must incorporate BBBEE objectives in the procurement of goods and services, and contracts are awarded to companies that demonstrate BBBEE credentials. Thus private sector entities must embrace BBBEE if they want to benefit from state procurement.

Similar to B-BBEE, PPPFA is intended to address economic empowerment through procurement which is fair, equitable, transparent, competitive and cost-effective manner – in order to guard against unfair discrimination. Section 217 of the Constitution gives effect to preferential procurement for organs of state to provide preference with regard to economic opportunities in public procurement to previously disadvantaged people. As a result, state procurement is used as policy to advance social issues.

This makes procurement expenditure one of the only means of influencing economic empowerment available to the government who enforces compliance and dictates preference through this mechanism. The significant clout here in is due to the size of government expenditure. There is also global precedent of preferential procurement policies used as an instrument to reduce inequality and in the fight against poverty, not only in South Africa but also in the United States (Helmrich 2014).

Challenges with PPPFA, B-BBEE implementation and sustainable economic inclusion
I believe that while the twBEEpexels photo 1124065o policies are aimed at addressing social imbalances and promoting transformation through preferential procurement spend, Part Two of the PPPFA regulations does not effectively advance the intended transformation imperatives.

The PPPFA requires that a preference point system be used when evaluating tenders. The Act puts in place a weighting of 80% on price and 20% on B-BBEE score for smaller tenders, and 90% weighting on price, with 10% weighting on B-BBEE for larger tenders.

It has become apparent that the above preference point system does not enable black businesses to compete with well-established entities on level filed. In particular, this is due to the level of expertise and experience that well-established entities possess, and reduced price purely as a result of ability to absorb certain costs by large businesses. Litigation and associated costs to organs of state, the number of submissions (calls) and papers by both state organs and public for PPPFA amendment further attest to challenges presented by policy.

The disconnect between them
In 2006 cabinet consented that these two acts were not in alignment and, as a result, directed an amendment of the PPPFA to advance the BBBEE act’s objectives and its strategy. Furthermore, in April 2007 cabinet resolved that the National Treasury and Trade and Industry (DTI) must collaborate to refine and simplify the Codes of Good Practise and that the preferential procurement procedures be amended to ensure that government’s BBBEE objectives are achieved. The process led to the incremental change of PPPFA thresholds in determining allocation of points to align to the B-BBEE Codes of Good Practice.

Moreover, the Black Business Council (BBC) voiced its concerns that the PPPFA stipulates that when government procures services, it should first consider companies with proven track records, which most black companies do not have therefore undermining B-BBEE objectives. The Progressive Professionals Forum (PPF) supporting the (BBC) strongly proposed repeal of the PPPFA.

In practise, the revisions have not yielded the desired outcomes. The two pieces of legislation are far from delivering their lofty objectives, as demonstrated by the high levels of unemployment and minimal number of successful black businesses in the country. This misalignment has had a negative impact on transformation progress with there being no meaningful transformation of black businesses to date (Ambe & Shongwe 2018).

Given this, I believe that the PPPFA makes it impossible for black companies to compete fairly with large companies. Bidders that do not have BBBEE credentials and score zero are not precluded from participating in government tenders. In fact, statistics reveal that larger corporations are awarded the majority of state contracts due to experience and competitive pricing. Applications for exemption from PPPFA by state organs demonstrate its contradiction to BBBEE objectives. The Transnet locomotives tender is one case that demonstrates PPPFA incongruences with B-BBEE imperatives.

There is a great need for the two pieces of legislation to be aligned, due to their critical influence on our ability to achieve meaningful economic transformation. Collaboration between the DTI and National Treasury is required to ensure that the policies are aligned and achieve intended objectives. But will we see this any time soon?

Sibongile Shongwe is a Senior Associate at Bespoke Group Africa www.bespoke.co.za

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Posted on February 13, 2019