Do organs of state also have to undergo BEE verification?

20 October 2022 396
“Private sector B-BBEE scorecards and compliance has become a generally understood phenomenon, but what is the position in respect of organs of state. Must they also be B-BBEE compliant and are they measured in the same way as private entities?”

The B-BBEE Codes of Good Practice published in terms of the B-BBEE Act, No. 53 of 2003 (“B-BBEE Codes”), determines that a “measured entity” includes an organ of state or public entity. This means that organs of state are also to be measured under the B-BBEE Codes.

The Broad Based Black Economic Empowerment (B-BBEE) Codes of Good Practice (“the Codes”) define a “measured entity” as an entity as well as an organ of state or public entity which is subject to measurement under the Codes.  From the aforementioned definition, one can deduce that it is not only private companies to which the codes apply, but also government entities.

For purposes of measurement under the B-BBEE Codes, organs of state are seen as specialised enterprises, classified as follows:

  • An Exempted Micro Enterprise (“EME”) if the organ has an annual turnover/allocated budget or gross receipts less than R10 Million;
  • A Qualifying Small Enterprise (“QSE”) if the organ has an annual turnover/allocated budget or gross receipts between R10 Million and R50 Million;  or
  • A Large Enterprise if the organ has an annual turnover/allocated budget or gross receipts of more than R50 Million
An EME qualifies as an automatic level 4 B-BBEE contributor. However, if it has a black beneficiary base of at least 51%, it will be an automatic level 2 contributor, moving up to a level 1 if it has a black beneficiary base of at least 75%.

A QSE has to undergo a QSE scorecard verification. However, if it has a black beneficiary base of at least 51%, it will be an automatic level 2 contributor, moving up to a level 1 if it has a black beneficiary base of at least 75%.

All large enterprises have to undergo a Generic scorecard verification in terms of the Scorecard for Specialised Enterprises (“Specialised Scorecard”) regardless of their black beneficiary base. What should also be noted is that the Specialised Scorecard expressly states that organs of state cannot be measured under the Ownership element. However, measurement under the Management element is possible as well as under Skills Development, Preferential Procurement, Enterprise and Supplier Development and Socio-Economic Development. For these elements, the following main targets apply:

Management Control – 20 points

  • 2 points if the board with voting rights constitutes 50% black members and an additional 1 point if 25% constitutes black females.
  • 2 points if 50% of the executive directors are black and an additional 1 point if 25% are black female directors.
  • 2 points if the other executive management of the entity constitutes 60% black members and an additional 1 point if 30% constitutes black females.
  • 2 points if 60% of the senior managers are black and an additional 1 point if 30% are black female senior managers.
  • 2 points if 75% of the middle managers are black and an additional 1 point if 38% are black female middle managers.
  • 2 points if 88% of the junior managers are black and an additional 1 point if 44% are black female junior managers.
  • 2 points if 2% of the workforce comprises of people with disabilities. 
Skills Development – 25 points

  • 9 points if the entity spends 6% of its leviable amount on skills expenditure for black people based on the country’s demographics. 
  • 4 points if the entity spends 0.3% of its leviable amount on skills expenditure for black people with disabilities.
  • 6 points if 2.5% of the entity’s total employee headcount are placed on learnerships, apprenticeships and internships based on the demographics of the country. 
  • 6 points if the number of unemployed people placed on learning programmes by the entity comprises of 2.5% of the entity’ workforce based on the demographics of the country. 
Preferential Procurement – 30 points

  • 5 points for expenditure of 80% of total measured procurement spend on empowering suppliers.
  • 4 points for expenditure of 15% of total measured procurement spend on qualifying small enterprises.
  • 5 points for expenditure of 15% of total measured procurement spend on exempted micro enterprises.
  • 11 points for expenditure of 40% of total measured procurement spend on at least 51% black owned enterprises.
  • 5 points for expenditure of 12% of total measured procurement spend on at least 30% black female owned enterprises.
Supplier Development – 15 points

15 points if the entity makes a contribution of 2% of its net profit after tax; or 0.2% of its annual revenue/allocated budget/gross receipts/discretional spend to at least 51% black owned EMEs or QSEs who are qualifying beneficiaries. The contributions can be in the form of donations, direct costs, loans or any other qualifying contributions in terms of the B-BBEE Codes.

Enterprise Development – 5 points

5 points if the entity makes a contribution of 1% of its net profit after tax; or 0.1% of its annual revenue/allocated budget/gross receipts/discretional spend to at least 51% black owned EMEs or QSEs who are qualifying beneficiaries. The contributions can be in the form of donations, direct costs, loans or any other qualifying contributions in terms of the B-BBEE Codes.

Socio-economic Development – 5 points

5 points if the entity makes a contribution of 1% of its net profit after tax; or 0.1% of its annual revenue/allocated budget/gross receipts/discretional spend on black people or organisations and communities with an at least 75% black beneficiary base.

The Preferential Procurement element of the Specialised Scorecard can be linked to Regulation 4(1) of the Preferential Procurement Policy Framework (“PPPF”) Regulations which stipulate that an organ of state may apply pre-qualifying criteria for a tender. It is important to take note that these pre-qualifying criteria must be applied by organs of state with the consent of the Minister of Trade and Industry. The scorecard for organs of State further gives effect to regulation 6 and 7 of the PPPF Regulations which indicates that besides pricing, an organ of state must allocate a number of points to a tenderer’s B-BBEE compliance in awarding a tender. 

The above shows that even organs of state are to be held accountable and must report on their B-BBEE compliance. Whether organs of state are though, is another question…


Disclaimer: This article is the personal opinion/view of the author(s) and is not necessarily that of the firm. The content is provided for information only and should not be seen as an exact or complete exposition of the law. Accordingly, no reliance should be placed on the content for any reason whatsoever and no action should be taken on the basis thereof unless its application and accuracy has been confirmed by a legal advisor. The firm and author(s) cannot be held liable for any prejudice or damage resulting from action taken on the basis of this content without further written confirmation by the author(s). 
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