New legislation aggressive measures for
small business owners?
At the beginning of the year, Government replaced its Preferential Procurement Policy Framework Act with the new Preferential Procurement Regulations, which came into effect in April. The aim of this revised legislation was to further accelerate economic transformation throughout the country.
Effectively, this revised regulation enables Government entities to set minimum Broad-Based Black Economic Empowerment (BBBEEE) status level as a prequalification criterion for Government tenders. What this means is that any company who does not have the required status level will become ineligible to tender.
The revised regulation means that tenders will now include specific conditions that will only allow companies that hold a minimum BBBEEE status, an exempted micro-enterprise (EME) or qualifying small enterprise (QSE), or a company that subcontracts at least 30% to various EMEs or QSES who are at least 51% black-owned, are eligible to bid for Government tenders.
Unfortunately, with these restrictions placed upon companies, many white-owned businesses might find themselves pushed aside as they battle to comply to these new measures. Although it is described as aggressive measures in order for greater economic compliance, Treasury has stated that it has indeed compromised on some of its provisions which were in the initial draft regulations.
These compromised provisions include lowering the increase in the maximum threshold for the 80/20 preference point system as well as the minimum threshold for the 90/10 preference point system, from R100 million to R50 million; only sub-contracting 30% of the contract value of a tender where the organ of state deems it feasible instead of requiring it in all cases; and, deletion of the provision creating a different formula to calculate the points for price in respect of the disposal, sale and letting of property.
In a client brief addressing the subject of the new legislation, Pieter Steyn, Werksmans Attorneys Director, explained that “the importance of this change is that a tender that fails to meet the prequalification criteria may be excluded from consideration. The new regulations, thus, explicitly allow for a ‘set-aside’ of tenders for firms with a certain BBBEEE status and/or small and medium-sized enterprises.”
Essentially what this means is that when bids are compared, a fixed percentage preference (or rather preference points) is given to bidders who meet the preferential requirements. Preference points are determined by each bidder’s formal B-BBEE status. From here, the final score is tallied by adding these points to the price calculation of each bidder, of which the bidder with the highest score is certain to win the bid.