“My business is heavily dependent on government tenders. I have heard talk of new tender regulations that are coming that will have a dramatic impact on the tender requirements. Is this true?”
You are correct. New draft Preferential Procurement Policy Framework Act Regulations (“Draft Regulations”) were published for comment on 14 June 2016. Once finally promulgated, the Draft Regulations will replace the current Preferential Procurement Policy Framework Act Regulations (“Current Regulations”), as published in 2011.
Amendments contemplated in the Draft Regulations are a reflection of the need to economically stimulate the growth and development of small enterprises as well as the economic transformation of specific targeted groups, which includes SMME’s, co-operatives, townships and rural enterprises and other targeted groups.
The most significant change proposed in the Draft Regulations is the introduction of new pre-qualification criteria in the tender process. This will allow organs of state to include specific pre-qualification criteria in the evaluation of a tender, which criteria may include the requirement of the tenderer having a stipulated minimum B-BBEE status level as well as the tenderer having to sub-contract a minimum of 30% of the tender contract value to black owned, black female owned and black youth owned EME’s and QSE’s. A tenderer that fails to meet the applicable specified pre-qualification criteria, will then not be accepted.
Another major change relates to the contract thresholds applicable to the preference points system. In the Current Regulations, the 80/20 preference point system applies to tenders with a contract value up to R1 million, whereas the Draft Regulations propose that this threshold be increased to R100 million. This means, that tenders with a contract value up to R100 million will be evaluated by allocating 80 points towards the pricing of goods and services and 20 points towards the B-BBEE status level of the tenderer – placing a substantial emphasis on a tenderer’s B-BBEE status level in the tender evaluation process. The 90/10 preference point system, where 90 points are awarded for pricing and 10 points for B-BBEE status level, will apply to tenders with a contract value exceeding R100 million, as opposed to the current threshold of R1 million under the Current Regulations.
The Draft Regulations makes provision for the sub-contracting of at least 30% of the tender contract value to emerging suppliers in all tenders exceeding a total contract value of R30 million. Emerging suppliers may include one or more black owned, black female owned, black youth owned and black disabled owned EME’s and QSE’s as well as Small Businesses as defined in the Small Business Act of 1996. No such provision for compulsory subcontracting is contained in the Current Regulations.
Also proposed, is the inclusion of a further evaluation process, by means of objective criteria being applied in the tender process, after price and preference of tenderers have been evaluated. The effect hereof can include tenders being awarded to tenderers that did not necessarily score the highest points based on the 80/20 or 90/10 preference points system. Objective criteria included in a tender must however be specific to the context of the goods or services required, and will have to be clearly specified in the tender documents. The objective criteria may include but are not limited to, the requirement of sub-contracting at least 30% of the contract value to black owned, black female owned, black youth owned and black disabled owned EME’s and QSE’s, co-operatives within the municipal area as well as enterprises conducting business in townships and rural areas within the municipal boundaries of the advertised tender.
The importance of an entity’s BEE status is emphasized throughout the Draft Regulations. Once these regulations are finalised, it will impact all government tendering process in South-Africa. If your business is reliant on government tenders you would be well advised to obtain BEE advice to ensure that your plans to meet these new procurement requirements are in place.
This article first appeared on the Phatshoane Henney Attorneys May 2016 newsletter.