“I own a small building contractor business. BEE is becoming increasingly important for my business. I understand that the Revised Construction Sector BEE Codes provide an opportunity for a small construction business to be exempted from BEE. Is this correct? If so, what must I do to qualify for the exemption?”
You are correct. The Revised Construction Sector BEE Codes do make provision for small construction companies to qualify for exempt BEE status, but subject to certain rules which must be understood in order to qualify for the exemption. It should be noted that the Revised Codes are still in draft form, but it is expected that they will soon be finally published.
The Revised Codes contains several important provisions related to small construction companies and it is important that these be carefully studied by any entity operating in this environment to understand the specific rules applicable to them. I now highlight some of the more important rules that should be taken note of.
The Revised Codes provides for three types of small companies, namely (1) Start-ups, (2) Small exempt micro enterprise (Small EME), and exempt micro enterprises (EME). The Revised Codes also distinguish between contractors and built environment professionals (BEP) such as architects, engineers and town planners. Understanding under which classification of small construction company you fall is the first step for any business.
• A Start-up company receives recognition as such for the first 12 months from its registration date regardless of its turnover during those first 12 months.
• A Small EME refers to a BEP company equal to or below R1,8 million turnover, or, a contractor company equal to or below R6 million turnover.
• An EME refers to a BEP above R1,8 million turnover but below R6 million turnover, or, a contractor company above R3 million turnover but below R10 million turnover.
The following “special rules” apply to these different categories of small companies:
• A small company will automatically qualify for a level 5 BEE status and not the usual level 4 as would happen under the Generic BEE Codes. For a small company to qualify for a Level 4 BEE status, they must have at least 30% black ownership.
• Above 50% black ownership will however still qualify for Level 2 status or 100% black ownership for Level 1 status, but the Revised Codes clearly state that the modified flow through principle cannot be used if a company wants to obtain an exempt level 2 or 1 BEE status.
• A BEP small company must be owned and managed by a majority of black professionals that are qualified within the applicable profession if it wants to obtain an exempt level 2 or 1.
• No provision is made for affidavits to prove BEE status. This means that all small companies will have to be verified by a SANAS agent and this will hold a cost implication as it will likely entail a small audit by a SANAS verification agency.
• Most small companies will be subject to the principle of discounting and enhancement. The discounting principle is focused on the skills development element and states that a company needs to score at least 40% of its target for skills development to avoid discounting (losing a level). The enhancement principle makes provision for companies to enhance its levels by as many as 2 BEE levels by achieving their full targets for skills development and supplier development.
Although the Revised Codes do make provision for the exemption of small companies, there are a number of rules that you must understand and meet to obtain the exemption. Although the Revised Codes are not yet in force, small construction companies would be well advised to orientate themselves to the new rules that will soon be introduced and obtain the necessary advice in advance to prepare themselves.