Must I procure from my Supplier Development beneficiary?

Posted on:
12 Apr 2017
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“About four years ago my company entered into an enterprise development agreement with a new BEE company starting up in our sector as part of our commitment towards BEE and enterprise development. In terms of our agreement, we provide them with support and even financial assistance and have helped them find their feet in our industry. Although we work closely with them, we don’t procure anything from them. Will this initiative be recognised under the revised Enterprise and Supplier Development element of the Amended BEE Codes?”
By Adrian Frewen
With the Amended BEE Codes of Good Practice (“Amended Codes”) now in full force and effect, many companies, like you, find themselves having to revisit their current Enterprise Development initiatives undertaken under the previous BEE Codes of Good Practice in order to obtain enterprise development points on their scorecard.

The main difference brought about by the Amended Codes is that Enterprise Development, having had a target of 3% (and 2% for QSE’s) of the Measured Entity’s net profit after tax, has now been divided into two separate sub-elements, namely Supplier Development and Enterprise Development. The previous target of 3% of the Measured Entity’s net profit after tax has also been split to 2% (1% for QSE’s) and 1% respectively for each of the Supplier Development and Enterprise Development sub-elements.

Whilst the general objective as well as the overall targets have essentially remained unchanged, companies should take note of the following before attempting to simply proceed with current initiatives.

A vital change brought about by the Amended Codes is the qualifying criteria for beneficiaries of such initiatives. The Amended Codes expressly require that beneficiaries of Supplier Development and Enterprise Development are EMEs or QSEs which are at least 51% black owned or at least 51% black women owned. Therefore only entities which are at least 51% black or 51% black women owned and have an annual turnover of less than R50 million, will qualify as a beneficiary.

If your previous Enterprise Development beneficiary meets these requirements, that beneficiary should also qualify as an Enterprise Development beneficiary in terms of the Amended Codes. Whether or not such beneficiary would also have to be a supplier to your company in order to qualify as a Supplier Development beneficiary, is not explicitly addressed in the Amended Codes.

The Amended Codes makes reference to procurement from supplier development beneficiaries, and also encourages the alignment of Enterprise Development and Supplier Development initiatives with supply chain requirements. This presupposes that both Supplier Development as well as Enterprise Development beneficiaries may be suppliers of the Measured Entity, however there is no requirement set that such beneficiary has to be a supplier of the Measured Entity.

The Amended B-BBEE Verification Manual has been gazetted in draft format, and although not yet in force, prescribes the mandatory guidelines which are required to be followed by any person issuing a BEE certificate.

The draft Verification Manual specifically states that the distinction between Supplier Development and Enterprise Development is whether or not the beneficiary is an Empowering Supplier, and not whether it is a supplier to the Measured Entity. A Supplier Development beneficiary may be an Enterprise Development beneficiary, but an Enterprise Development beneficiary may not be a Supplier Development beneficiary, unless it also has Empowering Supplier Status.

It should also be noted that in terms of the draft Verification Manual, verification professionals are not required to obtain any evidence as to whether a Supplier Development beneficiary is also a supplier of the Measured Entity, therefore affirming the fact that this is not a requirement.

In a further recent development the recognition of Empowering Supplier Status has been extended until further notice, which means that all entities with valid BEE certificates or affidavits issued in terms of the Amended Codes enjoy automatic Empowering Supplier Status. In essence there is then currently no distinction between Supplier Development and Enterprise Development. Any qualifying contribution to a beneficiary who meets the general requirements may therefore be claimed under either of the two sub-elements on the scorecard.

With regards to the type of contributions made, the Amended Codes provides a non-exhaustive list of Supplier Development and Enterprise Development contributions, which is essentially similar to that of the previous Codes. There is also no distinction drawn between initiatives for Supplier Development or for Enterprise Development, and a specific type of contribution can be recognised for either of the two sub-elements. However, companies should guard against splitting a single previous Enterprise Development contribution into the now separate two sub-elements as the Amended Codes specifically make mention of the fact that Measured Entities will not get recognition for the same activities undertaken under Supplier Development and Enterprise Development, as they will only get recognition for one of the two.

If your previous enterprise development initiatives meet the requirements discussed above, you should be able to continue therewith whilst also simultaneously complying with the Enterprise and Supplier Development element of the Amended Codes. However, bear in mind that since the draft Verification Manual is not yet finalised verification agencies may have conflicting interpretations in this regard and therefore it is essential that you consult with an experienced BEE consultant to advise you of the most appropriate management of your current initiatives.

This article first appeared on the Phatshoane Henney Attorneys’  February 2016 newsletter

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