Preview of amendments due on BBBEE codes

By: EconoBEE

The DTI has announced that new B-BBEE codes will be released, probably before the end of October 2012. These codes will be drafts, available for public comment. Only once they are gazetted in terms of section 9(1) of the act will they need to be implemented. It has typically taken up to a year for new codes to be released.

Implementation Transition – The BEE Codes have in the past included forms of transitions which allow some time for the new codes to be implemented. The most notable is the transition from Narrow Based to Broad Based using Ownership and Management data. Due to the nature of the changes, the fact that it will take time for the verification industry to understand the new codes and the scale of the changes we suspect a transitional period allowing companies a period of time to implement the new codes.

Even if a transitional period might be on the cards the reality is that it will be more difficult to achieve the same level of compliance. The best practical solution to avoid the difficult challenges is to prepare now using the current codes which will give extra time. The implication is that you will have a verified scorecard without the urgent need to use the new codes.

Timelines – We expect that the earliest that the codes will come into effect will be mid-2013.

Summary of the revised codes

  • Reduction of the generic scorecard to five elements, with Employment Equity and Management Control being consolidated, and Preferential Procurement and Enterprise Development merged to form a Supplier Development Element.
  • Ownership has been broadened to include designated groups in the main points.
  • The thresholds for Exempted Micro Enterprises and Qualifying Small Enterprises (QSE) have been adjusted.
  • All companies, except Exempted Micro Enterprises, will be required to comply with the five elements of the B-BBEE scorecard.
  • B-BBEE recognition levels status table has been revised.
  • Priority elements have been introduced, namely ownership, skills development and supplier development, and large enterprises are to comply with all three priority elements.
  • The priority scores of entities that do not comply with sub-minimum requirements in each priority will be discounted.
  • Entities that are 100% black-owned will qualify as Level 1, while entities that are more than 50% black-owned will qualify as Level 2.
  • Framework for the accreditation of B-BBEE Verification Agencies to extend to the Independent Regulatory Body of Auditors.
  • Alignment of the B-BBEE Employment Equity elements with the Employment Equity Act and the Skills Development Elements has been aligned to the New Skills Development Strategy.

Implications and Speculation

Generic – All elements must be followed with the inclusion of priority elements. If certain minimum thresholds are not met then penalties will be allocated against the points earned. This type of concept is similar to the current Employment Equity targets where a company which does not earn at least 40% on the indicator then they are not awarded any points for that indicator.

 

QSE – All elements must be followed. Indications are that QSE’s will not have penalties for non-compliance with priority elements. Targets are expected to be easier. However since all elements need to be followed a level 1 QSE will be hard to achieve.

EME – Principles remain largely unchanged however we believe that 100% black-owned will qualify as Level 1, while entities that are more than 50% black-owned will qualify as Level 2 only for EME’s.

Turnover thresholds will change.

Verification methodology is currently taking an about turn. Once the revised codes come into effect we anticipate seeing an even bigger change. Through auditors, B-BBEE compliance is becoming more about earning points and doing good than following procedure. If we look at the true essence of transformation we should encourage businesses to do good, and in so doing gain points.

Updated procurement recognition table. Indications are levels have been adjusted which makes it more difficult to achieve a level. A minor change of this nature will immediately drop procurement points.

This piece came out of the a newsletter from EconoBEEhttp://www.econobee.co.za/

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