What do the new Preferential Procurement regulations mean for BEE?

While there are many varying opinions and debates surrounding the 2022 Preferential Procurement regulations, the question remains, what is the difference between the new preferential procurement regulations and the last amended regulations in 2017 and more specifically, what does this mean for your business and B-BBEE?

As we usher in the new financial year in South Africa, many companies will begin 2023 with the hope of improving their B-BBEE ratings in order to advance their competitiveness in the South African market. However, with the implementation of the new Preferential Procurement regulations on January 16, 2023, there has been a large discussion surrounding the validity of ensuring your business has a high B-BBEE score.

While the new Preferential Procurement regulations will give state organs more discretion to implement their own procurement policies, this does not mean that B-BBEE is being discarded.

The key differences between the PPR 2017 regulations and the new 2022 regulations focus on the pre-qualification criteria and the replacement of the BEE scoring system. The 2017 regulations allow for organs of state to implement specific pre-qualification criteria that “advance certain designated groups”, such as women, persons with disabilities and small enterprises, the new regulations no longer require the use of pre-qualification criteria.

The 2022 PPPFA Regulations however have not exempt organs of state and public entities from implementing B-BBEE as part of Preferential Procurement. Rather, the preferential Procurement regulations changes mean that state owned enterprises:

  • Can set their own procurement policies as envisaged in S217(1) of the Constitution and S2 (1) of the Preferential Procurement Policy Framework Act (“PPPFA”).
  • Can use their procurement policies to set their own ‘specific goals’ for the awarding of 20 or 10 points depending on the contract value.
  • Cannot use local content requirements as disqualification criterion for tender.
  • Can choose to include sub-contracting in their procurement policies, but it is not mandatory.

“The entire preferential points system that awarded points based on B-BBEE Level of compliance is now removed and each tender must have its own points system for specific goals. However, this does not stop organs of state from implementing B-BBEE compliance as part of their “specific goal” requirements, but it is likely that the goals will focus on the promotion of black owned businesses and not BEE Compliant businesses”, says Deon Oberholzer, Gestalt Group CEO.

This may lead to the abandonment of BEE compliance in general as it was, in the first place driven from public procurement that then cascaded through the economy, he adds.

According the National Treasury media release, “The Minister of Finance, as well as the National Treasury and the Government, remain wholly committed to transformation and empowerment as envisioned in the Constitution. In fact, organs of state must comply with the BBBEE Act when developing their procurement policies”

Furthermore, according to the B-BBEE Commission, the new regulation set out have not removed organs of the state from their obligation to implement the B-BBEE Act and its requirements. While we are seeing a shift in regulations, the question remains, what now?

Giving your business a competitive advantage in 2023 can help you catapult into the future and in order to improve your business competitiveness, it is important to ensure that you are using proven transformation models in order to unlock maximum potential from South Africa’s domestic market.

“Companies will have to be much more vigilant in their appreciation and response to the various specific goals that emerge in tenders going forward to assess how they can improve their access to business” explains Oberholzer.

If public procurement increasingly ignores the BEE Codes and BEE Level compliance in favour or other transformation objectives, companies may simply stop complying with the codes and focus on Joint Ventures with Black Owned companies and Oberholzer adds that it is more likely though that some form of BEE Level Compliance will feature in the specific goals.

Gestalt offers tailor made solutions ensuing your B-BBEE strategy earns maximum points at the lowest investment. To learn more about how you can turn B-BBEE into a strategic asset for your business, visit: https://www.gestaltconsult.com/contact-us/