Financial Data
Updated 29 Feb 2020

How does preferential procurement work?

Understanding preferential procurement.

02 April 2012  Share  0 comments  Print

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The preferential procurement aspect of the scorecard allows you to gain significant points (as many as 20) if you buy from businesses that have a high BBBEE score.

In this way, the pressure to become BBBEE-compliant is spread all the way down the value chain. It pays, therefore, to select your suppliers with care.

While there is no legal requirement for nongovernment entities to implement any type of empowerment policy, preferential procurement gives them an incentive to do so.

However, this is the more complex aspect of BBBEE and is one of the hardest scores to calculate, because each supplier's individual BBBEE rating affects the amount of spend you can use to calculate your preferential points.

Simply put, the higher your supplier is rated, the more of the money that you spend with that supplier can be used to calculate your own BBBEE points.

Businesses therefore need to establish their suppliers' BBBEE ratings as quickly as possible. The sooner you know this, the sooner you can include them in your scorecard calculations.

The following expenses CAN be claimed in terms of preferential procurement:

  • Financial services (banks, insurance).
  • Rent.
  • Legal
  • Travel.
  • Accounting and office supplies.
  • Raw material and services.
  • Multinational corporations operating in South Africa (which are also expected to develop BBBEE profiles).
  • pending where there is a natural monopoly (eg, Telkom).

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During the course of running and growing your business, you will need access to both short-term and long-term cash savings to pay salaries, suppliers, or even to save for a future project or large payment. Standard Bank provides a range of flexible Savings and Investment solutions, with competitive interest rates, to help you meet your business’s savings and investment needs.

The following expenses CANNOT be claimed:

  • Salaries and wages.
  • Spending where the choice of supplier is part of a global policy for technical reasons (eg, printing overseas because it is cheaper, when in fact it could be done locally). Certain imports are excluded.
  • Charges for services rendered by other departments or suppliers within the same group.
  • Social investment or donations.
  • VAT and taxes payable.

You can claim more than your actual spend with a supplier (up to 135%) if the company has a BBBEE rating of between 75 and 100.

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