This guide will provide you with an overview of how the codes work and how to apply the scorecards to your business.
These may seem difficult to understand at first, but the way in which they are applied to small businesses is fairly straightforward.
Defining the Codes and Scorecards
The B-BBEE Codes of Good Practice emerged in February 2007 as an implementation framework for B-BBEE policy and legislation. After the implementation, institutional mechanisms were established for the monitoring and evaluation of B-BBEE in the entire economy. These include BEE Codes and Scorecards.
The BEE Act is a legislative framework which allows for the development of the Codes of Good Practice. The Codes provide a standard framework for the measurement of broad-based BEE across all sectors of the economy.
This means that no industry will be disadvantaged over another when presenting their BEE credentials. The intention of the Codes of Good Practice is to level the playing field for all companies and organisations operating within the South African economy by providing clear and comprehensive criteria for the measurement of broad-based BEE.
How are SMEs affected?
All entities with a turnover of less than R5 million per annum are known as Exempted Small & Micro-Enterprises (ESMEs) and are granted a deemed BEE Status as Level Four Contributors. In the case where these entities are also more than 50% owned by black people or black women, their status is elevated to that of Level Three Contributors.
If your exempted business is white owned, you automatically receive a BEE Score of 65% and if your business is more than 50% black owned, you automatically receive a BEE score of 75%. White exempted businesses will therefore be less competitive in the tendering process if they tender against black owned businesses.
Note: Start-up enterprises are measurable as ESMEs for the first year following their formation or incorporation. This provision applies regardless of the expected total revenue of the start-up enterprise. However, if start-up enterprises tender for any contract with a value higher than R5 million but less than R35 million, they have to comply with the Qualifying Small Enterprises (QSE) scorecard. If start-up entities tender for contracts with a value above R35 million they have to comply with the generic scorecard.
Qualifying Small Enterprises (QSEs)
A much-needed solution to the challenge of BEE and small enterprises has been addressed by the QSE scorecard. QSEs are defined by the Codes as companies with an annual total turnover of between R5 million and R35 million.
Government has singled out small enterprises as vital in the fight for job creation and economic growth. Aiming to ease the regulatory burden on small enterprises, many of which are already struggling under financial and capacity constraints, the Codes require QSEs to comply with only four out of seven elements on the QSE scorecard.
And while every company qualifying for measurement under the Codes must maintain a scorecard, the codes have further eased the BEE compliance burden by setting lower targets for these companies.
Unlike the Generic Scorecard, the QSE Scorecard allocates an equal 25% weighting to each of the seven elements of B-BBEE. As QSEs only have to elect four of the elements, selected elements of compliance total 100%. QSEs may choose four out of the seven elements on the scorecard (making a total of 100 points). If a QSE selects more than four elements, the best four will be selected.
If your annual turnover is more than R35 million you have to generate a BEE score out of all 7 elements.
Who do the Codes apply to?
The Codes of Good Practice on B-BBEE are binding on all organs of state and public entities. This means that government must apply the Codes when entering into decisions on:
- Licensing and concessions
- Public private partnerships (PPPs)
- The sale of state-owned entities
The following entities are bound by the Codes and must implement BEE:
- All organs of state
- All public entities listed in schedules 2 and 3 of the Public Finance Management Act
- Any enterprise which does business with any organ of state or public entity
- Any private sector business providing goods or services to another business that is subject to measurement under the Codes, may be required to provide evidence of its own level of compliance to its customer and, to that extent, will be subject to measurement under the Codes
- Companies limited by guarantee
- Higher education institutions
- Non-profit organisations
- Public benefit schemes
- Section 21 companies
How will the Codes be applied?
The Codes of Good Practice are important for decision-makers when making and reporting on economic decisions such as:
- Reporting on BEE spend and initiatives
- Making economic decisions based on BEE criteria
- Selecting and implementing BEE initiatives
As a result, the Codes of Good Practice are important to the management of businesses interacting with both public and private sector entities that make their business decisions based on the Codes.
Visit The Department of Trade and Industry at www.dti.gov.za/economic_empowerment/bee.jsp