White-owned firms should consider BEE options
THE recently published new procurement regulations for government, which require that at least 30% of all tenders and 30% of subcontracting be allocated to small and black-owned companies, have once again prompted whiteowned businesses to reconsider their ownership composition.
Many companies are urged to find solutions immediately in respect of ownership, or face the daunting prospect of losing out on business. Many have already been overlooked, as the new Amended Black Economic Empowerment (BEE) Codes provide that more than 40% of all government procurement be effected from 51% black-owned entities and 12% from 30% black women-owned entities.
Companies with an annual turnover less than R10m (known as exempted micro enterprises) and with 51% black shareholding and a 30% black female ownership component stand to benefit from supplying to larger companies and the government. Small black female-owned entities tick all the procurement boxes.
Second in line, from a competitive point of view, are 51% black-owned qualifying small enterprises — those with an annual turnover less than R50m.
All black-owned exempted micro enterprises and qualifying small enterprises have the added advantage of not having to complete a BEE scorecard when tendering for government business and will qualify for level 1 if they are 100% black owned, or level 2 if they are 51% black owned.
Not having to spend 3% of their net profit after tax on supplier, enterprise development and socioeconomic development, and 3% of their annual payroll on skills development to achieve points on a scorecard could prove to be a welcome cost saver for small firms.
What makes the amendment to the Procurement Regulations more significant is that small businesses and black-owned entities would be awarded state tenders without necessarily scoring the most points during the bidding process.
In the past, the government awarded tenders based on the highest points achieved by a bidder, of which the BEE recognition level accounted for either 10% or 20% of the total points earned. In the past, well-established entities without any BEE recognition could outbid opponents with favourable BEE credentials by reducing their price, because price was by far the biggest point-earner within the allocation matrix.
This is no longer the “winning” case with the new procurement system, and the number of points will not be the only consideration to outbid black or small businesses. The government will ensure that a certain quota of tenders is awarded to these entities’ businesses.
The new procurement dispensation for the government is in line with the procurement requirements that already exist for the private sector in the BEE codes. Points on a measured company’s scorecard are not awarded for the quality or technical capability of the suppliers, but are based on who they are and what their BEE status or recognition levels are. All procurers are, therefore, attempting to find a balance between price, quality, after-sale service, technical capability, and BEE status. But BEE status might often prove to be the most decisive factor.
The manner in which procurement requirements are implemented in the public and private sector — to buy a certain percentage of total procurement from black-owned companies — has caused some to pick up more business, while others have found the new requirements troubling.
Legislation allows for a variety of ownership solutions. Collective ownership programmes incorporating staff members or community members provide a flexible and diverse option that is easy to understand and manage.
Small, white-owned businesses that are overlooked at this point for government procurement are encouraged to consider the options provided by these programmes. This will not only prevent such businesses from losing revenue, but will grow the business.
Community ownership structures are often used to enhance the branding and socioeconomic footprint of a corporation. Employee structures are proven models to build the morale of workers, increase productivity, and enhance human capital overall.
A popular approach to structuring or restructuring ownership is to have more than one collective ownership component, to spread benefits and create diversity.