EXPLAINER | No, BEE has not been scrapped in govt procurement

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Finance Minister Enoch Godongwana.
Finance Minister Enoch Godongwana.
Brenton Geach/Gallo Images

On Tuesday, Finance Minister Enoch Godongwana and the National Treasury briefed journalists on the Preferential Procurement Regulations, which govern the rules for procurement by all state entities and state-owned companies. The briefing followed several incorrect reports that government had scrapped Black Economic Empowerment (BEE) criteria in public procurement.

This is the upshot of what the regulations mean.

BEE has not been scrapped

The Preferential Procurement Policy Framework Act, and the regulations that now apply under the Act, state unequivocally that black-empowered firms that sell goods and services to government must get extra points when tenders are scored. For all contracts below R50 million, black-empowered firms can score up to an extra 20% on the scorecard if they are fully empowered. For contracts over R50 million, they can score an additional 10%. 

This rule has applied since the Act was promulgated in 2000 and still applies.

"There is no basis to say we are doing away with BEE," said Godongwana.

Departments and state-owned companies can add additional preferential criteria when awarding tenders

These criteria must advance the country's developmental goals as outlined in the Reconstruction and Development Programme (RDP) of 1994. So, for instance, they could set criteria to give points to companies that advanced industrialisation or sub-contracted to local small and medium-sized enterprises.

This rule has also been there from the get-go but never applied as state entities took their lead from what the Treasury said.

The 2000 regulations versus the new 2017 regulations

When the Act was passed in 2000, regulations were published and expanded on the two aspects of the Act. But in 2017, the Jacob Zuma administration overhauled the regulations and made major changes.

The biggest change was that companies that won contracts over R30 million were obliged, where possible, to sub-contract 30% of the contract value to "designated groups" including the previously disadvantaged, women, youth and the disabled.

A second significant change was that when it came to procurement, state entities were obliged to procure from local suppliers even when procuring items imported or that could only be bought from one global supplier. 

The 2017 regulations are thrown out

In February this year, the Constitutional Court threw out the new regulations. This was because, it said, policy changes cannot be made in ministerial regulations. The court said the finance minister did not have the power to make procurement policies for all state entities. It gave him until February 2023 to rectify the problem.

The 2000 regulations are brought back

After a lot of confusion during which time the Treasury told departments to hold tenders in abeyance and then reversed their decision a few weeks later, the regulations from 2000 were reinstated in a draft form for public comment. They restored things to the legal situation that existed from 2000 until 2017, with preferential procurement making use of the 80:20, 90:10 rules. Last week, these same regulations were gazetted and became final. 

As there was no accompanying explanation by the Treasury, there was a lot of confusion over what the regulations meant, leading to the incorrect conclusion the BEE in procurement had been scrapped.

The current situation: Same, same but different

The current legal situation is the same as that applied up until 2017 but with one important difference in practical implementation. While the 80:20 and 90:10 BEE system must apply and is cast in stone, it is also possible (and now much more likely) that entities will add additional preferential criteria of their choosing. 

This was made very clear by the Constitutional Court ruling in February because it reminded everyone that public procurement, under the Constitution, is the responsibility of particular entities. Criteria can be added by meeting the requirement to advance the RDP.

In effect this means that all the additional criteria that were brought in by 2017 regulations, such as 30% sub-contracting to designated groups, and local procurement, can still be used by state entities should they want to make them part of their own procurement policy. 

So, the current situation is the same as 2000 to 2017 in law, but the also the same as post-2017 in spirit. 

It's not over

This situation, where state entities can add their own preferential procurement to the 90:10 system or add stronger BEE criteria such as sub-contracting to designated groups, will prevail until Parliament's new Public Procurement Bill is passed next year.

With a new Act, it is likely that procurement policies across state entities will be standardised again.

What is very unlikely is that preferential procurement, enabled by the Constitution, will diminish. 

*This article previously stated that pre-qualification for tenders could be applied. This is incorrect as this has been struck down by the courts. News24 regrets the error. 

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