B-BBEE Consulting

Forest Sector Charter Council (FSCC) Annual Reports and Annual Status of Transformation

B-BBEE Sector Codes

Chartered Accountancy Profession Sector Code DRAFT (26 April 2019)

CA Charter_Report_V3

Revised Sector Codes

Revised Financial Sector Code (01 December 2017)

Revised Agri-BEE Sector Code (08 December 2017)

Revised Construction Sector Code (01 December 2017)

Revised Property Sector Code (09 June 2017)

Revised Forest Sector Code (21 April 2017)

Revised ICT Sector Codes – Clarification of Effective Date (07 December 2016)

Revised ICT Sector Code (07 November 2016)

Revised MAC Sector Codes (06 May 2016)

Revised Tourism Sector Code (20 November 2015)

Draft Sector Codes

Draft Transport Sector Code (February 2016)

Repealed Sector Codes

Chartered Accountancy Charter Sector Code

Other Sector Codes

Defence B-BBEE Sector Codes of Good Practice re-issued, Gazette 42391 (12 April 2019)

Amendment of the Mining Charter (20 December 2018)

Mining and Minerals Sector Charter (27 September 2018)

Mining Employment Equity Scorecard

Mining HRD Template

Mining Reporting Template

Mining Scorecard

Petroleum & Liquid Fuels Industry Charter (02 November 2000)

Sector Codes-related documents

Construction

Reviewed Professional Registration Councils (August 2018)

In February 2007, the dtic gazetted the Black Economic Empowerment (BEE) Codes of Good Practice, in terms of which a number of Transformation Sector Charters (also referred to as Sector Charters) were introduced, vetted and analysed for compliance, as per the stipulations of either Section 9 or 12 of the B-BBEE Act, No. 53 of 2003.

The responsibility of the dtic is to ensure that Sector Charters submitted for gazetting are sufficiently aligned to the B-BBEE Act and Codes of Good Practice and more importantly, that they advance the objectives of sustainable B-BBEE.

A B-BBEE Sector Charter, gazetted in terms of Section 12 of the B-BBEE Act, means that it:

• Has been developed and agreed upon by major stakeholders in the industry;
• Is published for information purposes only and used as a statement of intent by industry players; and
• Is fully binding between and among businesses operating in the industry.

NB: A Sector Charter gazetted in terms of Section 12 has no bearing on state organs and departments.

A B-BBEE Sector Charter, gazetted in terms of Section 9(5) of the B-BBEE Act, means that it:

• Is a Draft Sector Code, which has complied with the provisions of Section 12 of the B-BBEE Act, in that major stakeholders have agreed to the stipulations of the Charter; and
• Is a Draft Sector Code, which has been published nationally for public comment and input, for a period of sixty (60) days.

A B-BBEE Draft Sector Code, gazetted in terms of Section 9(1) of the B-BBEE Act, means that it:

• Becomes a Sector Code of Good Practice (Sector Code) and shares the same status as the B-BBEE Codes of Good Practice, published by the Minister of Trade, Industry and Competition, in February 2007; and
• Is fully binding between and among businesses operating in the industry.

Statement of Clarification – Effective Date of Sector Codes

The purpose of this statement is to clarify the date when a Measured Entity that falls within the scope of a particular Section 9(1) Sector Code must be measured or verified on the basis of the Sector Code and no longer on the basis of the B-BBEE Codes of Good Practice (“the dtic Codes”). View Statement

Definitions of Concepts

Sector Codes gazetted under Section 9(1):

B-BBEE Codes of Good Practice

Youth  Employment Service – Practice Note
Youth Employment Service – Gazette 41866

Broad-Based Black Economic Empowerment Act (53/2013): Revised notice of clarification

The Minister of Trade and Industry Dr Rob Davies (MP), published a Revised Notice of Clarification – Gazette no 38799.

B-BBEE Amended Codes of Good Practice

The Minister of Trade and Industry Dr Rob Davies (MP) hereby:

• Published a Notice of Clarification for the Amended B-BBEE Codes of Good Practice, Gazette Number 38764
• Published schedule of the Amended Codes of Good Practice, Gazette number 38765
• Published Phase 2 of the Amended Codes of Good Practice, Gazette number 38766

B-BBEE Act

Broad-Based Black Economic Empowerment Amendment Act, 2013 (Act No. 53 of 2003)
B-BBEE Act 2003-2004

B-BBEE Strategy

A Strategy for Broad-Based Black Economic Empowerment, download the strategy

B-BBEE Procurement and Transformation

Section 217 of the Constitution of the Republic of South Africa states that when an organ of state in the National, Provincial or Local sphere of government, or any other institution identified in national legislation, contracts for goods or services, it must do so in accordance with a system which is fair, equitable, transparent, competitive and cost-effective. Furthermore, it stipulates the need to implement a Procurement Policy that will provide for categories of preference in the allocation of contracts; and the protection or advancement of persons, or categories of persons disadvantaged by unfair discrimination.

The Preferential Procurement Policy Framework Act (PPPFA) was enacted as a result of the aforementioned Section of the Constitution. The PPPFA stipulates that when government assesses contracts, it must take into account a preference point system which prescribes functionality, price and reconstruction development programme (RDP) goals.

In December 2006, when the Broad-Based Black Economic Empowerment (B-BBEE) Codes of Good Practice were approved for gazetting, Cabinet directed the dti and National Treasury to amend the PPPFA, so as to advance the objectives of the B-BBEE Act No 53 of 2003 as Amended by Act 46 of 2013 (BEE Act) and its related strategy, as these two pieces of legislation were not appropriately aligned.

The above mentioned process led to the amendment of the Preferential Procurement Regulations to align themselves to the B-BBEE Codes of Good Practice.

2011 PREFERENTIAL PROCUREMENT REGULATIONS

The current Preferential Procurement Regulations stipulates the 80/20 preference point system for the procurement of goods and services with a rand value of R1 million, and a 90/10 preference point system for the procurement of goods and services with a rand value of above R1 million, to strengthen the contribution of small, medium and micro-sized enterprises (SMMEs).

With regards to the 80/20 principle, 20 points are allocated to a bidder in respect of its B-BBEE status level.

With regards to the 90/10 principle, 10 points are allocated in respect of the bidder’s B-BBEE status level.

2017 PREFERENTIAL PROCUREMENT REGULATIONS

As of 20 January 2017, the amended Preferential Procurement Regulations have been gazetted by National Treasury

Effective date of the Regulations is 01 April 2017

Key Amendments:

• 80/20 preference point system from R30 000 and up to R50 million
• 90/10 preference point system above R50 million
• Certain concepts and definitions have been aligned to the B-BBEE Act No 46 of 2013
• If an organ of state decides to apply pre-qualifying criteria to advance certain designated groups, that organ of state must advertise the tender with a specific tendering condition that only one or more of the following tenderers may respond-
  • a tenderer having a stipulated minimum B-BBEE status level of contributor;
  • an Exempted Micro Enterprise (EME) or Qualifying Small Enterprise (QSE);
  • a tenderer subcontracting a minimum of 30% to-
    • an EME or QSE which is at least 51% owned by black people;
    • an EME or QSE which is at least 51% owned by black people who are youth;
    • an EME or QSE which is at least 51% owned by black people who are women;
    • an EME or QSE which is at least 51% owned by black people with disabilities;
    • an EME or QSE which is 51% owned by black people living in rural or underdeveloped areas or townships;
    • a cooperative which is at least 51% owned by black people;
    • an EME or QSE which is at least 51% owned by black people who are military veterans;

Although the BEE Act does not place a legal onus on the private sector to comply with its provisions, it does, however, place a legal onus on organs of state to contribute to B-BBEE, including among other aspects, when developing and implementing a Preferential Procurement Policy.

In addition to achieving the 20 points allocated to the Preferential Procurement element of the Codes of Good Practice, government entities must procure goods and services from companies with a good B-BBEE status. This has a trickle-down effect which applies pressure on all suppliers and service providers to meet these standards. The impact that this cascading implementation has on procurement in general is the increase in market access for black companies.

In addition, the Preferential Procurement Regulations recommend how to address the objectives of the Industrial Policy Action Plan, especially those aimed at promoting the procurement of domestically-produced goods and services. The Preferential Procurement Regulations stipulate that the dtic is able to designate specific industries of critical and/or strategic importance, for tenders in which it is indicated that only locally-manufactured products with a prescribed minimum threshold for local content will be considered.

Where the dtic is yet to designate an industry on organ of state, it may, as a specific tendering condition, prescribe the minimum local content of a product based on thorough research that includes strategic sourcing methodologies, ongoing industry analysis and local manufacturing capacity. In such cases, a two-stage bidding process may be followed.

The Broad-Based Black Economic Empowerment Act No 53 of 2003 as Amended by Act 46 of 2013, Section 10 states the following:

(1) Every organ of state and public entity must apply any relevant code of good practice issued in terms of this Act in-

(a) Determining qualification criteria for the issuing of licences, concessions or other authorisations in respect of economic activity in terms of any law;
(b) Developing and implementing a preferential procurement policy;
(c) Determining qualification criteria for the sale of state-owned enterprises;
(d) Developing criteria for entering into partnerships with the private sector; and
(e) Determining criteria for the awarding of incentives, grants and investment schemes in support of Broad Based Black Economic Empowerment.

(2) (a) The Minister may, after consultation with the relevant organ of state or public entity, exempt the organ of state or public entity from a requirement contained in subsection (1) or allow for deviation therefrom if particular objectively verifiable facts or circumstances applicable to the organ of state or public entity necessitate an exemption or deviation.”

B-BBEE Verification

The BEE Verification process evolved since the release of the B-BBEE Strategy in 2003 and the promulgation of the Broad-based BEE Act, which set the scene for the regulation of the BEE measurement/verification industry. The gazetting of the B-BBEE Codes firmly moved the industry from a self-regulated one to a BEE verification industry.

the dti appointed the South African National Accreditation System (SANAS) to conduct the accreditation of Verification Agencies. In 2010 a request was made by the IRBA to be given authority to accredit their members. The Minster of Trade and Industry issued a gazette notice in September 2011 granting approval for IRBA to accredit its members to conduct B-BBEE verifications. The IRBA was responsible for the Auditing profession and a Memorandum of Agreement was entered into between the dti and IRBA.

The agreement made provision for the assistance and guidance to be provided to IRBA on technical issues within the Codes and the Act. It allows for collaboration all issues relating to the implementation and transformation in terms of the B-BBEE Act no. 53 of 2003 as amended and the 2007 Codes of Good Practice.

The promulgation of the B-BBEE Amendment Act No. 46 of 2013 (The Act) requires the Minister of Trade & Industry to appoint a body for the accreditation of rating agencies or authorisation of B-BBEE Verification Professionals. In view of the above provision, the B-BBEE Unit is developing professional standards for rating agencies and B-BBEE Verification Professionals in order govern the B-BBEE Verification industry. Furthermore, the B-BBEE Unit is in the process of developing standards and policies for the establishment of the B-BBEE Verification Professional Regulator.

On the 4th of March 2016, the IRBA had issued a communique to its members indicating that they will be withdrawing from the regulation of B-BBEE assurance services. The withdrawal of the IRBA from the B-BBEE Verification Industry which became effective from the 01 April 2016 had required the dtic to accommodate the exit

The exit was planned to take place on the 30 September 2016, in which case B-BBEE Approved Register Auditors will not be able to participate in the B-BBEE Verification Industry and undertake new B-BBEE Verifications

However, a further notice has been issued by the IRBA on the 2nd August 2016 stating the following “With respect to assurance engagements that have been entered into prior to 30 September 2016, a transitional period of three (3) months (to 31 December 2016) will be allowed for the sign off of the verification certificates for these engagements.”

As of 31 December 2016, B-BBEE Approved Registered Auditors within the B-BBEE Verification Industry are no longer able to conduct B-BBEE Verifications – Unless Accreditation is received from SANAS

If B-BBEE Approved Registered Auditors choose to continue operating post 31 December 2016 in the B-BBEE Verification industry, those B-BBEE Certificates will no longer be valid under Section 10 of the B-BBEE Act No 46 of 2013

In terms of Statement 005, SANAS was appointed as the Accreditation Body with the IRBA being Approved Regulatory Body, in view of this with the exit of IRBA, SANAS continues in its mandate under this Statement.

The current Statement 005 is in the process of being amended to introduce new concepts of the B-BBEE Verification Professional Regulator and remove the IRBA as the Approved Regulatory Body.

Standards of the B-BBEE Verification Industry

The role of B-BBEE Verification Agencies is to assess, verify and validate disclosed and undisclosed B-BBEE-related information on measured entities. The standards for performing B-BBEE measurement are fundamental to confirming that the information on which the certificate is based, has been tested for validity and accuracy. B-BBEE Verification should, therefore, be based on key measurement principles and standards. The methodologies followed by Verification Agencies, in the performance of verification, should demonstrate a clear understanding and knowledge of the B-BBEE Framework and Codes of Good Practice.

In view of the above, the dtic, published the Verification Manual, Gazette No. 810, on 18 July 2008, with the intention of putting in place universal, transparent and coherent standards applicable to the verification industry. The Verification Manual prescribes minimum standards and methodologies that Verification Agencies should apply when conducting B-BBEE verification. To qualify for accreditation, Verification Agencies should conform to, among other pre-requisites, the minimum requirements of the Verification Manual and ensure that the necessary standards are maintained and upheld even beyond accreditation.

B-BBEE Verification Certificates

B-BBEE Verification Certificates must be issued in accordance with Section 7 of Statement 005, Gazette Number 34612.

• Amendment of the Codes of Good Practice, Published in Gazette Number 29617 on 9 February 2007 [PDF]
• To view a list of accredited B-BBEE Verification Agencies, visit the South African National Accreditation System (SANAS)
• B-BBEE Verification Manual, 18 July 2008
• Preferential Procurement Regulations 2017
• National Treasury Circular 5 of 2016
• Broad-Based Economic Empowerment Amendment Act (53/2003): Draft Statement 005 of 2017

Fronting means a deliberate circumvention or attempted circumvention of the B-BBEE Act and the Codes. Fronting commonly involves reliance on data or claims of compliance based on misrepresentations of facts, whether made by the party claiming compliance or by any other person. Verification agencies, and /or procurement officers and relevant decision-makers may come across fronting indicators through their interactions with measured entities.

Fronting Practices

Window-dressing: This includes cases in which black people are appointed or introduced to an enterprise on the basis of tokenism and may be:

• Discouraged or inhibited from substantially participating in the core activities of an enterprise; and

• Discouraged or inhibited from substantially participating in the stated areas and/or levels of their participation;

Benefit Diversion: This includes initiatives implemented where the economic benefits received as a result of the B-BBEE Status of an enterprise do not flow to black people in the ratio as specified in the relevant legal documentation.

Opportunistic Intermediaries: This includes enterprises that have concluded agreements with other enterprises with a view to leveraging the opportunistic intermediary’s favourable B-BBEE status in circumstances where the agreement involves:

• Significant limitations or restrictions upon the identity of the opportunistic intermediary’s suppliers, service providers, clients or customers;

• The maintenance of their business operations in a context reasonably considered improbable having regard to resources; and

• Terms and conditions that are not negotiated at arms-length on a fair and reasonable basis.

Responsibility to Report Fronting

In order to effectively deal with the scourge of Fronting, verification agencies, and/or procurement officers and relevant decision makers are encouraged to obtain a signed declaration from the clients or entities that they verify or provide business opportunities to, which states that the client or entity understands and accepts that the verification agency, procurement officer or relevant decision maker may report Fronting practices to the dtic. Intentional misrepresentation by measured entities may constitute fraudulent practices, public officials and verification agencies are to report such cases to the dtic.

Fronting Indicators

B-BBEE Codes of Good Practice, 2007

• Framework, Generic Scorecard and Ownership, pages 1-44
• Management Control, Employment Equity, Skills Development, Preferential Procurement, Enterprise Development and Socio-Economic Development, pages 45-77
• Small Enterprises, pages 78-86
• Schedule 1: Interpretation and Definitions, pages 87-96

Summary of the B-BBEE Codes of Good Practice, July 2007 

Threshold for Major B-BBEE Transactions

Clarification notes

The following are the interpretative notes to be utilised by measured entities and rating agencies for the implementation of the codes.

Question: If a loan was made to an enterprise development beneficiary prior to it becoming a supplier, but the beneficiary has since become a supplier, can it still claim this as an enterprise development loan?

Answer: Where a qualifying beneficiary graduates from enterprise to supplier development status within the same measurement period, the measured entity can elect to recognise the qualifying contribution as either enterprise or supplier development. The qualifying contribution, however, cannot be double-counted or split across enterprise and supplier development recognition. This applies only to a loan and not to recoverable spend.

Question: An international measured entity sets up shop in South Africa and partners with a black-owned BEE company for black ownership. The entity receives level 4 verification after its first year of operation. Four years later, the BEE partner company decides to sell its shares and realise profit. The entity is now battling to get a replacement BEE partner, mainly because its licence is up for renewal and no BEE partner is willing to buy into an entity that is unable to offer a guarantee of renewal. Furthermore, without a BEE partner, the entity’s chances of renewal are limited, if not completely diminished. It now wants to claim continued consequence while looking for a replacement BEE partner. The entity qualifies on all areas, except for the fact that its last verification stood at level 6, which is two levels below the original level 4; this is because the amended codes have increased targets and reduced points. The entity’s motivation is that were it now verified under the old generic codes (against which it was initially verified), it could prove increased transformation as per the requirements.

Answer: The measurement of transformation is to be done against a valid code of good practice, inclusive of amendments. Thus, if transformation has not taken place – i.e. if there has been no improvement in B-BBEE Status Level – recognition of continued consequences cannot follow.

Question: A company whose 2018 results have been audited by the B-BBEE rating agency would like to know how net profit after tax (NPAT) is defined for the purposes of B-BBEE. The company states the following: We are in disagreement with the amount used as net profit after tax as the rating agency has included a dividend received from two subsidiary companies in our 2018 financial results. We appealed this decision, but the appeal was rejected. We received a dividend from subsidiary companies in order for them to repay a loan from many years ago, which we had granted with the aim of eventually deregistering these subsidiaries. This current treatment has resulted in us being graded as non-compliant for the purposes of BEE, whereas we have in fact improved our score. We highlight that the International Financial Reporting Standards (IFRS) does not hold special distinctions for items of operational nature that occur irregularly or infrequently; rather, all results are disclosed as revenues, finance costs, post-tax gains or losses, or results from associates and joint ventures. The International Accounting Standards Board, or IASB, ceased recognising extraordinary items under IFRS rules in 2002. The IFRS has a separate disclosure for income or expenses of abnormal size or nature. These disclosures can be on the face of the income statement or in the notes section of the report. So, in short, for accounting purposes there is no distinction made for items that might be considered abnormal or extraordinary; these are simply lumped together with operating profits for reporting purposes. As a result, the crux of the problem is that the BEE definition still refers to GAAP accounting statements, while financial statements are prepared in terms of the IFRS. One of the distinctions is that dividends are shown on the face of the income statement, while under GAAP accounting standards the dividend would not have been disclosed on the income statement at all, but as a reduction of retained income. In either case, the dividend received is not part of operating income and should not be included in NPAT.

Answer: Net Profit after Tax is defined in Schedule 1 of the B-BBEE Codes of Good Practice as “means the operating profit of measured entity after tax”. It incorporates both the equity/loss figures and abnormal items, but excludes extraordinary items as determined by (GAAP) Generally Accepted Accounting Practices. The determination of NPAT is to be done by the financial auditors of the measured entity. If the measured entity wishes to have it restated using GAAP principles, this must be done by the financial auditors, not the B-BBEE verification agency.

Question: In terms of the guidelines on complex structures, a holding or parent company can obtain a consolidated B-BBEE scorecard that includes the measurement of contributions across more than one entity within a group or divisional structure. Is there a minimum threshold in terms of shareholding or otherwise that the holding or parent company needs to have in another entity in order for that entity’s B-BBEE contributions to be measured together with the holding or parent company?

The scenario is as follows: The parent or holding company that requires a group consolidation scorecard holds 35% shares in company A. Does company A qualify to be consolidated with other subsidiaries, even though in terms of the Companies Act it does not qualify as a subsidiary since the parent company does not have the majority of voting rights in company A? In other words, do we consolidate only subsidiaries or may we consolidate associated enterprises? If we are allowed to consolidate associated companies, what is the minimum threshold in terms of shareholding?

Answer: To qualify for inclusion in a consolidation, entities need to meet the definition of subsidiary as per Section 3 of the Companies Act:  3. (1) A company is — (a) a subsidiary of another juristic person if that juristic person, one or more other subsidiaries of that juristic person, or one or more nominees of that juristic person or any of its subsidiaries, alone or in any combination — (i) is or are directly or indirectly able to exercise or control the exercise of a majority of the general voting rights associated with issued securities of that company, whether pursuant to a shareholder agreement or otherwise; or (ii) has or have the right to appoint or elect, or control the appointment or election of directors of that company who control a majority of the votes at a meeting of the board; or (b) a wholly owned subsidiary of another juristic person if all of the general voting rights associated with issued securities of the company are held or controlled, alone or in any combination, by persons contemplated in paragraph (a). (2) For the purpose of determining whether a person controls all or a majority of the general voting rights associated with issued securities of a company — (a) voting rights that are exercisable only in certain circumstances are to be taken into account only — (i) when those circumstances have arisen, and for so long as they continue; or (ii) when those circumstances are under the control of the person holding the voting rights; (b) voting rights that are exercisable only on the instructions or with the consent or concurrence of another person are to be treated as being held by a nominee for that other person; and (c) voting rights held by — (i) a person as nominee for another person are to be treated as held by that other person; or (ii) a person in a fiduciary capacity are to be treated as held by the beneficiary of those voting rights. (3) For the purposes of subsection (2), ‘hold’, or any derivative thereof, refers to the registered or direct or indirect beneficial holder of securities conferring a right to vote.

Question: With regards to the 5% learnerships, do they need to be 2.5% employed and 2.5% unemployed, or can there be any split?

Answer: Measured entities can split the 5% target in whichever way they see fit. For example, a measured entity that only has its employees as part of its learnership under 2.1.2.1 can still enjoy the full six-point recognition. For absorption recognition, however, the learner being absorbed must not have had a long-term contract of employment prior to absorption.

Question: Can absorption be claimed for an unemployed learner who was enrolled for an NQF 4 learnership and is now enrolled for an NQF 5 learnership?

Answer: No. The definition of absorption was amended to ensure the learner is awarded a long-term contract of employment before absorption can be recognised. The only exception would be sector codes that have a different definition of absorption.

Question: Does a qualifying beneficiary have to be operational at the time of contribution? In other words, can a start-up enterprise benefit from enterprise development?

Answer: A start-up enterprise can benefit from enterprise development, however, the objective of the measured entity needs to clearly defined and measurable at the time of beneficiation. Furthermore, it needs to meet the definition of ‘entity’ as defined in Schedule 1 of the B-BBEE Codes of Good Practice.

Question: Where a measured entity holds a majority share (51%) in an enterprise or supplier development (ESD) beneficiary, can the measured entity claim points for its contribution to the beneficiary under ESD? Assume that the contribution was made to a qualifying ESD beneficiary and that the contribution itself meets all the criteria of a qualifying enterprise and supplier development contribution, as defined in the codes. The codes do not expressly state whether a beneficiary may or may not be ‘controlled’ by the measured entity. The only reference that might have any bearing on the above is Statement 000, Par 2.2, which states:  “In interpreting the provisions of the codes any reasonable interpretation consistent with the objectives of the B-BBEE Act as amended and the B-BBEE Strategy must take precedence.” The codes, however, do refer to the Companies Act, Paragraph 3 (subsidiary relationships), which states the following: “A company is a subsidiary of another juristic person if that juristic person is directly or indirectly able to exercise or control the exercise of a majority of the general voting rights.” The codes define ‘enterprise development contributions’ and ‘supplier development contributions’ in Schedule 1.

Answer: No. Where the beneficiary entity is majority-owned by the measured entity, the objective of the ESD cannot be fully met as there is no operational independence. This is because the measured entity has significant economic connections to the beneficiary entity.

Question: What is your opinion on the verification of labour brokers in general? The labour broker would hire temporal employees on behalf of a client and place them at different clients. The client would then train the temps in order to equip them with the requirements of the job. For ease of reference, labour broker means measured entity. ABC (Pty) Ltd means the labour broker client.

Employment equity: Can the labour broker claim for the temps under their employment equity scorecard if the employment contract is signed between labour broker and the temp? If the temp has been with the labour broker for more than three months and placed at one client for longer than three months, can the temp be regarded as an employee of the client for employment equity purposes? If not, how should the temp be accounted for under the labour broker’s BEE scorecard?

Skills development: The labour broker would like to claim the training done for the temps as part of skills development. For example, if ABC (Pty) Ltd is a client of a labour broker and is looking for temps who have forklift driving certificates, does the forklift training paid for by the labour broker become mandatory training or can the labour broker claim for this training?

Preferential procurement: The BEE codes are not specific or detailed in how this should be treated. The codes mention that labour brokers and contractors are included in the calculation of measured procurement expenditure. This is in the case where ABC (Pty) Ltd pays the labour broker for the outsourced labour. How does the labour broker as a measured entity account for this expenditure for the purposes of BEE? Does the labour broker see the temps as suppliers or exclude the money paid to temps as employee costs?

Supplier development: Can the labour broker claim training provided for the temps as part of its supplier development programme? This is, of course, if the temp is seen as procurement.

Enterprise development: Can the labour broker claim training provided for the temps as part of its enterprise development programme? This is, of course, if the temp is seen as procurement.

Socio-economic development: Can the labour broker claim training provided for temps as part of its socio-economic development programme?

Answer: Measured entities should recognise the employee qualification as set out in the Constitutional judgement Assign Services (Pty) Limited v National Union of Metalworkers of South Africa and Others. Where a TES employee earns below the earnings threshold (currently R224 080.48 per annum) as determined by the Minister of Employment and Labour, and in terms of the basic conditions of employment is placed for three months or more at the host site or TES client, such an employee is deemed a permanent employee of the host, and must be reported and recognised as such for B-BBEE measurement purposes. The same does not apply to those earning above the earnings threshold; they remain TES employees

Question: The term ‘socio-economic project contribution’ is defined in Schedule 1, Part 2 (definitions) of the revised codes as follows: “Monetary or non-monetary contributions carried out for the benefit of any projects approved for this purpose by any organ of state or sectors including, without limitation: (a) projects focusing on environmental conservation, awareness, education and waste management; and (b) projects targeting infrastructural development, or reconstruction in underdeveloped areas; rural communities or geographic areas identified in the government’s integrated sustainable rural development or urban renewal programmes; (c) new projects promoting beneficiation.” What process should an organ of state follow for a project to be approved under socio-economic contributions? In addition, does the department have in place a policy or guidelines for companies/organisations looking to have their projects recognised as contributing to this socio-economic aspect? We recently received a legal opinion from state law advisors that “the process of approving a project for socio-economic development purposes is separately regulated”. How is this process of approving a project for socio-economic development purposes separately regulated within organs of state?

Answer: Approval in the form of a letter on official letterhead signed by the representative of the organ of state is sufficient to accept any of the projects listed under the definition of ‘socio-economic project contributions’. The Department of Trade, Industry and Competition cannot prescribe processes to any department, as requested in the second part of this query. Projects should meet the descriptions provided for in the definition, and supporting socio-economic development evidence should be submitted.

Question: We have been advised that fixing roofs does not qualify as leading to access in the economy, that donations must increase the beneficiaries’ ability for employment, and that socio-economic development should be distinguished from corporate social investment (CSI). Does this mean that the provision of suitable housing or functional buildings for a school does not qualify as socio-economic development? This issue raises the more urgent clarification regarding the definition of socio-economic development, and different interpretations of the term income generation. One interpretation states that income generation cannot be futuristic in nature, and should immediately lead to the beneficiaries being able to generate income.

Answer: Socio-economic development contributions should be differentiated from CSI initiatives in that they should seek to promote the participation of beneficiaries in the economy. There should be a link between the contribution and the opportunity created for beneficiaries to access the economy. It is important to note that the 2013 codes refer to the facilitation of income-generating activities. This means that activities that provide beneficiaries with the opportunity to access the economy should count since this leads to generation of income by beneficiaries.

Question: Under Statement 102: Point, 4.1.3, does it matter how the black party/participant funds the transaction? If they took a private loan, would that have to be used in net value calculations? With regard to Point 6.1.2, is it correct in saying that the value finalised in year three will be taken forth year-on-year? Basically, will the measured entity forever recognise that sale of asset? With regard to Point 5.6.4, “the rights of ownership in the equity instrument are comparable to rights that would have accrued had the sale/transaction taken place at seller level”. My understanding of this point is that you must treat the sale of asset as a sale of shares to an individual black shareholder. Value of asset against value of company will be the equivalent to a black shareholder buying shares in the company. With regard to Point 3.2.2.3, for the three years, can the black party/participant drop a BEE level or do they have to maintain their BEE status at time of purchase for the points to be recognised?

Answer: Any loan constitutes a third party right to the shareholding and should be accounted for in the net value calculations. To the second point, yes, after year three the value is finalised and taken forth. To the third point, yes, you must treat the sale of asset as a sale of shares to an individual black shareholder. To the final point, no, the BEE level has no impact on the calculation.

Question: In terms of enterprise development, a measured entity pays a contribution to a third party for ESD facilitation. An ESD facilitator then identifies an end-beneficiary for enterprise development. An end beneficiary gets a loan from the ESD facilitator. With regard to the recognition percentage for the measured entity, is 100% for the grant given for ESD facilitation or 70% for the loan? I would think that it would be 100% since it was a grant, and the loan is not with the measured entity but with the third party and end-beneficiary.

Answer: The loan made to the ESD facilitator should be allocated to the end beneficiary in the financial period. There is no grant where the intention is to provide loans to black-owned small, medium and micro enterprises. Only 70% of the contribution made is claimable as ESD, in line with the benefit factor matrix.

Question: Should B-BBEE certificates recognised under preferential procurement be the latest valid B-BBEE certificate or be valid at least one day into the financial year end of the measured entity?

Answer: The certificate needs to either be valid for at least one day in the measurement period or valid at the time of verification.

Question: When is the first-year-repayment graduation factor of 10% payable?

Answer: As ‘year’ is not defined in the B-BBEE codes, it takes on its ordinary meaning of a 12-month period commencing on the first day of the first month and ending on the last day of the 12th month. As such, the 10% target for the first year commences on the first day that all rights and obligations in terms of equity ownership are enforceable. The intent is to ensure that there is always value in black hands, from day one, before net value points can be awarded. It is for this reason that entities offer B-BBEE shareholding at a discount.

Question: Are related party Commissioners of Oath allowed to authorise their own transactions and attest to the sworn affidavits for exempted micro enterprises (EMEs) and qualifying small enterprises (QSEs)?

Answer:  No,  complete independence is required, as per the Justices of the Peace and Commissioners of Oath Act.

Question: Is the Workplace Skills Plan/Annual Training Report mandatory for B-BBEE verification for QSEs?

Answer: It is mandatory for B-BBEE purposes when the QSE is capable of reporting in terms of the Skills Development Act or Skills Development Levies Act.

Question: Do you accept internal valuations for net value? Is a valuation required annually?

Answer: An internal valuation is acceptable. The B-BBEE rating agency needs to inspect the valuation for reasonability in terms of 9.2.5.4.1 of the Verification Manual, Appendix 2. Business valuation is based on specific financial data and is valid at a certain point in time. Valuation therefore needs to be valid at the time of verification.

Question: In terms of complex ownership structures involving private equity ownership and trusts, can such a measured entity use a BEE affidavit? In other words, can the measured entity use the flow-through principle in multiple layers to determine ownership status for BEE affidavits, or affidavits used for direct ownership?

Answer: The substance over form principle should be applied. The intention of the codes is not to benefit the complex ownership structure. Furthermore, the affidavit should be standardised. The sector code will have to customise the affidavit according to their various sectors.

Question: Regarding BEE affidavits for EMEs and QSEs in a complex ownership structure involving black private equity, is it permissible to apply enhanced recognition for black private equity fund managers or to recognise them as true black ownership. Code 3.10.1 allows measured entities to treat ownership arising from private equity funds as if that ownership is held by black people, where the private equity fund meets certain criteria stipulated (codes 3.10.1.1 to 3.10.1.3)

Answer: Yes, as long as the stipulated criteria are met.

Question: A legislated commission (same as Sector Education Training Authorities) seeks to review its position on whether a commissioner or CEO can be considered an executive director on the Management Control Scorecard for Specialised Enterprises since they are not appointed directors. Currently, their Management Control Scorecard reflects no executive directors, only non-executive directors and other executive management. Public entity companies, with the minister’s intervention, appoint a board of directors for the entity. In carrying out its fiduciary duties, the board will appoint executive managers (CEOs etc.) who are not directors to assist in carrying out the mandate of the shareholder. In the case of the unnamed commission, we are of the opinion that the appointed commissioner should be considered to be an executive director of the commission.

Answer: The verification agency should measure the role they play, the powers that comes with position, and whether there are equivalent roles to which the codes apply when it comes to the private sector.

Question: What evidence is required for learnership absorption?

Answer: Any of the following documents can be requested by the BEE professional: Learnership completion certificate, learnership agreement, affidavit by the learner, interview, offer and acceptance of employment, permanent employment contract or confirmation letter and payslip.

Question: How do you evidence an unemployed learnership?

Answer: You can evidence this with an affidavit, interview, agreement, letter of appointment or intake form. The learner must not have been permanently employed to qualify for absorption

Question: What is the common practice regarding accepted timing of absorption (if absorbed after measurement date, but before certificate date)?

Answer: The absorption must have happened before the verification period, irrespective of the measurement period, to align with the objective of the BEE Act. The objective is the creation of employment that qualifies as absorption, as defined in the May 2019 amendments. As long as the person was a learner within the financial period, it should be claimable where they have completed the learnership programme by the time of verification.

Question: What evidence is required for learnerships that are outsourced, i.e. the host is different to the sponsor?

Answer: The tripartite agreement will stipulate all parties of the learnership agreement, i.e. learners, employer and the institution. Only the employer (who is the sponsor) can claim the learnership, not the host. This must be measured and verified with proof of payments and learnership agreements.

Question: What evidence is required for Youth Employment Services (YES) candidates?

Answer: Confirmation from YES and evidence pertaining to enrolment with YES programme, i.e. access to the YES system. B-BBEE rating agencies must make use of the Practice Note on the Implementation of YES initiative, government notice 640 of 2018.

Question: Can the annual fees that Chartered Accountants (CAs) pay to their professional body be claimed under skills development?

Answer: Membership fees are paid to ensure that CAs maintain and/or retain their professional status, and are not claimable as training. However, the Continuous Professional Development courses or any training received from the professional body is claimable.