Share, , Google Plus, Pinterest,

Posted in:

The Property Sector Code: requirements and importance of proactive procurement planning

Article written by Phillip van der Merwe (SEESA)

This article will focus on the basic criteria of the Property Sector Charter, specifically the element of procurement.

The key with procurement is timeous planning, as procurement points are built up throughout the measured entity’s financial year. There is no quick fix for procurement points and preparation is therefore vital.

It is of the utmost importance that a procurement plan and policy be established before the financial year and that the measured entity ensures that due diligence is practiced when engaging new suppliers. The audit of all supplier certificates on record should be done quarterly to ensure the validity of the certificates and the BEE level remains the same.

The procurement score cannot be changed after the financial year. Should any purchases be made during the course of the financial year with non-compliant or low-level suppliers, it will drastically impact the measured entity’s procurement score if not planned in advance.

The first step in planning for procurement is to establish the total procurement spend. Usually, one will estimate based on your previous financial year figures, taking into account any increases in expenditure. Remember VAT is excluded.

Generally speaking, the procurement element counts close to a third of the total scorecard, as such focus must be given to the element from the start.

Most of the requirements remain the same as the BEE Codes of Good Practice (“the Codes”), but the Property Sector Code has a few additional requirements under the procurement element.

Looking at the Generic Property scorecard, there are six sub-elements of procurement to comply with. We will now discuss each element.

  • B-BBEE Procurement Spend from all Empowering Suppliers based on the B-BBEE Procurement Recognition Levels as a percentage of Total Measured Procurement Spend – all suppliers from level 1 to level8 will be taken into account, and the combined score will count towards the 2 points;
  • B-BBEE Procurement Spend from all Empowering Suppliers that are Qualifying Small Enterprises based on the applicable B-BBEE Procurement Recognition Levels as a percentage of Total Measured Procurement Spend – only QSE suppliers with a turnover between 10-50 million will be taken into account;
  • B-BBEE Procurement Spend from all Empowering Suppliers Exempted Micro Enterprises based on the applicable B-BBEE Procurement Recognition Levels as a percentage of Total Measured Procurement Spend – this sub-element counts 2 points, only EME suppliers with a turnover of less than R 10 million will be taken into account.

The next three sub-elements are the biggest focus point:

  • B-BBEE Procurement Spend from Empowering Suppliers that are at least 51% black-owned based on the applicable B- BBEE Procurement Recognition Levels as a percentage of Total Measured Procurement Spend– this sub-element counts 8 points, only 51% black-owned suppliers will be considered. Ownership under this sub-element does not focus on gender;
  • B-BBEE Procurement Spend from Empowering Suppliers that are at least 30% black women-owned based on the applicable B-BBEE Procurement Recognition Levels as a percentage of Total Measured Procurement Spend. This sub-element counts 4 points. Only suppliers with minimum of 30% black female ownership will be taken into account;
  • Percentage of procurement spend with at least 51% Black Owned Property Service enterprises (level 1 to level3) as a percentage of the total property service spend – this sub-element counts 6 points.

There are four key points to take into account under this sub-element;

  • The supplier must be rated under the property services scorecard;

o The supplier must have a level 1, 2 or 3 BEE status;
o The entity must have 51% black ownership;
o Lastly, only your total spend on property service enterprises only will be taken into account for this sub-element;

For example, you have spent R10 000 with two suppliers, rated under the Property Service scorecard. Company A, is a level 2 supplier with 51% Black Ownership, and your total spend with this supplier is R4 000 throughout the financial year, then you will meet the 40% weighting target. Accordingly, 6 points will be awarded.

Companies must understand that the procurement element cannot be controlled from an advisory perspective after the fact when planning for procurement. Procurement requires a proactive approach.

Before engaging a new supplier, the measured entity must consider the BBBEE status and validity of the supplier certificate, as this has a direct impact on the measured entity’s procurement score.

Firstly, regular audits must be done on current supplier certificates to ensure that certificates on record have not expired as BEE certificates is only valid for 12 months.

Secondly, by conducting regular supplier certificate audits, one can anticipate and plan ahead should one of your major suppliers have a major drop in BEE level.

In light of the above, it is crucial that businesses appoint a legal expert to help plan and implement their procurement policy to avoid later disappointment.

SEESA is a proud Partner of the NSBC

About the Author
Phillip van der Merwe started his career at SEESA in 2018 and is currently a BEE Legal Advisor at Pretoria Head office. He is an admitted attorney of the High Court of South Africa and member of CISA. He obtained his LLB degree from the University of South Africa in 2015.

References

  • Amended Property Sector Code issued in terms of Section 9(1) of the Broad Based Black Economic Empowerment Act 46, of 2013;
  • Understanding the Procurement element of your BEE scorecard:
  • https://www.nvrlaw.co.za/NewsResources/NewsArticle.aspx?ArticleID=3236