While the majority of large ICT companies are BBBEE compliant, many small to medium-sized businesses, with a turnover of over R35-million, do not have a B-BBEE scorecard and are losing business as a result.
Keith Levenstein, CEO of BEE advisory firm EconoBEE, says that the ICT industry still has a number of businesses that are not BEE compliant.
“ICT businesses, falling into this turnover category, are not winning ICT contracts because of this. And surprisingly, many of these companies only need minimal work to increase their BEE score, while others already have an acceptable BEE score but are not aware of it.
“They believe it involves too much work or requires a BEE partner to buy a share in the business, which is not the case,” he says.
According to new government legislation, state-owned entities by law need to award tenders based on two key factors, the company’s BBBEE status and the tender price. A standard calculation weights the BBBEE status against the contract price to determine the winning tender with the lowest score.
In all government tenders now, the company with the best prices will not necessarily win the contract. If company A quotes R10-million and has a BBBEE Level 8 rating and company B quotes more – say R10,5-million – but has a better BBBEE rating, company B could still win the contract, even though company A has the better price.
BBBEE practices place businesses into three turnover categories. Firstly, businesses with a turnover of under R5-million, who automatically receive a Level 4 status. Secondly, businesses with a turnover up to R35-million, and thirdly businesses over R35-million.
The BEE scorecard consists of seven elements. Levenstein recommends that ICT companies should focus on the components of enterprise development, socio-economic development, procurement and skills development. The remaining three elements are Management, Employment Equity and Ownership.
Eleven points can be earned by spending 5% of after tax net profit on Enterprise Development activities. Enterprise Development covers support for black-owned businesses in the ICT industry.
This can be in the form of assisting outside black-owned companies with cash grants, discounts on products purchased, loans and loans with preferential terms, shorter payment periods to suppliers, coaching, mentoring and professional services.
The second element, Socio-Economic Development (SED), covers assistance in the social development of the families of staff or the local community. This can include assistance with medical care for the local community, schooling, adult education and transport, amongst others. For ICT companies with a turnover of more than R35-million, a 1,5% spend of after tax annual profit on SED provides 12 BEE points.
The third element, Procurement, can earn up to 26 points. This involves obtaining BEE scorecards and the BEE status of suppliers and purchasing from BEE-accredited businesses.
In terms of procurement, the higher the BEE score or BBBEE level the more customers will benefit based on a BEE recognition level. The value of one extra point to a customer can never be under-estimated for their procurement calculation.
Fourthly, a business is able to earn up to 15 points on Skills Development by spending only 3% of their payroll on training of black employees, a small amount training black disabled employees, and 5% of all employees should be black staff on learnership or certificated courses.
“Experience shows that companies require minimal work to obtain a BEE certificate or to improve on their existing BEE level and by spending a minimal amount,” says Levenstein.