Level up your B-BBEE by maximising the 44 points available for Preferential Procurement
The beginning of a new financial year is an opportunity for companies to review their Broad Based Black Economic Empowerment (B-BBEE) certificates. By understanding every point that’s been missed, it’s possible to map out and implement a cost-effective approach to ensure that as many points as possible are secured for the following year’s scorecard.
Sean Sharp, Executive Head of Sales at EduPower Skills Academy, says that through the trickledown effect of doing business with a public sector entity, the business imperative of a favourable B-BBEE status is driven to virtually every business operation in South Africa. This cascading need for compliance shows up most often through Preferential Procurement, the heaviest weighted element on the scorecard and one of the best ways to maximise B-BBEE points.
“When it’s done right, Preferential Procurement can provide up to 44 points for your B-BBEE scorecard. More importantly though, it encourages corporates to support small businesses which provides opportunities for our society’s vulnerable groups including people with disabilities, our youth and women,” Sean explains.
So when a customer asks a business for its B-BBEE certificate, they are in fact working on their own Preferential Procurement score and calculating whether they are earning or losing points by dealing with that supplier. So based on its importance, here are Sean’s top four strategies to maximise points for Preferential Procurement:
1. The Multiplier Effect
The Preferential Procurement calculation depends on the value of goods and services purchased and the B-BBEE recognition level. The overarching rule is that currently, up to 50% of procurement must come from B-BBEE compliant suppliers. There are also additional ways to strengthen and diversify your supply chain and multiply the points availability, for example, if your supplier is 51% Black-Owned or 51% Black Women-Owned, it will provide a multiplier effect and will inflate your procurement spend with them by 125%. If the supplier is also your enterprise development project and a category A beneficiary, it will inflate your ED spend by a further 125%.
2. Maximise Enterprise Development
A key component of Preferential Procurement, Enterprise Development, encourages businesses to work with a diverse number of SMEs. The most effective ED strategy for a corporate is to invest in start-ups that can contribute to the company’s value chain. This stimulates reciprocal needs between the investor and the ED beneficiary and the company will be able to provide the operational and financial support to make these small enterprises more sustainable.
3. Maturing ED to SD
As the SMEs supported under ED mature into year two of their operations, they can be converted as a beneficiary under Supplier Development (SD) when corporates add these fledgling businesses to their supply chains and use them to procure goods or services. This can be extremely empowering for the beneficiary and assists the donor in building their vendor database.
4. Earlier is Better
If it is inevitable that a non-compliant or unreliable supplier has to be replaced, start early and allow time to onboard and optimise a new supplier. Leaving it until later in the financial year will have limited scorecard benefits as there will simply not be sufficient procurement from a new and more compliant supplier to impact the procurement score.
Sean says that Preferential Procurement is one of the most important elements of the scorecard as it aims to encourage the use of black-owned professional services and entrepreneurs as suppliers, while inherently encouraging measured entities to empower themselves on the broad-based principles of B-BBEE.
“B-BBEE is more than just getting the best possible level by ticking off compliance checkboxes to avoid penalties and secure contracts. So make 2022 count by ensuring that your Preferential Procurement is about meaningful transformation and providing an opportunity for companies and individuals to play a greater role in the overall development of South Africa,” Sean concludes.
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