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12/03/2018

Vash Singh - Construction Companies To Take Heed Of New B-BBEE Codes

Vash Singh, Managing Director of Xcelerate Verification Agency

The Amended Construction Sector Code was gazetted on 1 December 2017 with immediate effect and to a large extent is different from the General Amended Codes. Companies are urged to implement these new requirements to ensure they score well on their next B-BBEE rating.

Who does it apply to?
This Code applies to organisations which derive >50% of annual revenue from construction related activities. Key categories are:

Material Suppliers - manufacturing, creation or supply of building material and equipment used in construction e.g. cement, concrete, bricks, electrical equipment, steel, plant hire, plumbing.

Built Environment Professional (BEP) - planning, design and costing of construction projects e.g. consulting engineers, architects, quantity surveyors, town planners, project management.

Contractors - who conduct construction project activities including civil engineering, electrical engineering, power transmission, general building, specialist construction works e.g. construction works, wiring, air-conditioning, heating, asphalt work, excavations, scaffolding and support, shop-fitting, structural steelwork, water-proofing.

All such companies are required to submit their B-BBEE certificates annually to the Construction Sector Council for tracking and monitoring purposes.

EMEs
EMEs are either below R10m annual turnover bracket for contractors/material suppliers or below R6m annual turnover for BEPs, or a start-up company in its first year of operations.

A discounting or enhancing effect applies to EMEs, hence allowing for companies to influence their level as
a competitive advantage.

Discounting does not apply to start-up companies or for small EMEs (<R3m for Contractors/Material Suppliers or R1.8m for BEPs). For the latter, an affidavit or CIPC certificate is required. For others, only SANAS accredited rating agencies can produce a certificate with the adjusted ratings. EMEs can choose to be assessed on the QSE scorecard as another option for possible enhancement. For more clarity visit xcelbee.co.za/blog.

QSEs
QSEs are in the R10-50m annual turnover bracket for contractors/material suppliers or R6-25m annual turnover for BEPs. A discounting or enhancing effect applies to QSEs, hence allowing for companies to influence their level as a competitive advantage.

Only SANAS accredited rating agencies can produce a certificate with the adjusted ratings (no affidavits allowed).

Joint Ventures
Unincorporated joint ventures are common in the construction industry and are required to have a consolidated verification certificate based on the weighting of the joint venture parties.

Hence, individual certificates or affidavits must be valid and meet the Amended Codes requirements. The points that are used for the calculation of the joint venture certificate scoring, and BEE level, are listed in the
Codes.

Generic Scorecard
The Generic Scorecard is split into different requirements for contractors (including material suppliers) >R50m annual turnover and BEPs >R25m annual turnover:

In general, companies need to be aware of the concept of "Priority elements" where 40% of the points for Ownership (net value), Skills Development (excluding bonus points) and Preferential Procurement & Supplier Development (excluding bonus points) - are each of the three broad categories. Should this not be met on any one of them, the certificate level will be discounted one level down from the level scored. Hence,
the importance of tracking this aspect within the financial year to avoid disappointment at time of verification.

The key differences in the elements are as follows:

Ownership:
Stepped targets are in place for years 1-3, and then year 4 onwards where black ownership targets move from 32.5% to 35% and black women ownership from 10% to 14%.
Bonus points are available for high levels of black ownership.
For BEPs, >50% of shareholders must be professionally registered must be registered with a BEP professional council, and a member of the executive committee. Should this not be the case, only half of the black shareholders who do not meet these requirements may be included in the ownership calculation.
Management Control:
No junior management targets for BEPs.
Points available for percentage professionally registered staff that are black.
Bonus points are available for exceeding black director targets and having black employees that meet the definition of "youth".
The reporting of Employment Equity returns to the Department of Labour is not a pre-requisite to earning points on this element.
Racial demographics feature in the calculation of scores for senior, middle and junior management points.
Skills Development:
The annual submissions to the SETA by 30 April every year is a pre-requisite to earning any points on this element.
Stepped targets are in place for total Skills Development spend for immediate effect, and then at year 3, and then year 5 onwards. Additional points are then available based on how and to whom the spend was done e.g. African people, black management and bursaries/scholarships.
The Learning Programme Matrix has been adapted for the Construction industry, so it is important to pay attention to the descriptions. Learnerships now include Category A learners as well!
The maximum period of recognition for a Professional Registration learnership is 5 years.
3 points available for an Approved and Verified Mentorship Programme, the specifics of which are clearly defined on pages 44-45 of the Codes.
Informal training (Categories F & G) have a higher limitation of 35% (rather than 15% in the General Codes), allowing for more of this type of training to be recognised by construction companies.
Mandatory training which cannot be included in the skills spend is specifically defined as the following, hence all other training can be claimed.
Site, project or safety inductions
Toolbox talks
Operators re-certification
The racial demographic calculation is relevant only on one sub-indicator, making it much easier to score on this element than the other Revised Codes.
Preferential Procurement & Supplier Development:
The requirement for Empowering Supplier status is as per the Amended DTI Codes - blanket approval is being applied to every company at this stage. It is important to take note of the requirements as most aspects must be applied in the financial year.
The points and targets for spend on ≥51% black-owned suppliers are lower than other amended codes.
Bonus points are available for spend on Black Designated Groups and enhanced spend on ≥51% black women-owned suppliers.
The 3 points for Black womenowned spend is on suppliers that are ≥35%, not ≥30% as per other amended codes.
The qualifying beneficiaries and requirements for the Supplier and Contractor Development Programmes are listed on pages 52-53 of the Codes.
To optimise points, 20% of Supplier Development contributions should be to suppliers that are ≥51% black women owned.
Up to 75% of the points (versus 15% on the other amended Codes) can be attained on shorter payment terms with suppliers.
Companies can earn Supplier Development points by funding the certification of their suppliers (see EME and QSE sections) - this boosts your Procurement and Supplier Development points in the following ways - contact us to assist you with this initiative:
SMMEs and Black owned companies now have their best possible BEE level confirmed by a SANAS accredited verification agency, to use to develop their companies
Large companies increase their procurement spend by getting proper, optimised BEE certificates for their suppliers, and the spend with Xcelerate Verification Agency to conduct the work increases procurement scores even further due to our status as a Level 1 Empowering Supplier - EME, 100% black-owned and >51% black women owned.
The spend for EME verification is also used to score points under the Supplier Development element.
Socio-Economic Development:
Extra points for 30% of the spend being on "Communities with Limited Service", the definition of which is page 74 regarding access to water, electricity and household income.
Bonus points for structured SED Projects, of which the required records are listed on page 62 of the Codes.
Contributions benefitting black people with disabilities is increased by a factor of 1.25.
The Amended Codes can be downloaded off our website www.xcelbee.co.za/downloads.

As there are many specifics within the element scorecards and principles, it is important to understand the fine print.

Xcelerate Verification Agency is SANAS accredited on this new Code and are specialists on the Construction industry.

We look forward to providing advisory or verification services to all those interested in having a competitive advantage.

Contact us on 0861 505 555
info@xcelbee.co.za
www.xcelbee.co.za
xcelbee.co.za/blog

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 Vash Singh Construction Companies To Take Heed Of New BBBEE Codes.pdf


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