The government spends over R500 billion annually on goods and services. Promises have been made for several years that government would promote small and medium-sized businesses (SMEs). Government has also promised to help emerging Black business through its Broad Based Black Economic Empowerment (BBBEE) program.
Now it has taken steps to follow through on this. From 1 April, new preferential procurement regulations have come into effect that favour SMMEs and BBBEE firms. The aim of these regulations is to channel R150 billion in procurement spend to these entities.
New regulations from 1 April – how will they work?
State and parastatal tenders depend mainly on price. In terms of the new regulations the percentage of points awarded for a tender that depend on price is 80% for tenders of R50 million or less, and 90% for tenders over R50 million.
Tenders may now be subject to pre-qualifying criteria which may contain any one of the following:
- A minimum BBBEE (Broad Based Black Economic Empowerment) status
- An Exempt Micro Enterprise (EME) status – turnover of R10 million or less; or a Qualifying Small Enterprise (QSE) status – turnover of R50 million or less
- If it is feasible to subcontract a tender of more than R30 million then the business that is awarded the tender must allocate 30% of the tender to
- EMEs and/or QSEs
- EMEs and/or QSEs with at least a 51% Black shareholding
- A cooperative which is at least 51% Black owned
- Any combination of the above.
In essence this excludes companies that do not have the above criteria.
Thus, the state has put in the conditions for a large slice of its procurement to go to SMMEs and BBBEE businesses. It is now up to government and parastatal entities to use these new regulations.
SMMEs and BBBEE organisations should now follow tenders closely to see if they are eligible for a slice of this R500 billion spend.
This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)