PREFERENTIAL PROCUREMENT

What is Preferential Procurement?

The preferential procurement element of the B-BBEE scorecard measures the extent to which a company purchases its qualifying goods and supplies from B-BBEE compliant suppliers as evidenced by the B-BBEE scorecard rating of the supplier.

Why should one consider preferential procurement?

• It Encourages transformation throughout the entire economy;
• Specific incentive to procure from SMALL and micro business which creates new and sustainable entities;
• Encourages the creation of sustainable BLACK WOMEN owned, black owned and controlled enterprises;
• Encourages procurement of locally produced goods and services;
• Enables sustainable INCOME STREAMS to new entities, assisting in their sustainability.

How is preferential procurement measured?

For Qualifying Small Enterprises that choose Preferential Procurement as one of the four elements of the B-BBEE scorecard on which they wish to be measured, the contribution requirements and measurement are as follows:

For Generic Enterprises, the contribution requirements and measurement are as follows:

Does the B-BBEE rating of a supplier impact on the recognition of preferential procurement spend?

The higher the level of a supplier’s B-BBEE rating, the greater the levels of recognition of procurement spend with that supplier. According to the B-BBBEE Codes of Good Practice the procurement recognition levels are as follows:

Non- Compliant

Exempt Micro Enterprises (EME’s) have an automatic rating of Level 4 unless they are more than 50% black owned, where the rating is Level 3.

Can preferential procurement be enhanced in any way?

There are two ways in which preferential procurement can be enhanced.

1. If the procurement spend is with a Value Adding Supplier (a BEE compliant company whose total labour costs plus the Net Profit Before Tax is more than 25% of annual turnover), the total amount procured from such a value adding supplier is multiplied by a factor of 1.25.
2. Companies that can show that they also procure goods and services from a supplier it supports through Enterprise Development contributions may multiply the spend attributable to that supplier by a factor of 1.2.

How can procurement from a company supported by Black Umbrellas or blackpages benefit a company’s B-BBEE rating?

If we assume that a Generic Enterprise has a Total Measured Procurement Spend of R20 million per year, the targeted spend per preferential procurement category would be as follows:

If the company met its target for all suppliers but had not considered suppliers in the other categories, they would receive 12 points out of 20 for preferential procurement.

If the company were to consider suppliers in the other categories and look to Black Umbrellas to assist with this, substantial benefits would be available.

As all businesses supported by Black Umbrellas and black pages are 100% black owned EMEs or QSEs, these companies would have at least a level 3 B-BBEE rating. At least 50% of these businesses are also value-adding suppliers. If these enterprises received enterprise development contributions in addition to procurement opportunities, the required targets would be adjusted as follows:

Currently around one third of Black Umbrellas supported companies are more than 30% women owned. If the above company re-allocated R1.5 million of its target B-BBEE procurement spend to Black Umbrella or black pages companies and assisted in their enterprise development, the impact on its B-BBEE scorecard would be as follows:

Simply by reallocating procurement spend to Black Umbrellas and Black Pages companies and supporting the development of these companies, a Generic Company could increase its preferential procurement points from 12 to 17.21.

Similar benefits would be available to Qualifying small Enterprises.