About B-BBEE Verification

• How does B-BBEE work?

  Black Economic Empowerment (BEE) verification is an independent and in-depth assurance process that seeks to verify the "Broad-Based BEE" (B-BBEE) status of companies, closed corporations and other economic entities. A measured entity (client) will have demonstrated through formal verification that it is in compliance with the B-BBEE Act and the B-BBEE Codes of Good Practice. The term "black people" in the context of B-BBEE refers to "African, Coloured, Chinese and Indian" people.

  It is called "Broad-Based" B-BBEE because it measures the participation of black people or the benefits accruing to black people over a broad-base of criteria or "elements" of an organization. There are 7 of these elements and they are:
  

  • Ownership (measures the interest black people have in the ownership of the business)
  • Management (measures the participation of black people in the strategic management of the business)
  • Employment Equity (measures the participation of black people in the other employment levels of the business)
  • Skills Development (measures the contributions the business makes to the development of its black employees' skills)
  • Preferential Procurement (measures the extent to which the business procures from other B-BBEE compliant entities)
  • Enterprise Development (measures the contributions the business makes to the development of black owned or empowered businesses)
  • Socio Economic Development (measures the contributions the business makes towards facilitating access to the economy for black people in general)

  The Codes categorize businesses into three types depending on their size:

  • Exempt Micro Enterprises (EME's) are businesses with an annual turnover of below R5 mil. They are exempt from having to comply with the B-BBEE scorecard and merely needs to prove that their annual turnover is below the required turnover threshold. They are afforded an automatic Level 4 B-BBEE status. If they can also prove that they are black owned they get promoted another level to a Level 3 B-BBEE status.
  • Qualifying Small Enterprises (QSE's) are businesses with an annual turnover of between R5mil and R35 mil. They have to comply with the QSE scorecard which requires that they elect four of the seven elements of the scorecard to be measured on. The weightings of each of those four elements then change to 25 so that the end score on the scorecard is still a score out of 100.
  • Large Enterprises are business with an annual turnover in excess of R35 mil per annum. They have to be measured on all seven elements of the scorecard.

  Please note that the thresholds between EME's, QSE's and Large Enterprises are set at different levels by some of the sector Codes. An EME in terms of the generic codes may therefore not be an EME anymore when measured in terms of the Construction Sector Code.

• The different B-BBEE status levels.

  These elements are represented on a scorecard and most elements contain sub-categories. Each element has a weighting attached to it and these weightings add up to 100. Depending on the score out of 100 a business achieves, it is allocated a particular B-BBEE status level. This B-BBEE status level in turn, translates into a B-BBEE Recognition Level (see the table below for the corresponding B-BBEE scores, -Levels and -Recognition Levels).

  

  The Recognition level attached to the B-BBEE Status level shows how much recognition a client of your business can obtain, on its preferential procurement scorecard, for procuring goods or services from you. In other words, if you are a Level 8 contributor your clients will only receive 10% recognition or R10 for every R100 of spend on you when they complete their own preferential procurement score on their B-BBEE scorecard. On the other hand, if you were a Level 1 contributor your client would have obtained R135 recognition for every R100 he spent on you. B-BBEE therefore has a direct effect on your competitiveness in the South African market place. The better your B-BBEE score the more attractive you become to your market vis a vis your competitor who is less empowered.

• What drives B-BBEE?

  The B-BBEE Act 53 of 2003 and the subsequent Codes of Good Practice on B-BBEE, which regulates B-BBEE, contains no punitive measures for non-compliance with the B-BBEE scorecard. In other words, a business and its directors will not get fined or penalized in any other manner for non-compliance, except that they will become less attractive to do business with and they will not gain access to government business.

• Verification as the most credible and cost effective way of establishing your B-BBEE status.

  Even before the accreditation of the first verification agencies in February 2009 corporate South Africa was having itself verified by verification agencies. The reason for this is twofold, namely: accuracy and the mitigation of legal risk. The accreditation of verification agencies added even further to the business case for accreditation in that it contributes to the standardization of measuring B-BBEE. Today verification is also recognized as the simplest and therefore most cost effective way of presenting your B-BBEE status to the market.

  Accuracy

  Firstly verification is the most accurate way of establishing your B-BBEE status. Our experience is that the self assessed scores of businesses more often that not differ substantially from the independently verified scores of the same business. In most cases the reason is not the deliberate misstatement of scores by the business but the inability of that business to support its claimed contributions with verifiable objective evidence. Another major reason for this is the complexity of the Codes. Understanding the legislative framework of B-BBEE requires not only an in depth knowledge of the Act and Codes but specialized legal and commercial skills not always prevalent in a business when conducting a self assessment. Accurately determining the B-BBEE status of a business is therefore best left to professional individuals with the necessary skills set. The need for accuracy in turn is derived from the second reason or business case for verification, namely mitigation of legal risk.

  Mitigation of Legal Risk

  Because a B-BBEE status is used to influence the decision of the procurer of goods or services it is important to make sure that when you make a representation of your B-BBEE status that it is accurate. The person relying thereon could have legal recourse against your business if it could prove that it made its procurement decision based on your representation and that that representation amounted to a misrepresentation. The legal risk is not only from the procurer but from other potential suppliers of the goods or service who lost out on the business to the procurer placing reliance on your misrepresentation.

  This legal risk increases with the increase in the value of the business so obtained. In other words if your business tendered for government business worth R15 mil and was awarded the tender based on the misrepresentation your potential legal risk is R15 mil. Appointing an independent accredited verification agency will effectively mitigate this legal risk.

  Verification ensures apples are compared to apples

  Accredited verification agencies such as AQRate are accredited to perform verifications in compliance with a standard verification methodology which has been legislated. This methodology is contained in the Verifcation Manual which was gazetted on 18 July 2008. It establishes the minimum evidentiary requirements for proving a specific score. In this regard it is the single biggest contributor to the standardization of the verification process since the inception of B-BBEE.

  Cost Efficacy of Verification

  In determining the B-BBEE status of their suppliers, when calculating their own preferential procurement score on the scorecard, businesses send out questionnaires and B-BBEE status requests to their suppliers. That supplier however has several clients and therefore receives several such B-BBEE status requests and/or questionnaires every year. Completing and returning these questionnaires becomes a time consuming and laborious task, costing businesses excessive amounts of money. If regard is had to the fact that this exercise has to be done every year for each client it soon becomes clear that the cost of this practice out ways its benefit. The practical and most cost effective solution therefore remains to have your business verified once every year and to merely forward your verification certificate in response to such queries to your clients.