Summary of Revised BEE Codes of Good Practice and Key

Implications

Substantial changes are suggested in the Revised Codes, which will require companies revise their current BEE

strategies to insure future compliance

Key Change

1. Change to thresholds:

a) All entities (except EME’s) will need to comply with all elements of the scorecard;

b) 40% Subminimum requirements for ownership, Skills Development and Enterprise and Supplier Development;

- Generic entities will need to comply with all 3 priority elements;- QSE’s will need to comply with at least 2 priority elements – Ownsership is compulsory;

c) EME’s with more then 50% Black Ownership will qualify as a Level 2 contributor;

d) EME’s with 100% Black Ownership will qualify as a Level 1 contributor;

e) Targets for level Contributor status have been dropped, which impacts companies to drop at lease 2 levels

f) Threshold for EME’s have been increased from R5million to R10millon;

g) Threshold for QSE’s have been increase from R35million to R50million, therefore the bracket will be between R10 million and R50million

2. Revised Scorecards and Thresholds

a) Number of elements are reduced from 7 to 5;b) Total weighting on the scorecard is increased from 100 to 105;c) Enterprise Development and Preferential Procurement is combined to

create an Enterprise and Supplier Development element ;d) Management Control and Employment Equity are combined to form one

element (the indicator for Junior Management is removed);e) Ownership is broadened to include Broad – based Black groups and

Black new entrants;f) Management Control and Skills Development has been amended to align

with EAP targets, broken down in terms of race and gender;

3. Revised Qualification Points for BEE Status

a) Enhanced recognition for Black owned and Black women owned entities (including EME’s);

b) Entities that do not meet the subminimum requirements for priority elements will be discounted;

- Generic entities will be discounted 2 levels;

- QSE’s will be discounted 1 level.

Revised Framework:• Ownership

– Now a priority element and therefore subminimum is applicable: 40% of annual target for Net Value Calculations;

– Broad based groups and black entrants now incorporated into scorecard;

– Weighting for element increases from 20 points to 25 points;

– Collapsed ownership fulfillment and net asset value points

– New entrants qualifying criteria increased from R20million to R50million

• Management Control– Measures increased involvement

of Black people and black women in Top Management positions;

– Targets has increased from Senior (to 50%) and Top Management (to 60%);

– Element includes Employment Equity (senior and middle management);

– Board participation of Black people has been adjusted;

– Adjusted Recognition for gender will no longer be applicable, as specific targets for Black people and Black women has been indicated

– Weighting increases from 10 points to 15 points

• Skills Development– Target increase from 3% to 6% of

Levi able amount ;– Element is priority element and

has subminimum requirements of 40% for the overall element;

– Learnerships are now focused on the absorption of employees and unemployed Black people into formal economy;

– A revised learnership matrix makes for recognition of targeted training only;

– Weighting increased from 15 points to 20 points

• Enterprise and Supplier Development– Targets are increased from 70%

to 80% BEE expenditure ;– Enhanced recognition for

procurement form Black new entrants, Black QSE’s and Black EME’s for a 3 period;

– Only “Value-Adding Suppliers” will be awarded points on the scorecard;

– This element is a priority element and 40% subminimum is applicable;

• Subminimum is applicable to procurement overall;

• Subminimum also applicable to Enterprise Development and Supplier Development indicators/contributions respectively

• Weighting for the element is a set of 40 points

• Targets and points for Black owned and Black Women owned procurement has increased

Impact of the Changes

• Ownership – Current ownership structures will need to be reassessed

• To ensure involvement of Black new entrants and broad-based groups; and

• That 40% vesting takes place relative to the Net Value Targets

– Failure to reach the subminimum requirements of 40% will result in level discounting

– Empowerment deals may have to be restructured or refinanced to ensure compliance with the Revised Codes;

– The Revised Codes will be applicable retrospectively to exisiting BEE deals

• Management Control – Possible difficulty meeting EAP targets due to

demographic representation;– No benefits from Junior Management indicator;– Increased targets make compliance difficult;

• Skills Development– Increased targets for training on Black employees

means that the budget for training will effectively need to double;

– Seperate indicators for Black women training (based on EAP);

– Subminimum must be met to avoid discounting levels;– Informal training (Category G) will no longer count for

Skills Development expenditure;– Ensuring that jobs are available for learners after

completion of learnership programs will be essential

• Enterprise and Supplier Development– Only “Value-Adding Suppliers” will qualify for points on the

scorecard;– Imports are no longer allowable exclusion;– Permissible exclusions are now limited;– Increase in compliance targets will result in difficulty in achieving

the subminimum requirements;– Failure to meet subminimum requirements will result in

discounting of levels;– Target of 2% NPAT is set for supplier development (within own

supply chain) – Target of 1% NPAT is set for Black owned companies (outside

of own supply chain or industry specific initiatives);– Focus will have to shift to finding black owned and black women

owned entities as suppliers in order to achieve the subminimum requirements

• Socio Economic Development– No major structural changes

Levels of Qualifying Scores and Procurement Recognition Values

There is a possibility of non-compliance due to level discounting

Level: “Old Score” “New Score” Procurement Recognition Level

1 100+ 100+ 135%

2 ≥ 85 < 100 ≥ 95 < 100 125%

3 ≥ 75 < 85 ≥ 90 < 95 110%

4 ≥ 65 < 75 ≥ 80 < 90 100%

5 ≥ 55 < 65 ≥ 75 < 80 80%

6 ≥ 45 < 55 ≥ 70 < 75 60%

7 ≥ 40 < 45 ≥ 55 < 70 50%

8 ≥ 30 < 40 ≥ 40 < 55 10%

Non Compliant ≥ 0 < 30 ≥ 0 < 40 0%