BEE Revised Codes Clarification Notice: Clarification or mystification?

The deadline for final implementation of the Revised BEE Codes of Good Practice (“Revised Codes”) was set for 1 May 2015 and companies waited with bated breath for the Department of Trade and Industry (“DTI”) to clear-up many of the uncertainties that exist around the Revised Codes. The silence was finally broken by a Notice of Clarification (“Notice”) issued by the DTI on 5 May 2015 intended to clarify many of the uncertainties surrounding the Revised BEE Codes of Good Practice and its relationship with Sector Codes. On closer analysis of the Notice it is clear that the Department did not fully succeed in its attempts at clarification, and has quite possibly added to the existing uncertainty.

The Notice essentially deals with five matters which we will unpack and highlight some of the reasons why the Notice in our opinion adds to the current confusion.

a) Firstly the Notice confirms that the Revised Codes came into effect on 1 May 2015. It then continues to state that all verifications conducted using a financial year end ending before 30 April 2015 may be verified in terms of the Old BEE Codes (“Old Codes”) except for the Sector Codes.

At first glance this paragraph seems to extend the grace period for companies not falling within a specific Sector Code by at least a year or two. For example a company can apply for a BEE certificate during June 2016 based on its February 2015 financial statements and can have a valid BEE certificate in terms of the Old Codes until June 2017. If however you read this paragraph with paragraph (c) it may be that Old Code certificates will only be valid up until 30 April 2016 which is the end of the inaugural year of the Revised Codes. This will mean that if a company’s BEE certificate is issued on 1 February 2016 the certificate will only be valid for 3 months. Sector Codes are specifically excluded from this provision. These companies must be verified in terms of their current Sector Codes until such time as the Sector Codes are aligned with the Revised Codes.

b) Secondly the Notice extends the period for the relevant Sector Codes to be aligned with the Revised Codes to 31 October 2015. It elaborates by stating that those Sector Codes aligned by 1 November 2015 will be effective by 1 November 2015 and those not aligned will be under consideration for repeal.

According to this paragraph the Sector Codes should be aligned to the Revised Codes by 31 October 2015 and effective from 1 November 2015. No mention is made of a 60 day notice period for public comment as necessitated by the BEE Act. What is meant by “repeal” and which codes will apply to companies whose Sector Codes are repealed? Will they be verified in terms of the Revised Codes?

c) Thirdly the Notice reads that for the inaugural year of the Revised Codes all BEE certificates will remain valid and will be treated as empowering suppliers.

The inaugural year of the Revised Codes ends on 30 April 2016. Again, does this mean that the validity of all BEE certificates issued in terms of the Old Codes will cease on 1 May 2016? The other question that comes to mind here is if clients can still use these Old Code certificates for procurement purposes after 30 April 2016? Can companies afford to continue to make use of suppliers with Old Code certificates when they could be running the risk of making use of a BEE compliant supplier for 12 months only to at the end lose procurement points because of an ‘invalid’ certificate that cannot be recognised for procurement purposes.

d) Fourthly the Notice states that EME or start-up companies will receive automatic empowering supplier status even if same is not stated on the BEE certificate.

This is a positive move from the DTI and confirms that all EME companies will be seen as empowering suppliers even where such is not expressly stated on the certificate. The problem with this provision is that it refers to BEE certificates issued for EME companies whereas the Revised Codes make no express provision for BEE certificates to be issued for such companies. The Revised Codes refers to a sworn affidavit to prove EME status.

e) Lastly the Notice states that black broad-based schemes and employee ownership programs can only score points under the net value indicator. 

This is by far the most controversial provision of the Notice and the potential effect hereof will be that companies that make use of a broad based or employee ownership scheme will only score a maximum of 3 points out of a possible 25 points for the ownership element. A large number of South African companies have opted for this form of ownership to address their ownership element based on the perception that this was a preferred form of ownership as it makes provision for broad-based empowerment at ownership level. If this interpretation holds, it will have far-reaching consequences for many companies that have used broad based or employee ownership schemes in the BEE planning.

The Notice of 5 May will provide many a headache for companies and their BEE consultants and it seems that companies should consider adopting the safest possible plan of action after consultation with their BEE advisors and verification agencies as there will surely for some time be many varying interpretations of this Notice and its implications.

May 7, 2015
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