Public tenders and EME’s: Who will qualify as an EME?

My business has a turnover of around R6 million. I understand that companies under R10 million will qualify as an EME under the new BEE Codes and do not have to be verified. However a government official recently told me that for tender purposes the Preferential Procurement Regulations only recognises a company as being an EME if its turnover is less than R5 million. Is this correct and will I have to rate my business?

Significant amendments to the BEE compliance framework has been introduced over the last year, commencing with changes to the Broad-Based Black Economic Empowerment Act (“BBBEE Act”) in 2014 and more recently with the promulgation of significant amendments to the BEE Codes of Good Practice (“Revised BEE Codes”). In terms of these changes an Exempt Micro Enterprise (“EME”) is now any company with an annual total revenue (turnover) of less than R10 million, increasing the threshold to qualify as an EME from R5 to R10 million. EME’s need not be formally verified and can receive an automatic level four BEE recognition, with level four being a highly competitive BEE level under the Revised Codes which will assist EME companies to be BEE compliant and BEE competitive. Under the Revised BEE Codes an EME also does not need a formal BEE certificate, and is only required to provide either a sworn affidavit or certificate issued by the Companies and Intellectual Property Commission which confirms that its annual turnover is less than R10 million.

The increase of the threshhold for EME’s will however give rise to problems when it comes to government tenders, until such times as the regulations to the Preferential Procurement Policy Framework Act 5 of 2000 (“PPPFA”) have been updated to be aligned with the Revised BEE Codes.

Government procurement must be conducted in terms of the PPPFA and its regulations. In terms of the PPPFA certain preference points are awarded to tenderers based on their BEE level, with an accredited BEE certificate being used to evidence the points that can be claimed for BEE compliance by a tenderer. The current PPPFA regulations still determine that an EME is any tenderer with an annual total revenue of R5 million or less and that such an EME, to prove its status and obtain points for its level four status, must submit a certificate issued by a registered auditor, accounting officer (as contemplated in section 60(4) of the Close Corporation Act, 1984) or an accredited verification agency. 

This creates the discrepancy that the Revised BEE Codes allow any company under R10 million turnover to be recognised as an EME without having to undergo formal verification, whereas the PPPFA only recognises companies with a turnover of less than R5 million. Additionally the requirements for proving your EME status also differs between the Revised BEE Codes and the PPPFA, calling into question whether an EME affidavit under the Revised BEE Codes will be acceptable under the PPPFA.

This contradiction between BEE legislation and procurement legislation is not new. With the advent of the first BEE codes similar discrepancies were encountered between the requirements of government procurement regulations and the specific requirements of BEE legislation, and it took a few years before the government procurement was effectively aligned with the BEE certificate system. We are again facing a similar situation with adjustments having to be made to the procurement regulations to address the new aspects introduced by the Revised BEE Codes. How long this will take is anybody’s guess, but hopefully this alignment will be far quicker than the initial introduction of the BEE certification into the preferential procurement framework. 

In short, you are both right. Your company should qualify as an EME under the Revised BEE Codes, but the government official is also not wrong to only be allowed to accept certificates for companies that meet the current requirements of the PPPFA. For now, until the position has been addressed, we can only advise that you specifically confirm the BEE requirements for each tender and what will be acceptable for the relevant department – and depending on the importance of the tender for your business, consider obtaining a BEE certificate even if this means undertaking a BEE rating despite qualifying for exemption therefrom.

July 16, 2015
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