The draft Defence Sector BEE Charter introduces interesting new compliance elements

“I’ve built up a business around providing equipment and clothing for certain part of our military and police services. I’ve done my BEE planning to make sure that I’m in a good position to continue getting government tenders. I’ve heard talk of a new BEE charter for the Defence sector coming out soon, and want to make sure I have all my ducks in a row to comply. Is this true?”

You are correct. A new draft Defence Sector BEE Charter (“Defence Charter”) has been published for comment in August this year. This Defence Charter will apply to all entities operating within the South African defence industry, including privately owned enterprises involved in the supply of products and services to state departments, defence manufacturing enterprises, research & development enterprises as well as organs of state and state owned entities involved in the defence industry. The draft Defence Charter introduces a number of unique aspects aimed specifically at this industry.

This charter makes provision for the establishment of a Defence Sector Charter Council with the responsibility for overseeing and monitoring the implementation of the Defence Charter and managing the new Skills Development Fund and Enterprise and Supplier Development Fund.

To address the shortage of technical skills in the industry, a Skills Development Fund will be established to assist in developing critical skills within the Defence industry. Enterprises in this sector will have to contribute 4% of their annual leviable skills amount towards skills development programmes for black persons, which includes a 1% contribution towards the Skills Development Fund, which will be used for the development of critical and scarce skills within the industry. Also included in this target is a 1% contribution towards skills development programmes specifically designed for military veterans.

The Defence Sector Charter Council will negotiate with relevant government departments to exempt enterprises within the defence industry from contributing a skills development levy, due to the contributions being made to the Defence Industry Skills Development Fund.

An Enterprise and Supplier Development Fund will also be set up for purposes of funding Enterprise and Supplier Development initiatives within the defence industry. Entities will have to agree on contributing 1% of the value of their contracts with the Department of Defence or Armscor, to this fund, with such contributions counting towards their B-BBEE scorecard.

Private sector entities will have to sub-contract a minimum of 30% of all contracts exceeding R30 million to EME’s and QSE’s owned by black people, black females, black youth, military veterans and black people with disabilities, whilst state owned enterprises will be allowed to set aside 30% of their total procurement budget towards such enterprises.

A specific scorecard element introduced by the Defence Charter, is Localisation – an element, designed to stimulate local production and increase the global competitiveness of the industry.  Recognition will be given to companies that procure at least 60% of defence materiel products from local companies as well as supporting companies that introduce new technology within the South African defence industry.

Military veterans are specifically included throughout the draft Defence Charter, including within the Ownership, Management Control, Skills Development and Socio-Economic Development elements with specific targets and point allocations, aligned to each inclusion.

Other scorecard changes includes black ownership scorecard targets set at 25% equity interest held by black people in the first year, 30% in the second year, 35% in the third year, with black female ownership targets at 10% in the first and second years and 15% in the second and third year, following the promulgation of the charter. Black board representation targets are set at 50% in the first year, increasing to 60% in third year, whilst black female board representation targets are set at 25% in the first and second years, increasing to 30% in the third year. 

The Defence Charter will definitely change the lay of the land for enterprises operating in this sector, and it would be advisable to take careful note of the draft charter and consult with your BEE planner to establish where you will need to adapt your BEE planning to take account of the new rules that the Defence Charter will introduce.

September 7, 2017
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