1. Amended B-BBEE Codes of Good Practice
A strategy for Built Environment Professionals
30 July 2014

2. 01 INTRODUCTION

4. 02 BEE IN CONTEXT

5. BEE in context
entities registered for VAT

6. 03 Legislation

7. Preferential Procurement Policy Framework Act (PPPFA)
7 December 2011

8. PPFA Points for BEE Level
B-BBEE Level
80/20
90/10
Level 1 20 10
Level 2 18 9
Level 3 16 8
Level 4 12 5
Level 5 4
Level 6 6 3
Level 7 2
Level 8 1
Non-Compliant

9. BBBEE Amendment Act
24 January 2014

10. Section 10: Status of Sector Codes
Every organ of state and public entity must apply relevant code of good practice in:
issuing of licenses, concessions
developing and implementing a preferential procurement policy;
determining qualification criteria for the sale of state-owned enterprises;
developing criteria for entering into PPPs
awarding of incentives, grants, and investment schemes in support of broad-based black economic empowerment. 
An enterprise operating in a sector with a S9(1) Code may only be measured in accordance with that code
An enterprise must report annually on their compliance to the Sector Council.

11. Section 1: Fronting Practice
means a transaction, arrangement or conduct that directly or indirectly undermines or frustrates the achievement of the objectives of this Act; includes
black persons discouraged or inhibited from substantially participating in the core activities;
economic benefits received as a result of the BEE status do not flow to black people in the ratio specified;
legal relationship with a black person to achieve a certain BEE level without granting commensurate economic benefits expected;
an agreement with another enterprise to achieve enhanced B-BBEE status in circumstances in which –
significant limitations on identity of suppliers, service providers, clients or customers;
maintenance of business operations that are improbable having regard to resources;
terms and conditions not negotiated at arm’s length on a fair and reasonable basis;

12. Section 20: Offences and Penalties
A person is guilty of an offence if that person knowingly
misrepresents or attempts to misrepresent the B-BBEE status of an enterprise;
provides false information to Verification professional / any organ of state.
A BEE Verification professional or any procurement officer or other official of an organ of state or public entity who becomes aware of fronting and fails to report is guilty of an offence.
Any person convicted of an offence is liable
to a fine or imprisonment for a period not exceeding 10 years or both;
in the case of an enterprise, to a fine of 10% of annual turnover.
Any person and/or entity convicted of an offence shall be banned from transacting with any public entity, and shall be entered into the National Treasury register of tender defaulters.

13. 04 NEW BEE CODES

14. Key principles Substance over form
Compliance measured “at the Date of Measurement”
Any misrepresentation OR attempt = fronting
Any initiative to split, separate, divide to qualify as EME, QSE or Start-up = fronting

15. Application of the Codes
3.1.1 All Organs of State and Public Entities are measureable All Measured Entities that undertake any economic activity with any organ of state or public entity are measureable

16. Priority elements
Ownership Sub-minimum = 40% of Net Value points = 3.2 points Skills Development (SD) Sub-minimum = 40% of total weighting points = 8 points Enterprise and Supplier Development (ESD) Sub-minimum = 40% of EACH of categories = 16 points Generics must comply with all 3 priority elements QSE must comply with ownership + 1 priority element

17. Application of the new Codes
Transitional period exists until 30 April 2015
All sector Codes must be aligned by this time
An entity may elect to be measured on amended Codes of Good Practice or on existing Codes of Good Practice during the transitional period
An entity operating under a Sector Code must apply that code until 30 April 2015 – thereafter the Generic Codes if the Sector Code has not been aligned

18. New Thresholds EME QSE Generic New Thresholds < R10m R10 – R50m
BEP Thresholds
< R1,5m
R1,5 – R11,5m
> R11,5m
100% Black Owned
Level 1
Get rated
51% - 99% Black Owned
Level 2
0% - 50% Black Owned
Level 4
Evidence
Affidavit
Affidavit / Cert
Certificate

19. New Scorecard Element Code series Current Weighting Proposed Weighting
Ownership
100 20 25
Management Control
200 10 19
Employment Equity 15
Skills Development
300
20 + 5
Enterprise and Supplier Development
400
40 + 4
Enterprise Development
Socio-Economic Development
500 5
TOTAL
118

20. BEE recognition levels
B-BBEE Status
Current Qualification
New Qualification
B-BBEE recognition level
Level One
≥100 points
135%
Level Two
≥85 but <100 points
≥95 but <100 points
125%
Level Three
≥75 but <85
≥90 but <95
110%
Level Four
≥65 but <75
≥80 but <90
100%
Level Five
≥55 but <65
≥75 but <80
80%
Level Six
≥45 but <55
≥70 but <75
60%
Level Seven
≥40 but <45
≥55 but <70
50%
Level Eight
≥30 but <40
≥40 but <55
10%
Non-Compliant
<30
<40 0%

21. OWNERSHIP

22. OWNERSHIP Weighting Points Compliance Target
2.1  Exercisable Voting rights in the hands of the following black people:
2.1.1 Black People 4
25% + 1
2.1.1 Black Women 2
10%
2.2 Economic interest in the hands of the following black people:
2.2.1 Black People
25%
2.2.2 Black Women
2.2.3 Economic Interest of the following black natural people (broad-based groupings) in the Enterprise: - black designated groups; - black Participants in Employee Ownership Schemes; - black beneficiaries of Broad based Ownership Schemes; or - black Participants in Co-operatives 3 3%
New Entrants 2%
2.3 Realisation Points:
2.3.1 Net Value 8
TOTAL 25

23. What the research says about ESOPS
In "The ESOP Performance Puzzle in Public Companies," published in 2006 issue of the Journal of Employee Ownership Law and Finance, Robert Stretcher, Steve Henry, and Joseph Kavanaugh.

24. Points earned by 10% ESOP or BBOS
Category and Ownership Indicator
Weighting Points
Compliance Target
10% ESOP
Points
2.1  Exercisable Voting rights in the hands of black people:
Black People 4
25% + 1
10%
1.6
Black Women 2 5%
1.0
2.2 Economic Interest in the hands of the following black people:
25%
Economic Interest of the following black natural people
(broad-based groupings) in the Enterprise: - black designated groups; - black Participants in ESOP; black beneficiaries of BBOS; or - black Participants in Co-operatives 3 3%
3.0 2%
2.0
2.3 Realisation Points:
Net Value 8
3.2
Total 25
13.4

25. MANAGEMENT CONTROL

26. Management Control
MANAGEMENT CONTROL = MANAGEMENT CONTROL + EMPLOYMENT EQUITY
Aligned to the EE Act (targets, reporting and definitions)
Must use current payroll data
Must apply sub-race group demographics for SM, MM, JM (not to Board / Executives or Disabled)
The description of each of the measurement categories is aligned with the EE Act
Adjusted recognition for gender collapsed into specific targets for women

27. Management Control
Generic Points
Generic Targets
2.1 Board Participation
2.1.1 Exercisable voting rights of black board members 2
50%
2.1.2 Exercisable voting rights of black female board members 1
25%
2.1.3 Exercisable voting rights of black executive directors
2.1.4 Exercisable voting rights of black female executive directors
2.2 Executive Management
2.2.1 Black Executive Management
60%
2.2.2 Black Female Executive Management
30%

28. BEP’s measured on a single management target of 60%
Managemet Control
Generic Points
Generic Targets
2.3 Senior Management
2.3.1 Black employees in Senior Management 2
60%
2.3.2 Black female employees in Senior Management 1
30%
2.4 Middle Management
2.4.1 Black employees in Middle Management
75%
2.4.2 Black female employees in Middle Management
38%
2.5 Junior Management
2.4.1 Black employees in Junior Management
88%
2.4.2 Black female employees in Junior Management
44%
2.6 Employees with disabilities
2.6.1 Black disabled employees as a percentage of all employees 2%
Total 19

29. Other changes in Management Control
Definitions for Senior Top and Other Top removed
Executive management defined: CEO, COO, CFO
Other Executive management defined: HR, Transformation and others
If an entity does not distinguish between Executive Management and Senior Management, then:
Measure Executive and Senior out of 6 points
Apply the Executive Management target
(Avoid the sub-race group classification?)

30. SKILLS DEVELOPMENT

31. General Principles
Contribute to country’s economic and social development goals by developing skills that enrich decent work and sustainable livelihoods
Promote development of industrial skills base in critical sectors (production and value adding manufacturing that are labour intensive)
Support ‘Professional, Vocational, Technical and Academic Learning’ programmes through work integrated learning (apprenticeships, learnerships, internships, PP)
Strengthen skills and human resource base to support employment creation

32. Skills Development requirements
WSP, ATR and Pivotal Report which are SETA approved
Implementation of Priority Skills Programme
Claim external training spend on unemployed
Trainee tracking tool for ‘absorption’
Skills spend & Learnerships use demographic representation of black people (not for disabled or absorption)
For scoring purposes the targets should be further broken down into the race sub groups as defined in the EE Act.
Threshold requirement:
The measured entity must achieve a sub-minimum of 40% of the target

33. BEP’s SD target spend = 1,5% + 0,3% = 1,8%
Skills Development
Weighting Points
Compliance Targets
Skills Development Expenditure on any program specified in the Learning Programme Matrix for black people as a percentage of Leviable Amount
  Skills Development Expenditure on Learning Programmes specified in the Learning Programme Matrix for black people as a percentage of Leviable Amount 8 6%
Skills Development Expenditure on Learning Programmes specified in the Learning Programme Matrix for black people with disabilities as a percentage of Leviable Amount 4
0.3%
Learnerships, Apprenticeships and Internships:
  Number of black people participating in Learnerships, Apprenticeships and Internships as a percentage of total employees
2.5%
  Number of unemployed black people participating in Learnerships, Apprenticeships and Internships as a percentage of total employees
Total 20
BONUS POINTS
2.1.3  Number of learners absorbed by the Measured Entity and industry at the end of the learnership program 5
100%
BEP’s target =
1,5%

34. Other changes
Category F + G treated as informal = limited to 15% of total spend
Accommodation, travel, catering, administration = limited to 15% of total spend
Mandatory sectoral training does not count:
Health and safety, First Aid? Fire?
Training outside SA must meet SAQA recognition to count
Measured entity no longer gets:
1.25 enhancement of ABET
Salaries or Wages of employees still count if Learnership, Internship or Apprenticeship (B,C or D)

35. Score maximum BEE points
Skills Development
SETA accredited learnerships, internships for abled and disabled learners to ensure maximum points for each sub-element.
SCORE 20+5 points
Enterprise Development
Skills provider is black owned supplier providing for ESD contributions.
Spending 2% of NPAT secures maximum points.
SCORE 10 points
Employment Equity
Training of PWD learners at 2% of total number of employees secures maximum points.
SCORE 2 points

36. Maximum Tax benefits S 11(a) deduction S12H learnership rebate
All spend is fully deductible for normal tax.
Tax saving = 28%
S12H learnership rebate
Disabled learners qualify for R100,000 tax rebate per learner per annum
Abled learners qualify for R60,000 tax rebate per learner per annum
Tax saving =
R28,000 (disabled)
R16,800 (abled)
Youth wage subsidy
Up to 50% of learner stipends are deductible as a special subsidy. For learners paid R2,000 per month this results in a R1,000 per month tax subsidy on your PAYE
Tax saving = 50% of stipend
Maximum Tax benefits

37. Minimum net cost of learnerships
Learnership cost
Course = R30,000
Sourcing = R1,500
RA = R4,500
Stipend = R24,000
Total = R60,000
Per learner per annum
(RA = reasonable accommodation for disabled learners)
Tax saving
S11(a) = R16,800
S12H = R28,000
YWS = R12,000
Total = R56,800
Net cost PWD = R3,200
SETA grants
Claim 20% of the mandatory grant back from the SETA
Qualify to claim discretionary grant back from the SETA

38. Tax deductible learnerships
Abled
Disabled
Learnership cost
30,000
Sourcing
1,000
1,500
PLWD accommodation -
4,500
Stipend (R2,000pm x 12)
24,000
Cost per learner
56,000
60,000
S11(a) Deduction
15680
16800
S12 H Rebate
28000
Youth wage subsidy
12000
Mandatory SETA Grant
2000
Net cost per learner
9,520
1,200
Average Net Cost per Learnership
5,360

39. Maximum points for minimum cost
Example
Co. with 200 employees
5% of workforce = 10
Net cost per learnership
R5360
Total net cost
R53,600
Points earned 27
Net cost per point
R1,985

40. ENTERPRISE & SUPPLIER DEVELOPMENT

41. 2.1 Preferential Procurement
Weighting Points
Compliance Targets
BEE Procurement Spend from all Empowering Suppliers based on the BEE recognition levels 5
80%
BEE Procurement Spend from Empowering Suppliers QSE’s based on the applicable BEE recognition levels 3
15%
BEE Procurement Spend from Empowering Suppliers EME’s based on the applicable BEE recognition levels 4
BEE Procurement Spend with Empowering Suppliers that are at least 51% black owned 9
40%
BEE Procurement Spend with Empowering Suppliers that are at least 30% black women owned
12%
Total 25
BONUS POINTS
BEE Procurement Spend with Designated Groups that are > 51% black Owned 2

42. BEP’s ED target spend = 0,75% of leviable amount
2.2 Supplier Development
Weighting Points
Compliance Targets
Annual value of all Supplier Development Contributions as a percentage of the target 10
2% of NPAT
2.3 Enterprise Development
Annual value of all Enterprise Development Contributions and Sector Specific Programmes as a percentage of the target 5
1% of NPAT
2.4 Bonus Points
One or more ED beneficiaries graduate to SD 1
Creating one or more jobs as a result of ED and SD

43. Empowering Supplier
A B-BBEE compliant entity which is a good citizen, and who complies with all regulatory requirements of the country and meets 3 of the following criteria:
At least 25% of Cost of Sales excluding labour and depreciation must be procured from local producers or suppliers, service industry labour costs capped at 15%
Job creation 50% of jobs created are for black people provided the number of black employees since the immediate prior verified B-BBEE measurement is maintained.

44. Empowering Supplier
At least 25% transformation of raw material/beneficiation which includes local manufacturing, production and/or assembly and/or packaging
Skills transfer – 12 days per annum of productivity deployed in assisting black owned EME and QSE beneficiaries
EME’s and Start up Enterprises are automatically given Empowered Supplier status
QSE’s are required to meet 1 critieria.

45. Enhanced recognition Criteria Enhancement
3 year contract with supplier
x spend by 1.2
Black owned QSE or EME that is not an SD beneficiary but has a 3 year contract
First time supplier

46. Socio-economic development

47. Socio-Economic Development
Criteria
Weighting Points
Compliance Target
Annual (not average) value of all Socio-Economic Development Contributions by the Measured Entity as a percentage of the target 5
1% of NPAT
BEP’s SED target spend = 0,25% of leviable amount

48. Socio Economic Development
Beneficiaries must be 75% black
Access to the economy
Priorities in this element are to redress the issues of education, poverty, unemployment, health for those communities who remain disadvantaged

49. 05
Total BEE strategy

50. Level 4 is achievable LEVEL 4
Ownership (10% ESOP / BBOS) = 13 Management Control Board (1 x BW non-exec) = 2 Management (2/3 easy) = 5 Skills Development (tax funded) = 25 ESD All ED ½ Procurement, Bonus point = 31 SED = 5 = 81
LEVEL 4