Is it really out with the old and in with the new when it comes to BEE?

“I run a family business, and we have been blessed with steady growth mainly because of one big client. Although we support transformation, we’ve never really needed to obtain a BEE certificate. Our big client has now informed us that unless we obtain a BEE certificate, they will not be able to do business with us anymore. We want to comply, but we are unsure about where to start, particularly because it appears as if there is also a lot of uncertainty regarding the new BEE requirements on the way?”

Your experience with your big client is part of the cascade effect that the BEE legislation in South Africa envisages to ensure that companies indirectly (or directly as in your case) place pressure on their suppliers to comply with BEE legislation. 

Right now, as you rightly remarked, there is uncertainty in the market surrounding BEE with companies finding it quite challenging to do their planning effectively. The uncertainty has largely been created by the advent of the Amended BEE Codes of Good Practice (“Amended Codes”), the Old BEE Codes of Good Practice (“Old Codes”) and the various Sector Codes of Good Practice (”Sector Codes”) that apply to specific industry sectors. Businesses are wondering whether they should still plan for compliance under the Old Codes, the New Codes or even the Sector Codes, particularly as the goals are not the same under the various codes. I will attempt to better explain the confusion:

Currently, the Amended Codes are in force (as from 1 May 2015), but a 12 month window has been granted for companies to still report under the Old Codes if they report using their financial period ending before 1 May 2015. This means that companies can still conditionally report under the Old Codes until 30 April 2016. Companies can of course also already report under the Amended Codes should they have to or choose to. This decision is the first problem which arises for many companies. 

The New Codes also make provision for certain companies to obtain “automatic” levels without going through a formal verification procedure. These companies are Exempt Micro Enterprises (“EME’s”) (under R10 million annual turnover) and all companies (including EME’s) under R50 million annual turnover with at least 51% black ownership. If companies choose to make use of this “automatic” level recognition option they only have to provide an affidavit confirming their status, but cannot as of yet obtain a BEE certificate from an accredited verification agency that confirms their automatic BEE level. This is the second problem as many companies or institutions (including government) still only accept an accredited BEE certificate and not an affidavit. To address this, such companies can apply for a BEE certificate but will then have to go through a formal verification procedure and be verified to obtain a certificate, thereby losing the benefit of an automatic level recognition and possibly also receiving a worse BEE level than they would receive with the automatic level recognition.

The third problem and area of confusion relates to the relationship between the Amended Codes and the Sector Codes. Companies that derive the majority of their income from sectors that have a Sector Code applicable to it such as construction, transport, agriculture etc. will have to report and be verified under the current Sector Codes until such time as the current Sector Codes are aligned to the Amended Codes. These Sector Codes must be aligned to the Amended Codes by 1 November 2015. But until then, the current Sector Codes will apply and companies falling within a Sector Code will not have the option of reporting under the Amended Codes and applying for “automatic” level recognition available under the Amended Codes – at least not until the Sector Codes are amended to possibly cater for this. 

In light of this confusion, it is strongly advised that you obtain the assistance of a BEE consultant that can help you understand which rules apply to your business and can guide you in establishing whether you should report under the Old Codes, Amended Codes or a Sector Code, and then assist you with the necessary planning and guidance through the verification process so that you can obtain a BEE certificate.

Source: DBM Attorneys