BEE compliance (Part 8): The Enterprise and Supplier Development element
Contracting with small black-owned enterprises as suppliers or assisting them in various ways, can also earn your property business points on the B-BBEE scorecard. Adrian Frewen, associate with the Phatshoane Henney Group of attorneys explains how this would work under the Enterprise and Supplier Development element in the Property Sector Code.
The Property Sector Code contains a total of six elements where points can be scored towards BEE compliance. The Enterprise and Supplier Development element is the fifth element and consists of three separate sub-elements, namely Procurement, Enterprise Development, and Supplier Development.
Procurement measures the total procurement spend of an entity on suppliers which are B-BBEE compliant. In short, this sub-element encourages an entity to purchase from B-BBEE compliant and black-owned suppliers.
As mentioned before, the Property Sector Code differentiates between three types of property entities: Exempt Micro Enterprise (EME) with an annual turnover of less than R2,5 million, Qualifying Small Enterprise (QSE) with annual turnover from R2,5 million but less than R35 million, and Generic entities with an annual turnover of R35 million and above. EME’s are regarded as automatic Level 4 contributors to B-BBEE. Read more here.
To maximise points on the procurement sub-element, a total of 60% of a QSE entity’s total procurement has to be from compliant B-BBEE suppliers and 15% from suppliers which are at least 51% black-owned. The level of compliance of a supplier is used to multiply the amount spent on such supplier in order to determine the recognisable procurement spend, for example a Level 4 supplier affords 100% procurement recognition, whereas purchases from a Level 1 supplier allows for the amount spent to be multiplied by 135%. A Level 8 supplier only affords 10% procurement recognition on any amounts spent on such supplier.
Generic entities have the following targets: 80% of all procurement spend on B-BBEE compliant suppliers, 15% on EME suppliers, 15% on QSE suppliers, 40% on 51% black-owned suppliers, 12% on 30% black women-owned suppliers, and 40% on 51% black-owned suppliers that have a Level 1, 2 or 3 B-BBEE certificate.
The remaining two sub-elements aim at providing assistance to smaller black-owned businesses. As such, an entity is encouraged to provide a quantifiable benefit to a QSE or EME business which is at least 51% black-owned. Examples of recognisable contributions are grant contributions, interest-free loans, professional services rendered at a discount or at no cost, or time of employees spent on assisting beneficiary businesses.
Whilst the requirements for supplier development and enterprise development are in essence the same, the only difference is that the beneficiary of supplier development contributions has to be a supplier to the entity, whereas the enterprise development beneficiary need not be a supplier to the entity.
Generic estate agencies have a target of 2% of their net profit after tax (NPAT) for supplier development and 1% of their NPAT for enterprise development, whereas QSE estate agencies have a target of 1% of their NPAT for each of these two sub-elements.
It is advisable that estate agencies align their supplier- and enterprise development initiatives in such a way as to create B-BBEE compliant suppliers which would in turn ensure compliance with the Procurement sub-element. Estate agencies’ biggest procurement expenses are usually advertising, rent and stationary. In order to maximise compliance with this element as a whole, it is suggested that estate agencies focus on developing smaller black owned suppliers. For example: identifying a start-up black enterprise which can supply the estate agency with advertising material and assisting this enterprise with start-up capital will ensure compliance with the supplier development component of this element, whilst also ensuring compliance with the procurement component thereof.
Other initiatives which estate agencies can easily utilise is providing office space at a reduced or no rental, providing administrative or human resource support to a smaller estate agency, or assisting a smaller black owned estate agency with training and development.
Remember that property owning companies are measured on a different scorecard, which classifies such companies based on their net asset value. If a property owning company has a net value of less than R80 million, such company will qualify as an automatic Level 4 contributor to B-BBEE. If you are currently renting office space, speak to your landlord to potentially provide you with an EME affidavit which will assist in your compliance with procurement.
This element accounts for the largest amount of points on the overall scorecard, and compliance with this element can assist to ensure that an entity secure a compliant B-BBEE level.
Next week will be the last article in the series and will focus on the sixth element socio-economic development. All the prior articles can be found on the Property Professional website.
The legal requirements around B-BBEE compliance can be complicated to understand about how to go about putting it into practice. Send any questions you may have on this to email@example.com .