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PREFERENTIAL PROCUREMENT FAQs

What is Preferential Procurement?

The preferential procurement element of the B-BBEE scorecard measures the extent to which a company purchases its qualifying goods and supplies from B-BBEE compliant suppliers as evidenced by the B-BBEE scorecard rating of the supplier.

Why should one consider preferential procurement?

  • It Encourages transformation throughout the entire economy;
  • Specific incentive to procure from SMALL and micro business which creates new and sustainable entities;
  • Encourages the creation of sustainable BLACK WOMEN owned, black owned and controlled enterprises;
  • Encourages procurement of locally produced goods and services;
  • Enables sustainable INCOME STREAMS to new entities, assisting in their sustainability.

How is preferential procurement measured?

For Qualifying Small Enterprises that choose Preferential Procurement as one of the four elements of the B-BBEE scorecard on which they wish to be measured, the contribution requirements and measurement are as follows:

CategoryIndicatorScorecard Points AvailableCurrent Target
All suppliersB-BBEE ProcurementSpend from all Suppliers based on the B-BBEE Procurement Recognition Levels as a % of Total Measured Procurement Spend25 points50% of Total Measured Procurement Spend

For Generic Enterprises, the contribution requirements and measurement are as follows:

CategoryIndicatorScorecard Points AvailableCurrent Target
All suppliersB-BBEE Procurement Spend from all Suppliers based on the B-BBEE Procurement Recognition Levels as a % of Total Measured Procurement Spend12 points70% of Total Measured Procurement Spend
QSEs and EMEsB-BBEE Procurement Spend from QSEs and EMEs based on the B-BBEE Procurement Recognition Levels as a % of Total Measured Procurement Spend3 points15% of Total Measured Procurement Spend
50%Black owned suppliersB-BBEE Procurement Spend from suppliers that are more than 50% black owned as a % of Total Measured Procurement Spend3 points12% of Total Measured Procurement Spend
30% Blackwomen owned suppliersB-BBEE Procurement Spend from suppliers that are more than 30% black women owned as a % of Total Measured Procurement Spend2 points8% of Total Measured Procurement Spend

Does the B-BBEE rating of a supplier impact on the recognition of preferential procurement spend?

The higher the level of a supplier’s B-BBEE rating, the greater the levels of recognition of procurement spend with that supplier. According to the B-BBBEE Codes of Good Practice the procurement recognition levels are as follows:

LevelBEE ScoreBEE Recognition Level
1>100135 % (e.g. R1 = R1.35)
285 ~ 100125 %
375 ~ 85110 %
465 ~ 75100 % (e.g. R1 = R1)
555 ~ 6580 %
645 ~ 5560 %
740 ~ 4550 %
830 ~ 40 10 %
Non- Compliant< 30[/av_cell][av_cell col_style='']0 % (e.g. R1 = R0)[/av_cell][/av_row] [/av_table] [av_textblock] Exempt Micro Enterprises (EME’s) have an automatic rating of Level 4 unless they are more than 50% black owned, where the rating is Level 3.

Can preferential procurement be enhanced in any way?

There are two ways in which preferential procurement can be enhanced.

1.     If the procurement spend is with a Value Adding Supplier (a BEE compliant company whose total labour costs plus the Net Profit Before Tax is more than 25% of annual turnover), the total amount procured from such a value adding supplier is multiplied by a factor of 1.25.

2.     Companies that can show that they also procure goods and services from a supplier it supports through Enterprise Development contributions may multiply the spend attributable to that supplier by a factor of 1.2.

How can procurement from a company supported by Shanduka Black Umbrellas or blackpages benefit a company’s B-BBEE rating?

If we assume that a Generic Enterprise has a Total Measured Procurement Spend of R20 million per year, the targeted spend per preferential procurement category would be as follows:
[/av_textblock] Category

Target B-BBEE procurement spendScorecard Points Available
All suppliersR14 million12 points
QSEs and EMEsR3 million3 points
50% Black owned suppliersR2.4 million3 points
30% Black women owned suppliersR1.6 million2 points

If the company met its target for all suppliers but had not considered suppliers in the other categories, they would receive 12 points out of 20 for preferential procurement.

If the company were to consider suppliers in the other categories and look to Shanduka Black Umbrellas to assist with this, substantial benefits would be available.

As all businesses supported by Shanduka Black Umbrellas and black pages are 100% black owned EMEs or QSEs, these companies would have at least a level 3 B-BBEE rating. At least 50% of these businesses are also value-adding suppliers. If these enterprises received enterprise development contributions in addition to procurement opportunities, the required targets would be adjusted as follows:

CategoryTarget B-BBEE procurement spendMinimum Level 3 Rating (110% recognition)Enterprise Development Assistance (120% enhancement)50% Value Adding Suppliers (125% enhancement)Revised Targets
All suppliersR14 millionR14 million
QSEs and EMEsR3 million(R182k)(R333k)(R167k)R1 818 182
50% Black owned suppliersR2.4 million(R164k)(R300k)(R180k)R1 454 545
30% Black women owned suppliersR1.6 million(R109k)(R200k)(R120k)R969 697

Currently around one third of Shanduka Black Umbrellas supported companies are more than 30% women owned. If the above company re-allocated R1.5 million of its target B-BBEE procurement spend to Shanduka Black Umbrella or black pages companies and assisted in their enterprise development, the impact on its B-BBEE scorecard would be as follows:

CategoryTarget B-BBEE procurement spendActual SpendScorecard Points Obtained
All suppliersR14 millionR12.5 million10.71 points
QSEs and EMEsR1 818 182R1.5 million2.47 points
50%Black owned suppliersR1 454 545R1.5 million3.00 points
30%Black women owned suppliersR969 697R500k 1.03 points
TOTAL17.21 points

Simply by reallocating procurement spend to Shanduka Black Umbrellas and Black Pages companies and supporting the development of these companies, a Generic Company could increase its preferential procurement points from 12 to 17.21.

Similar benefits would be available to Qualifying small Enterprises.