Black economic empowerment (BEE) in South Africa provides a significant contribution to the development of the country, says BEE consultancy EconoBEE CEO Keith Levenstein. However, he notes that irregularities such as tender fraud and corruption create severe challenges to the correct implementation of the initiative.
“Challenges such as businesses being awarded tenders by misrepresentation of their BEE status are one of the problems being faced by industry,” he explains. These problems prevent tenders from being awarded to deserving parties, thus defeating the objective of the system.
“BEE has been a struggle in South Africa because of various factors that affect the initiative, casting a negative view on the process and implementation,” Levenstein notes.
He says that the National Treasury was tasked with amending the Preferential Procurement Policy Framework Act (PPPFA) to allow for the objectives of the Broad-Based Black Economic Empowerment (BBBEE) Act to be more closely aligned to those of the PPPFA. “Because of the differences between these two documents, this has allowed people to use loopholes in the tender Act to unfairly win tender contracts from government,” Levenstein explains.
It is hoped that, through these updates, tenders will be awarded to businesses that are BBBEE compliant, which could have spin-off effects on areas such as socio- economic development, enterprise develop- ment, preferential procurement, skills development, employment equity, and management and ownership of businesses. These are all factors that affect companies’ BBBEE ratings and determine whether or not they have a worthy scorecard.
The promulgating of the PPPFA has been hailed as a welcome solution to tender corruption, which has significantly affected credible South African businesses. Aligning the PPPFA with the BBBEE Act ensures that the previous methods of gauging transformation that were based on outdated principles are now mostly removed from the equation, along with any loopholes and corruption that seeped through.
“Fronting, meanwhile, has created another issue within business,” says Levenstein. He explains fronting as “any-thing that misrepresents a BEE score”.
These are some of the negative effects that are present in tender distribution. Given the corruption that takes place when dealing with tenders, businesses have been given the opportunity to rectify their scorecards to comply with the PPPFA’s new BEE regulations in terms of tenders being awarded. Levenstein notes that, from the beginning of December, all State-owned businesses will begin using the new BEE scorecard for all tender awards.
Meanwhile, he notes that the new Act will require significant dedication to transformation. Teething problems are expected during this process, which will need to be taken into account.
“One of the problems businesses may struggle with is the fact that they will have a limited period to get their scorecards in order,” explains Levenstein.
Another challenge that the industry will need to face is the training requirement for officials. Officials will require advanced knowledge of BBBEE principles to be able to correctly implement the new requirements. “Besides this, many businesses do not know that their scorecards should be re-evaluated. These businesses may lose the opportunity to tender because they can’t issue a scorecard,” says Levenstein.
He believes that more should be done to inform people about businesses that have been operating with fraudulent scorecards. This will help to raise awareness for consumers and will serve as a warning to anyone attempting to defraud the system. “This could decrease the occurrence of fraud allegations, as well as create awareness of the fact that a scorecard is an important part of the South African tender business,” concludes Levenstein.