Revised CA Sector B-BBEE Code Draft published

The Department of Trade and Industry, has gazetted the revised Chartered Accountancy Profession B-BBEE Sector Code (CA Charter) for public comment. The aim of the revised code is to empower and grow the number of Black people in the chartered accountancy profession.

Revisions to the Code include drastic changes to the skills development element.

Individuals who want to comment on the new CA Charter, should e-mail the DTI (for the attention of Sipho Solfafa) at cacode@thedti.gov.za by no later than 26 June 2019.

See full CA Charter here.

BEE Council Encourages Best Practice

The Broad Based Black Economic Empowerment (BBBEE) Advisory Council has called for the declaration of a Transformation Week in the country to showcase best B-BBEE practice.

“There was consensus at the meeting that there is a need to declare a Transformation Week in the country to showcase best B-BBEE practice, create awareness, and educate, with platform to share progress and introspect regarding economic transformation,” said the Council.

Council held its meeting, chaired by Trade and Industry Minister Rob Davies on behalf of President Cyril Ramaphosa on Friday.

The B-BBEE Advisory Council is a body appointed by the President in terms of the B-BBEE legislation to advise him and government on B-BBEE and transformation of the South African economy in order to achieve an inclusive economy.

The collective also acknowledged that the country’s procurement laws need to be strengthened to embed B-BBEE compliance in their content.

Successes

Friday’s meeting recognised that progress has been made in the implantation of B-BBEE policy over the last five years.

The Black Industrialist Programme, noted the meeting is among one of the achievements of that can be counted. The programme intends to create majority black-owned entities in the productive sectors. To date the Department of Trade and Industry (dti) has supported 138 beneficiaries.

The meeting held at the dti campus in the capital, also counted the establishment of the B-BBEE Commission to effectively monitor implementation and progress as one of the other successes.

“Understanding the primacy of B-BBEE in the government’s drive to effect fundamental change and economic redistribution, the Council discussed and number of issues that have an effect on the implementation of B-BBEEE,” it said.

Financing

Issues discussed at the meeting include the role of development financing institutions (DFIs) in financing and supporting empowerment. The gathering stresses that the role of DFIs, should be complemented by the financial sector to intensify funding for B-BBEE as per the commitment of the Financial Services Charter.

The Preliminary report of the B-BBEE Commission showed that vendor-financing is higher, followed by funding financial institutions in respect of major B-BBEE deals already registered, with government funding being the lowest.

It added that focus should be placed on financing SMMEs and Black Industrialists, particularly those in the productive sectors.

The Council emphasised the need to intensify efforts of ensuring that SMMEs get markets to sell their wares, and also appreciated the significance of public and private sector partnerships in this regard.

The Council also mulled on the appropriate way to utilise the 30% as contained in the procurement policies to empower SMMEs in local communities.

Transformation, fronting

The collective acknowledged the veracity of the economic transformation work that still need to be advocated in society to educate and ensure increased B-BBEE compliance.

On black ownership target, the Council said the 25% target should be inclusive of active participation of the beneficiaries and not passive involvement.

In the same breath, the Council raised concern on the usage of broad-based ownership schemes, the abuse of the third party for enterprise development, supplier development and skills development.

It also expressed concern about the non-participation of black shareholders and directors in 51% black owned structures.

Acknowledging that fronting is becoming more sophisticated aided by consultants and verification agencies in the market, the Council urged government to finalise the development of regulation for verification agencies and B-BBEE practitioners to complement the work of the B-BBEE Commission and South African National Accreditation System. – SAnews.gov.za

SAQA welcomes NQF Ammendment Bill

The South African Qualifications Authority (SAQA) has commended the role players who have worked to get the National Qualifications Framework (NQF) Amendment Bill through Parliamentary processes.

SAQA on Monday thanked Higher Education and Training Minister Naledi Pandor and the Portfolio Committee on Higher Education and Training for being at the forefront of the amendment bill, which is now awaiting the President’s signature.

The NQF Amendment Bill aims to protect the integrity of the South African education and training system by giving SAQA the legal responsibility to verify qualifications and part-qualifications (an assessed unit of learning that is registered as part of a qualification).

The bill makes provision for the registration by the Higher Education and Training Department of all private education institutions and skills development providers, as well as for the accreditation of these providers by the Quality Councils.

It further makes provision for organs of State, employers, education institutions, skills development providers and Quality Councils to refer qualifications and part-qualifications to SAQA for verification and evaluation.

The bill also provides for the formulation of criteria for evaluating foreign qualifications.

“This means that in the case of national qualifications and part-qualifications, SAQA must verify that they are authentic. In the case of foreign qualifications, SAQA must first verify that they are authentic and then compare them with South African qualifications for placement within the South African NQF. By so doing, the quality of both national and foreign qualifications would be protected.

“The bill clearly defines authentic qualifications and part-qualifications. It also defines misrepresented as well as fraudulent qualifications. In the event that a qualification or part-qualification is found to be misrepresented or fraudulent, it will appear in the register of misrepresented qualifications and part-qualifications or fraudulent qualifications and part-qualifications. This will deter would-be qualification fraudsters from misrepresenting qualifications,” SAQA CEO Joe Samuels explained.

Another form of deterrent is the imposition of penalties to not only the qualification fraudsters but also to education institutions and skills development providers that falsely claim that they are registered and accredited to offer qualifications and part-qualifications, Samuels said.

“Hence, it is a criminal offence for an education institution or education skills provider to falsely claim to be registered and accredited, let alone offer qualifications that are not registered on the NQF. The penalties range from five to 10 years imprisonment or a fine or both. This means that learners will not be taken for a ride by unscrupulous providers,” Samuels said.

The penalties are not limited to qualification holders and providers but, also extend to anyone who makes or causes a false entry into the National Learners’ Records Database or the misrepresented or fraudulent database.

Samuels welcomed the changes brought about by the bill as they seek to protect the public against unscrupulous education and training providers, and also protect government and businesses from hiring people who do not have authentic qualifications.

“SAQA will continue to work together with all stakeholders to ensure that the quality of our education system is maintained and enhanced. SAQA will also ensure that once the bill is signed into law, it will be implemented for the benefit of all living in South Africa,” Samuels said. – SAnews.gov.za

COC – Course of Construction: Minimising the risk of B-BBEE non-compliance

A pre-requisite to earning any points within the stipulations of the CSC300 code is the annual submission to CETA by 30th of April every year. Forget about this date and wave your B-BBEEE rating goodbye.

The following criteria must be fulfilled for the Measured Entity to receive points on the Skills Development Scorecard:

  • Workplace Skills Plan
  • An Annual Training Report
  • Pivotal Report which has been submitted to CETA (Construction Education & Training Authority)
  • Implementation of Priority Skills programme generally, and more specifically for Black People

SUB-MINIMUMS, DISCOUNTING & CHALLENGES

According to the scorecard measurement principles of the Skills Development element, any measured entity has to achieve at least 40% of the total weighting points as directed by each sub-element of the Skills Development Scorecard.

These include mentorship participation, facilitating learnerships, internships, apprenticeships and professional registrations, as well as skills development expenditure for black people and adjusted gender recognition parameters according to the categories of the Learning Programme Matrix.

Let’s have a look at the revised codes relevant to the classification of measured entities, discounting principles and foreseen challenges in more detail:

  • Large Enterprises

For large industry players (Large Enterprises) compliance with all five priority elements will be compulsory, and Skills Development is viewed as a priority element for larger organisations in the construction sector. (page 41 of the Gazette)

The biggest risk here is that non-compliance to the threshold targets on any one of the five elements will result in the B-BBEE status being discounted by one or more levels depending on the compliance gap between actual and sub-minimum target points.

A prominent challenge for big business would be the potential disruption of services, production and manufacturing processes due to employee time spent in training and development activities and also for key staff involved in prescribed mentorship programmes.

  • Qualifying Small Enterprises (QSE’s)

A measurable Qualifying Small Enterprise has more manoeuvrability in terms of the QSE Scorecard with a compulsory element of Ownership and then the choice of another element which may or may not include Skills Development. (heads up for growing concerns, skills development is a much more nimble element where maximum points can be earned far easier than for instance preferential procurement and supplier development elements)

If a QSE qualifies for an automatic B-BBEE level 1 or 2 status, compliance to the Skills Development element is compulsory as to avoid discounting. The challenging issue this scenario is that the modified flow-through principle cannot be used; only the standard flow-through principle is allowed in this case. For an explanatory infographic regarding the differences between these principles click here.

Another spanner in the works for automatic qualifiers on level 2 due to 51% black ownership is that they will be discounted by one level if a 40% subminimum in terms of the Skills Development element is not met. This change forces QSE’s to still spend funds on Skills Development despite qualifying for Automatic B-BBEE levels.

  • Emerging Micro Enterprises (EME’s)

An EME with an annual turnover under 1.8 million for BEP’s and under 3 million for Contractors is not subjected to the discounting principles because they do not need to present B-BBEE verification certificates although proof of EME status is required.

Therefore, they are automatically released from being compliant to the QSE Skills Development Element as long as ownership percentages and annual turnover remains in the boundaries of EME classification. Kudos to Government for being considerate to ‘’small guys”.

However, as an Emerging Micro Enterprise (EME) with automatic B-BBEE status levels from 1 -4 the minimum expenditure target for Skills Development is 40% to avoid discounting action. (These are relevant to EME’s who choose to enhance their B-BBEE status levels)

A particular challenge for smaller construction companies who often find it difficult to achieve 30% black ownership is that they will be discounted from a level 5 to a level 6, by not obtaining a 40% subminimum in the skills development element. This means that their competitiveness in the market when bidding for tenders may be compromised significantly.

  • Start-Up Enterprises

Start-up enterprises are by no means exempted from strict scoring regulations. During the first twelve months of operations, a startup will be measured as an EME regardless of expected revenue if below ten million.

However, tendering on any contract with a value of higher than 10 million (below 50 million) would immediately push the company into a QSE qualification. Similarly, a startup will be measured against the Large Enterprise Scorecard if any tender is made with a deal value higher than 50 million.

Therefore, the Amended Code expects increased compliance standards from a legitimate start-up the moment it secures a high value contract. Obtaining the required Skills Development subminimum will then become increasingly difficult for construction industry start-ups. (Note to all start-ups: Ramp up your internship and learnership recruitment processes with our eRecruitment Solution)

NITTY GRITTY, BUT IMPORTANT AMENDMENTS

Noteworthy changes to the Construction Sector Codes are concisely summarised in a recent SANAS publication. We have listed those that may have substantial impacts on future skills development strategies below:

  • Stepped targets have been put in place for Skills Development expenditure with immediate effect, at the end of year 3 and then again from year 5 onwards, which provides for a much-needed scope in medium and long-term planning, to ensure Skills Development compliance.
  • A welcome addition is the extra points being made available based on how and to whom the spend was allocated to, for example, African People, Black Management, Bursaries or Scholarships.
  • The Learning Programme Matrix specially adapted for the Construction Sector now includes Category A Learners as well.
  • Professional Registration Learnerships are capped at 5 years from now on, in terms of the maximum recognition period.
  • Three additional points may be earned for Approved and Verified Membership Programmes going forward.
  • A percentage change increase from 15% to 35% allows for additional informal training to be recognised in the construction sector. (specified in Categories F&G)
  • Mandatory construction industry training cannot be included in the skills spend of companies, and these are clearly defined as Site, Project and Safety Inductions, Toolbox Talks and Operator Re-Certification. Effectively all other training not forming part of these specific mandatory training mechanisms may now be claimed for under the Skills Development Element.

BEE strategies created for the construction industry should be more than just ticking the boxes and adhering to bare minimums. At BEE Analyst and Associates we are ready to assist your company in adapting and achieving compliancy under the Amended B-BBEE Construction Codes and further optimise your scorecard levels in the most cost-effective manner.

Foundational Changes: New Construction Sector B-BBEE Codes

The Amended Broad-Based Black Economic Empowerment (B-BBEE) Sector Codes for the Construction were gazetted by the Department of Trade and Industry (DTI) on 01 December 2017. If you have nothing else on the to-do list today other than ‘’watch cement dry’’ you are welcome to work your way through the 85-page document here. Otherwise, have a scroll through this blog instead.

DO THESE CODE AMENDMENTS APPLY TO MY BUSINESS?

Changes in the Construction Sector Codes apply to all entities that derive more than half of their revenue from construction-related activities. (An easy tip: if your business has anything to do with cement, bricks and plaster from manufacturing, to using, to positioning…you’re in the construction industry and these code amendments will have an impact on your company)

Formal differentiation by the Construction Sector Charter Council (CSCC) is as follows:

  • Material Suppliers, which constitutes manufacturers and suppliers of building material and equipment for the purpose of construction activities
  • Built Environment Professionals (BEPs), which includes all planning, design, and costing management entities in the construction industry
  • Contractors, which refers to any company providing project management and consultation services to the construction industry

These companies are required to submit their B-BBEE Certificates annually to the CSCC.

With no transition period provided to ease into the new lay of the land, construction industry players should take note of their verification validity first and foremost. All verifications signed off prior to the release date of the amendments will remain valid until the expiry date. However, B-BBEE verifications signed off following the publication date of the amended codes will have to be redone according to the new regulations.

The most noteworthy modification overall is the change to compulsory measurement where the ACSC (Amended Construction Sector Code) is deemed a holistic code of good practice for all activities listed in section 10 of the B-BBEE Act. In plain English: you do not have a choice of measurement going forward.

BASELINE PRINCIPLES OF SKILLS DEVELOPMENT

One of the primary elements affected by the amendments is Skills Development. Guess what; this is a good thing so no need to freak out about non-compliance yet.

Before contemplating the HOWs WHATs and WHEREs for hitting subminimum targets prescribed by this amended code series (CSC300), lets first summarise its purpose and general principles (page 39) in the bigger scheme of things. (aka for South Africa, your company, your employees and your community)

Principle 1: Aim to contribute towards achieving national economic growth and social development goals to create work opportunities and sustainable livelihoods for our population.

Principle 2: Promote skills and competence within the critical sectors of manufacturing and production which are mostly labour-intensive industries. Construction forms part of these critical sectors.

Principle 3: Support the creation, facilitation and implementation of Professional, Vocational, Technical and Academic Learning programmes. These are to be executed via Apprenticeships, Learnerships and Internships initiatives, that meet the criteria needs for economic growth and development.

Principle 4: Support active employment creation by strengthening the skills and human resource base within organisations by encouraging the support of skills development initiatives with an emphasis on skills and career path development mechanisms.

WIIFM – WHAT’S IN IT FOR ME?

Apart from contributing to skills development and training of employees and individuals in the surrounding community (which in turn has a positive impact on quality standards within an organisation and upliftment of our national workforce), focussing efforts on compliance to Code CSC300 bring two quantifiable benefits to the table.

FIRSTLY, expenses incurred and recognised as Skills Development Expenditure allows for ‘’money back” into company treasury chests via tax rebates and grants.

Legitimate training expenses include:

  • Costs of training materials
  • Costs of trainers
  • Costs of training facilities including costs of catering
  • Scholarships and bursaries
  • Course fees
  • Accommodation and travel
  • Administration costs such as the organisation of training including, where appropriate, the cost for the Measured Entity of employing a skills development facilitator or a training manager
  • Funding and support of research at tertiary institutions aimed at improving the performance of the Construction Sector

SECONDLY, getting maximum points and bonus points from the skills development element is less complicated in comparison to other scorecard elements such as Ownership, Supplier Development or Preferential Procurement.

There is no such thing as a free lunch, but implementing smart training strategies will indeed make your money go further. For example, an R 1 700 000 expense may render points as if an R 6 700 000 training investment was made. (Read more about BEE aligned training initiatives here)

ENTER THE LEARNING PROGRAMME MATRIX

For each training programme listed and claimed for as part of a company’s B-BBEE verification submission, there must be a classification. The Learning Programme Matrix is an excellent ‘’cheat sheet’’ to easily ascertain to which Categories (A-G), every single training cent should be allocated.

Training Programmes can be matched to this matrix in accordance to Category, Narrative Description, Delivery Mode, Learning Site and Learning Outcome which simplifies the verification process and also assists in validating the level of success (return on training investment) of these programmes.

This matrix has also been adapted for the construction industry, and an updated version thereof can be viewed on page 41 of the Gazette.

NOTABLE CHANGES TO THE DRAWING BOARD

To ensure that your skills development plan, goes according to plan (pun intended), we strongly advise that someone in the organisation actually reads the 85 pages as referred to earlier in this blog, preferably with a highlighter to take note of a few important amendments.

  • Demographics related to race and gender are applied with additional recognition for African employees especially from management level upwards
  • Calculation of training initiatives and expenditure for African staff is subject to adjusted recognition for gender and also in relation to management level in the organisational hierarchy
  • Mandatory sectoral training is categorised by site, project or safety inductions, toolbox talks and operator recertification
  • Training for Categories F & G may not exceed 35% of total skills development expenditure
  • Salaries may only be claimed for B, C, and D learnerships with recognition for Category C learners falling away after five years
  • External training of African individuals not forming part of staff headcount will also contribute to overall skills development scores

In our next blog, we will unpack classifications, targets, the compulsory scores to avoid discounting actions and the potential challenges these amended codes may pose to businesses operating in the construction sector for 2019 and beyond.

Let’s talk about BEE…

Broad Based Black Economic Empowerment …….. also referred to BEE, is for many business executives indeed a swear word!

It is associated with politics, it is being called to be reversed racism, it is being called ………. feeding the fat cats, it is also referred to as ……. a vehicle to make the rich richer, and lately it is referred to as a vehicle for “legal” state capture …… and so you will hear many many more negative statements on BEE.

Now let me place my opinion into perspective; yes I am a white male, I am senior citizen in my late fifties, I am afrikaans speaking, and I am living on the other side of the boerewors curtain (Pretoria).

I see myself as an average South African citizen, with an average IQ, with average qualifications ……….. but I am making the statement that many people only see the negative aspects in BEE. I think it is simply because ………. negative publicity is sensational. Yes, I agree, indeed, there are many negative perceptions, many disastrous projects, many money-making schemes ……. in the BEE industry. In fact, we see it on a daily basis as BEE consultants, and the negative talk puts BEE in a “shade of darkness”.

Based on my experience during the last 9 years as a BEE consultant, I have discussed this topic, …. BEE, with many many business executives, and I have been in many board room discussions talking about the pro’s and con’s of BEE, and I know I am repeating myself, I have been exposed to many disastrous BEE projects, but I have also discovered many BEE success stories.

My conclusion is; it is very simple, South Africa needs economic and social transformation. In all my board meetings, in all my discussions with business executives, no-one questioned the basic principle: South Africa needs to go through serious and rapid transformation.

The question is HOW transformation should happen …… now I am asking you, ……….. can you truly, and with sincere honesty, state that you are conducting your business in the true spirit of BEE transformation?

Only YOU will know the answer.

Follow this series of discussions, to discover what it means to use real BEE transformation, to the benefit of your business. In this series of discussions I will call a “spade a spade”, and specifically apply the principles of the current BEE Codes, showing you the positive aspects of BEE.

We will talk about stuff that is relevant, and practical ideas, to make your BEE investments worth your while.