Certain manufacturing businesses lack BEE compliance - Levenstein

Keith Levenstein, CEO of BEE advisory firm EconoBEE, says that the manufacturing industry still has a large number of businesses that are not BEE compliant. "Manufacturing businesses, falling into this turnover category, are not winning manufacturing contracts because of this. And surprisingly, many of these companies only need minimal work to increase their BEE score while others already have an acceptable BEE score but are not aware of it.

"They believe it involves too much work or requires a BEE partner to buy a share in the business, which is not the case," he says.

Factors considered when awarding tenders

Based on new government legislation, state-owned entities by law need to award tenders based on two key factors, the company's B-BBEE status and the tender price. A standard calculation weights the B-BBEE status against the contract price to determine the winning tenderer with the lowest score.

In all government tenders now, the company with the best prices will not necessarily win the contract. If company A quotes R10 million and has a B-BBEE Level 8 rating and company B quotes more, say R10,5 million, but has a better B-BBEE rating, company B could still win the contract, even though company A has the better price.

B-BBEE legislation places businesses into three turnover categories. Firstly, businesses with a turnover of under R5 million, who automatically receive a Level 4 status. Secondly, businesses with a turnover up to R35 million, and thirdly businesses over R35 million.

The BEE scorecard consists of seven elements. Levenstein recommends that manufacturing companies should focus on the components of Enterprise Development, Socio-Economic Development, Procurement and Skills Development. The remaining three elements are Management, Employment Equity and Ownership.

Focus areas

15 points can be earned by spending three percent of after-tax net profit on Enterprise Development activities. Enterprise Development covers support for black-owned businesses in the manufacturing industry. This can be in the form of assisting outside black-owned companies with cash grants, discounts on products purchased, loans and loans with preferential terms, shorter payment periods to suppliers, coaching, mentoring and professional services.

The second element, Socio-Economic Development (SED), covers assistance in the social development of the families of staff or the local community. This can include assistance with medical care for the local community, schooling, adult education and transport, amongst others. For manufacturing companies with a turnover of more than R35 million, a one percent spend of after-tax annual profit on SED provides five BEE points.

The third element, Procurement, can earn up to 20 points. This involves obtaining BEE scorecards and the BEE status of suppliers and purchasing from BEE-accredited businesses. In terms of procurement, the higher the BEE score or B-BBEE level the more customers will benefit based on a BEE recognition level. The value of one extra point to a customer can never be underestimated for their procurement calculation.

Fourthly, a business is able to earn up to 15 points on Skills Development by spending only three percent of their payroll on training of black employees, a small amount training black disabled employees, and five percent of all employees should be black staff on learnership or certificated courses.

Based on these four BEE elements, the company could earn a total of 55 points which gives a Level 5 BEE rating.

"Experience shows that pharmaceutical companies do require minimal work to obtain a BEE certificate or to improve on their existing BEE level and by spending a minimal amount," says Levenstein.

For more information, go to www.econobee.co.za.