What the amended BEE preferential procurement regulations really mean

National Treasury’s proposed changes to the Preferential Procurement Regulations have raised the question of whether BEE requirements have really been removed from tenders to state owned entities.

The changes, which are due to come into effect on 16 January 2023, are the result of a February 2022 Constitutional Court ruling that the 2017 amended regulations are illegal and unconstitutional. National Treasury has subsequently removed all references, requirements and definitions for BEE and local content from the procurement regulations as well as the pre-qualification criteria and functionality requirements of the previous legislation.

The proposed changes essentially repeal the 2017 preferential procurement amendments and strip the rules down to the bare basics of the 2001 regulations, including its broader transformation objectives.

The new regulation means that state owned enterprises:

• Can set their own procurement policies as envisaged in S217(1) of the Constitution and S2 (1) of the Preferential Procurement Policy Framework Act (“PPPFA”)
• Can use their procurement policies to set their own ‘specific goals’ for the awarding of 20 or 10 points depending on the contract value
• Cannot use local content requirements as disqualification criterion for tender
• Can choose to include sub-contracting in their procurement policies, but it is not mandatory.

Specific goals as defined per the PPPFA may include contracting with persons, or categories of persons, historically disadvantaged by unfair discrimination on the basis of race, gender and disability including the implementation of programmes of the Reconstruction and Development Programme (“RDP”) as published in Government Gazette No. 16085 dated 23 November 1994.

Encouragingly, the application of framework is much simpler, less prescriptive and narrow, and reduces the barriers to entry for many companies.

It’s important to note, however, that the changes to the preferential procurement regulations don’t mean that government has abandoned its B-BBEE goals. To the contrary, President Cyril Ramaphosa recently reaffirmed government’s commitment to BEE telling parliament that, “Our people have inherited poverty from generation to generation. There are people who are too poor to pay for water and electricity. That is why the government will persevere with affirmative action and BEE”

Furthermore, in a National Treasury media release it was stated that “The Minister of Finance, as well as the National Treasury and the Government, remain wholly committed to transformation and empowerment as envisioned in the Constitution. In fact, organs of state must comply with the BBBEE Act when developing their procurement policies”

While finance minister Enoch Godongwana has conceded that the proposed amendments don’t eliminate the risk of fraud and corruption, the removal of middlemen who don’t add any real value is positive.

We anticipate that transformation objectives, including BEE and affirmative action, will be included in the Specified Goals section of the new regulations. This means that despite the changes to the preferential and procurement regulations, transformation remains an imperative for private sector businesses.