Is Preferential Procurement really important for your business?

21 March 2022 476
As much as B-BBEE legislation and scorecards have become a general part of the business landscape for many companies, the procurement aspect remains a difficult one for businesses to get right and understand how important it is to their overall scorecard result. Below we unpack the Preferential Procurement Element of the B-BBEE Scorecard in more detail to illustrate how careful a business should be not to ignore this crucial element in their planning.

The Preferential Procurement element forms part of one of the three priority elements of the generic B-BBEE scorecard. This means that a sub-minimum of 40% of the scorecard points available on this element (10.80 out of 27 points) must be scored for a generic entity (above R50 million annual turnover) not to be discounted by one level on its overall B-BBEE scorecard.

The Preferential Procurement score of an entity is measured against its Total Measured Procurement Spend (“TMPS”) during a specific financial year, which includes all purchases, operational and administrative expenditure, capital expenditure and financing cost, among others. Certain exclusions can be deducted from the TMPS, which include costs such as depreciation, bad debt and salary cost, for example.

Points on the generic Preferential Procurement scorecard are allocated as follows: 

  • BEE Procurement spend from all suppliers – 5 points.
  • BEE Procurement spend from QSE suppliers – 3 points.
  • BEE Procurement spend from EME suppliers – 4 points.
  • BEE Procurement spend from suppliers that are at least 51% black-owned – 11 points.
  • BEE Procurement spend from suppliers that are at least 30% black women-owned – 4 points.
From this it is clear that most points are awarded for procuring from B-BBEE compliant suppliers that are also 51% or more black-owned. That is why it is not only necessary to ensure that your company procures from B-BBEE complaint suppliers, but equally important to procure from majority black-owned and/or 30% black female-owned suppliers, to score optimal points on the Preferential Procurement scorecard.

It is also worthwhile to try and ensure that your business procures from B-BBEE compliant QSE suppliers (suppliers with an annual turnover of between R10 and R50 million) and EME suppliers (suppliers with a turnover of below R10 million per annum), as points are specifically awarded for procuring in these categories.

Preferential Procurement scoring is further based on the B-BBEE status of the suppliers a company procures goods and services from, taking into consideration the amount of money an entity spends with these suppliers. The amount an entity spends on B-BBEE compliant suppliers with higher B-BBEE levels will result in such entity earning higher points on the Preferential Procurement scorecard. For example, procuring from a supplier with a level 4 B-BBEE certificate will result in 100% of the Rand value spend with this supplier counting towards the Preferential Procurement scorecard, while procuring from a level 2 supplier will result in 125% of the Rand value counting towards your scorecard. Clearly, the higher the B-BBEE level of the supplier, the more recognition you can get for the same amount of expenditure.

The following table represents the procurement recognition percentage for each B-BBEE scorecard level:

Level 1
Level 2
Level 3
Level 4
Level 5
Level 6
Level 7
Level 8
Non-compliant contributor  0%

When one considers the above, it is obvious that without a concerted effort and planning regarding which suppliers your business will use, you run the danger of a very poor procurement score, which in turn will substantially affect your overall BEE level. Our advice – make sure you plan your procurement expenditure for each year in minute detail to ensure the best possible outcome. This may require decisions to be made about the continued use of existing suppliers as well as evaluating the procurement benefit of using suppliers with high BEE levels – which is exactly the outcome that Government anticipated with the introduction of the Preferential Procurement element.
Related Expertise: Black Economic Empowerment