Sakeliga’s recent victory in the Constitutional Court against “B-BBEE”, has captured the attention of business South Africa, and the question on everyone’s lips is: “Does this ruling mean the end of B-BBEE?” The short answer is: No.
The longer answer is that this ruling will only benefit entities that deal with government and government tenders. For the rest, it is B-BBEE as usual, which also implies that all the current fines and penalties that may be imposed for non-compliance still apply.
In this recent controversial case, the Constitutional Court invalidated the 2017 Preferential Procurement Regulations that form part of the Policy Framework Act (PPPFA), due to the fact that it only favors 100% black-owned entities.
In practise, these procurement regulations determined that government contracts could only be awarded to entities with black ownership of 100% or to entities who have subcontracted at least 51% of a contract to black women, black military veterans, black youth and black disabled people. This was a massive departure from the previous regulations in the sense that B-BBEE criteria only carried a weight of between 10% and 20% in the final stages of the tender evaluation process. The latest regulations were introduced by the then Minister of Finance, Pravin Gordon who enforced it on all government departments and state-owned institutions. The argument of Sakeliga, which was now positively received by the Constitutional Court, was that the minister acted beyond the scope of his authority.
This latest ruling by the Constitutional Court ruling means that government institutions such as Eskom, Denel and Transnet, are no longer bound to B-BBEE and local content requirements stipulated by the 217 regulations for the purposes of awarding tenders. They will therefore now be allowed to use their own criteria when formulating and enforcing their procurement policies.
The new preferential procurement rules were promulgated by the current minister of finance, Mr Enoch Godongwana on 4 November 2022. Whilst government has not explicitly stated that they will no longer be applying B-BBEE criteria in tender processes, it is the opinion of leaders like Connie Mulder from the Solidarity Research Institute that it may still be enforceable through hidden definitions in legislation which stipulate that every tender must have a special purpose.
Again, it must be noted that this latest ruling by the Constitutional Court is directed at Treasury’s PPPFA (Preferential Procurement Policy Framework Act), and not at the Department of Trade, Industry and Competition (DTIC) under which the B-BBEE Act and Codes of Good Practice are still enforced.
In reaction to Dr Pieter Groenewald from the VF Plus who questioned whether he would consider doing away with the B-BBEE legislation, President Cyril Ramaphosa said that the government will continue with B-BBEE initiatives to counteract the poverty which was inherited by one generation of black people from the previous generation. He pointed out for example that there are people who cannot even afford to pay for water and electricity.
Even though the Constitutional Court’s ruling is a step in the right direction in an attempt to rebuild the ailing South African economy, much work still needs to be done to ensure a free and fair economy, which will benefit and prosper all the citizens of our country.
Rather than undoing the good work that has been done, this victory should act as proof and motivation that we are not at the mercy of bad governance and bad government policy. Business South Africa, as a collective, can gain confidence from this and build on the momentum in voicing its concerns by providing the necessary input in the formulation of such policies, via the right channels.
In the interim, here are some important questions that businesses need to continue asking when it comes to B-BBEE:
1. Do I need a B-BBEE certificate? Who is asking for it?
2. Am I spending more than what is truly necessary to be B-BBEE compliant?
3. Am I best positioned (structure wise) to take advantage of B-BBEE opportunities?