B-BBEE – still an integral part of state organs’ preferential procurement policies

• South Africa

• Litigation and dispute management
• Local government

08-12-2022

On 4 November 2022, the Minister of Finance (“the Minister”) issued new Preferential Procurement Regulations (“the new Regulations”) under the Preferential Procurement Policy Framework Act 2000 (“PPPFA”). This comes after the Constitutional Court‘s judgment in Minister of Finance v Afribusiness NPC, handed down on 16 February 2022, wherein the Constitutional Court set aside the previous Preferential Procurement Regulations promulgated by the Minister on 20 January 2017 (“2017 Regulations”).

Section 4 of the 2017 Regulations set out pre-qualification criteria which advanced certain designated groups including (i) tenderers having a stipulated minimum B-BBEE status level; (ii) exempted micro enterprises (EMEs) or qualifying small enterprises (QSEs); and (iii) tenderers subcontracting a minimum of 30% to EMEs and QSEs which are at least 51% owned by black people, and provided that only tenderers that fulfil this specific pre-qualification criteria could respond. A tender that failed to meet the pre-qualification criteria as set out in the 2017 Regulations was deemed to be an “unacceptable tender”.

The Constitutional Court found that an organ of state is empowered by section 2(1) of the PPPFA to determine its own preferential procurement policy, in which it may set out its pre-qualification criteria, therefore it was not “necessary nor expedient” for the Minister to promulgate regulations which cover the same field. The 2017 Regulation as a whole were therefore set aside.

The new Regulations have been issued in compliance with the Constitutional Court judgment, section 217 of the Constitution on procurement of goods and service by organs of state and public entities, and section 2 of the PPPFA.

The B-BBEE Commission has confirmed that the scrapping of the pre-qualification criteria does not exempt organs of state and public entities from their obligation to apply any relevant Codes of Good Practice in accordance with the Broad-Based Black Economic Empowerment Act 53 of 2003 (“the B-BBEE Act”) when determining qualification criteria and/or preferential procurement policies. Furthermore, section 9 of the B-BBEE Act permits organs of state and public entities to set B-BBEE qualification criteria that exceed the B-BBEE criteria set out in the Codes of Good Practice.

In conclusion, there still remains an obligation on organs of state and public entities to ensure that there is participation by black people in the economy and equitable income distribution as envisaged by the B-BBEE Act.