PPPFA forum

07 December 2010 © 2010,BEE Institute, All Rights Reserved

Preferential Procurement Policy Framework Act

Leila Moonda


Preferential Procurement

Policy Framework Act

Regulations and BBBEE


On 8 June 2011 Cabinet approved the

alignment of the Regulations of PPPFA Act and

B-BBEE Act. This has far reaching implications

for Private Business, Local and Provincial

Government.

The PPPFA comes into effect on the 8

December 2011

PPPFA and BBBEE


Designated Sector

Sector, sub-sector or industry that has been designated by the DTI, in line with national development and industrial policies for local productions, where ONLY locally produced services, works or goods or locally manufactured goods meet the stipulated minimum threshold for local production and content


Designated Sector

designated by the DTI

where ONLY locally produced /

manufactured services, works or goods

meet the stipulated minimum threshold


Local Content

That portion of the price which is not

included in the imported content, provided

that local manufacture does take place.


Imported Content

Portion of the tender price from the components, parts or materials which have been or still are to be imported. Includes:Costs abroadFreightOther direct importation costs (landing costs, dock duties, import duty, sales duty, other similar taxes)


Functionality

Invitation must stipulate if the tender will be evaluated on functionality

Invitation to tender must specify:– Evaluation criteria

– Weight for each criteria– Applicable values– Minimum qualifying score

Only once functionality has been met, will preference points be applied


PPPFA and BBBEE

PPPFA points are being changed to take

into account BEE compliance as per the dti

Codes, i.e. 80/20 and 90/10 preference

points system


PPPFA and BBBEE

90/10 Preference system:

Compulsory for Procurement > R1Million(previously R500,000)

Maximum of 90 Points for Price and Technicality

Maximum of 10 Points for BEE Level


PPPFA and BBBEE

80/20 Preference system

Compulsory for procurement = > R300 000 –

R1000 000.00. May be used for <R300 000

Maximum of 80 Points for Price and Technicality

Maximum of 20 Points BEE Level


Formula

P = 90/80 (1 – Pt – P min / P min)

Pt = Comparative price

P min = Comparative price of lowest

acceptable tender


Formula

Effect:Favours lowest price

– At double the lowest price, no points for price

– Lowest price maximises the points


Companies wanting to tender for jobs over and above the value of R1million must

provide the procuring entity with a B-BBBEE compliance certificate issued by an

accredited Verification Agency

PPPFA and BBBEE


Original or certified copies of the

Verification Certificate

PPPFA and BBBEE


Awarding of points

BEE Level Number of points

1 20

2 18

3 16

4 12

5 8

6 6

7 4

8 2

Non-Compliant 0

80:20 points system


Awarding of points

BEE Level Number of points

1 10

2 9

3 8

4 5

5 4

6 3

7 2

8 1

Non-Compliant 0

90:10 points system


Not scoring the highest points

A contract can be awarded to a tenderer

who did not score the highest points, only if

objective criteria (other than BEE) justify

the awarding of the contract.


Equal Points

Where two or more tenderers score equal total

points, the tender must be awarded to the

tenderer with the highest BEE Points.

Except

Where functionality is part of the evaluation

process, then the tender must be awarded to the

tenderer scoring the highest points for

functionality.


Organisations may not be awarded points for BEE if they indicate that they intend sub

contracting more than 25% of the contract to an organisation with a lower BEE score than

itself.*

Fronting Prevention

* Does not apply to EME’s

PPPFA and BBBEE


Organisations awarded a contract may not sub contract more than 25% of the contract to an organisation with a lower BEE score

than itself.*

Fronting Prevention

* Does not apply to EME’s

PPPFA and BBBEE


Joint Ventures

An unincorporated joint venture must submit

a combined valid BEE certificate


Local Content

In designated sectors (where local

production and content is key) tenders must

stipulate a minimum threshold for local

content and production.


Local Content

Where the tender is not in a designated

sector, a specific requirement for local

content may be included.


Local Content

National Treasury will issue instructions and

guidelines with specific reporting

mechanisms to ensure compliance.


Local Content

Where a tender has been issued with a local

content specification, it must be measurable

and audited.


Local Content

Organisations that are awarded a tender

may not sub contract if the local content is

reduced below the minimum theshold.


Local Content

Two stage tendering process

2.Functionality including local content

3.Price and BEE


Tertiary Institutions and Public Entities

Procurement must be done through a tendering process

Tertiary Institutions and Public Entities must submit BEE certificates based on the specialised entities scorecard.


Fronting

Companies caught fronting:– Disqualified from the tendering process– Costs, losses and damages can be recovered

– Contracted will be cancelled and damages claimed

– Prevented from any tenders for 10 years– May be prosecuted


Procurement and preferential procurement


Procurement vs. Preferential Procurement

Procurement is the acquisition of appropriate goods and/or services at the best possible total cost of ownership to meet the needs of the purchaser in terms of quality and quantity, time, and location.

Preferential Procurement is the acquisition of appropriate goods and/or services that fulfill a procurement function, as well a social responsibility function


Procurement vs. Preferential Procurement

Procurement Preferential Procurement

Cost Cost +

Service Service -

Quality Quality -

vs


Total Cost of Ownership

Acquisition cost

Change CostOperating Cost

TCO


Total BEE Cost of Ownership

Acquisition cost

Change Cost

BEE CostOperating

CostTCO


Value / Change cost

– Cost of quality including maintenance, disposal, CSR, and

environmental costs

Price / Acquisition cost

– Basic cost of product or service or service

Transaction / Operating cost

– Cost of acquisition, including buying resources, effort, time, and

payment terms



BEE

– Cost of Enterprise Development programmes

– Cost of Socio-economic Development programmes

– Cost of obtaining certificates and monitoring supplier

BEE status

– Possible cost of non-performance

– Possible cost of non-conformance



Developing a BEE Strategy


Dynamics of BEE

Time

BE

E S

core

Your BEE score

Pressure from competitors, customers, public perception….

Limit of your BEE capabilities

Practical minimum score

30 (40)


Approaching BEE


But there aren’t any BEE suppliers for…

Speak to your suppliers

Help develop suppliers

REMEMBER TARGETS INCREASE FROM 09/07/2013 (2012)


Initial Target Score

Do you have proper vendor data?

What can your suppliers offer?

Do you understand your Vendor Data?

Are your systems ready?


SUSTAINABLE BEE™ APPROACH

1. Buy-in at Senior Level

2. Structure Value Chain Committee

3. Train Committee members

4. Train Line Management

5. Support Line Management

6. BEE Management Tools and Systems

Alignment (if necessary)


Buy-in from Senior Management

No company-wide change can succeed without the support and buy-in from the top most structures of the organisation, including the CEO.

BEE is no different.


Socio- Economic Development

Enterprise Development


Value Chain Committee


Core focus areas Managing Suppliers in terms of BEE Enterprise Development programme

management Socio – Economic Development

programme management



How to achieve the above: Have a policy, strategy and program Manage supplier BEE information Identify suppliers or customers for Enterprise Development

support initiatives Implement SED initiatives aimed at enhancing current suppliers or

to create future suppliers Manage all programmes to ensure a return on investment Implement Enterprise Development initiatives aimed at either

enhancing your supply chain or customer base Put in place projects and manage them



A Structured Pref Proc Process


1. Establish a Policy

3. Undertake an audit – determine current state

5. Formulate Goals and Strategies

a. Set Pref. Procurement goals and strategyb. Align Pref. Procurement strategy to company strategy c. Get input on “Best Practice”d. Review of proposed strategy against “Best Practice”e. Determine Time Frames and Monitoring Mechanisms f. Allocate accountability and identify performance indicators

A Structured BEE Process


2. Implement strategies

8. Monitor, Evaluate & Manage

a. Develop action plansb. Implement action plans c. Project Managementd. Undertake an Organisational Alignment review to identify gaps between BEE

implementation requirements and existing company structures, procedures and systems

e. Communication, implementation and change management processes

a. Responsibility of Top Management / Governance Committeeb. Cyclic meetings

A Structured BEE Process


Establishing a Pref. Proc. strategy Understand the external influences on your business

– What are your suppliers able to deliver

– Are there SMME’s, Black Owned and Black Women Owned suppliers available

– Have your suppliers embraced BEE

– PEST Analysis (Political, Economic, Social, Technological)

Understand the internal influences on your business

– Staff understanding of BEE

– Capabilities of systems

– Internal procedures and controls

– SWOT Analysis (Strengths, Weaknesses, Opportunities, Threats)


Establishing BBBEE targets and plan Establish practical and achievable targets that you know

your company can achieve in required time frames Consider 12 month, 2 and 3 year targets and then

ensure that your company can sustain them

Develop a detailed implementation plan for achieving the targets– Who, how, when , cost, impact

Review and align targets based on implementation plan


Preferential Procurement ProcessPhase 1 Phase 2 Phase 3

Extract Vendor List

Update vendor list with contact

details

Undertake Supplier analysis: 80:20 principle, SMME’s, BO’s

BWO’sKraljic analysis

Survey suppliers

Request BEE scorecards

Receive scorecards and

capture information

Calculate BEE procurements

figures and score


Segmenting the Spend

Price of Commodity

Risk to the Business

First Segment the spend, then ...

LeverageNon-critical

StationeryCleaningGarden Service

FuelOffice AutomationCellphonesIT HardwareTravel

StrategicBottleneck

TransportationRaw MaterialsCore Components

Low

Low High

•Critical Spares•Legal and Business Advice

High

•High BEE Levels (1/2)

•Black Owned Suppliers

•Black Women Owned Suppliers

•EME’s and QSE’s

•Level 7 / 5 BEE Level

•Level 4 or higher•Black Owned

Suppliers•Black Women

Owned Suppliers•EME’s and QSE’s


THANK YOU

LEILA MOONDA011 726 3052

[email protected]

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