Understanding the Preferential Procurement Element in a B-BBEE Verification process

Preferential Procurement is a key component in South Africa’s journey towards economic transformation and inclusive growth. This practice involves giving priority or preference to certain suppliers, vendors, or contractors based on specific criteria, which are defined by various B-BBEE codes. The exact criteria may vary depending on the sector code that the Measured Entity is evaluated under.

Why is Preferential Procurement Important in B-BBEE?

Preferential Procurement plays a vital role in promoting economic transformation, making it a critical focus in the B-BBEE (Broad-Based Black Economic Empowerment) framework. During a B-BBEE verification, the Verification Agency meticulously examines a company's procurement practices to ensure compliance with B-BBEE requirements.

The Verification Process for Preferential Procurement

Understanding the verification process for Preferential Procurement is crucial for companies aiming to maximize their B-BBEE score. Below is a breakdown of the steps involved:

Step 1: Submission of Claim by Measured Entity

The process begins with the Measured Entity submitting a supplier list to the Verification Agency. This list must be comprehensive, detailing each supplier’s name, the expenditure for the financial period under review, and each supplier’s B-BBEE credentials.

Tip: Regularly update your suppliers' B-BBEE credentials, especially before their B-BBEE certificates expire, to ensure you have accurate information when submitting to the Verification Agency.

Step 2: Sampling

Once the supplier list is submitted, the Verification Agency will provide the Measured Entity with a list of sampled suppliers. This sampling covers all the indicators on the applicable B-BBEE Scorecard.

Step 3: Submission of Evidence

For each sampled supplier, the following evidence must be submitted to the Verification Agency:

• Supplier’s valid B-BBEE Certificate or affidavit: This document is valid for one year. If it has expired by the time of verification, it remains valid for the measured entity's financial period.
• Supplier’s largest invoice issued during the measured entity’s financial year: Ensure that the supplier’s company registration and/or VAT number is visible on the invoice, as this is used to verify the accuracy of the BEE Certificate/Affidavit.
• Detailed supplier ledger: This should be provided in Excel format for the measured entity’s financial year.

Step 4: Verification of the Evidence

The Verification Agency will carefully review the following details on each submitted document:

• BEE Certificate or Affidavit:some text
  • BEE Status Level (ranging from Level 1, the highest, to Level 8, the lowest)
  • Type of company (EME, QSE, Generic)
  • Ownership percentage
  • VAT Number and Registration number
  • Certificate/Affidavit expiration date
  • Verification agency accreditation (SANAS accredited)
• Supplier’s Invoice:some text
  • Supplier’s name
  • VAT/Company registration number
  • Invoice date (must fall within the measured entity’s financial year)
  • Invoice amount (should match the detailed ledger)

The Impact of Preferential Procurement on Your B-BBEE Score

Preferential Procurement is a significant element on the B-BBEE Scorecard, offering many points. Moreover, it is a Priority Element, meaning that failure to reach the 40% Sub-minimum threshold could result in a level downgrade.

Need Help?

Navigating the complexities of Preferential Procurement and B-BBEE compliance can be challenging. Engaging with a B-BBEE consultant can help you develop strategies and action plans to close any compliance gaps and enhance your overall B-BBEE rating.

For more information or assistance, contact Elevate Advisory Partners at info@elevateadvisory.co.za.

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