A major court ruling has gone against BEE in South Africa

by | 5 Nov 2020 | SME Business Skills

South Africa’s B-BBEE Commission says the recent ruling by the Supreme Court of Appeal (SCA) – which declared the Preferential Procurement Policy Framework (PPPFA) Regulations invalid – will have no effect on the current B-BBEE Act and its requirements.

In its ruling this week, the SCA said it is ‘invalid and unconstitutional’ for government to apply pre-disqualification criteria, such as black economic empowerment requirements, to tenders in public procurement.

The court found that the Preferential Procurement Regulations of 2017 conflicted with existing procurement legislation and the Constitution and consequently declared it invalid.

The court also found that the minister of finance who promulgated it at the time, Pravin Gordhan, acted ‘ultra vires’ (beyond his authority), by regulating as if he had legislative powers.

However, the B-BBEE Commission said that B-BBEE Act permits organs of state or public entities to set B-BBEE qualification criteria for procurement and other economic activities and to exceed the criteria set in the Codes of Good Practice through section 9(6) of the B-BBEE Act.

“The declaration of the PPPFA Regulations of 2017 as invalid is not a blow to the B-BBEE requirements for tenders as reported,” it said.

“The invalidity of the PPPFA Regulations of 2017 does not invalidate the B-BBEE Act, and the PPPFA Regulations were not issued under to the B-BBEE Act. The framework for the B-BBEE Act and how it is applied is clear and thus not affected by the ruling of the Supreme Court of Appeal.”

The commission said that the ruling does not prevent any state entity or department from pursuing and accelerating economic transformation by setting qualification criteria of 51% black ownership under the B-BBEE Act.

Instead, it simply means that the PPPFA Regulations cannot be used as a basis to set such qualification criteria, it said.

“The PPPFA and B-BBEE Act processes should not be confused, noting that section 3 (2) of the B-BBEE Act also introduced the trumping effect to address any possible conflict of legislation.

“The B-BBEE Commission urges stakeholders to follow the prescripts in the B-BBEE Act in respect of measures and initiatives to advance economic transformation in a manner envisaged in the B-BBEE Act.”

Small but harmful 

Business group Sakeliga, who was a party in the case, said that the ruling was of some importance, as the PPPFA regulations constituted a ‘small, but unusually harmful extension’ of black economic empowerment legislation.

“The Preferential Procurement Regulations of 2017 allowed organs of state to disqualify tenders in advance, simply because a company was not 51% black owned, for example,” said Sakeliga chief executive Piet le Roux.

“The court has now rejected this pre-disqualification as invalid and unconstitutional. It is an important step in the right direction, namely, to judge tenders based on business measures and value for the public, instead of race and other political considerations,” he said.

Le Roux said that the regulations allowed organs of state a novel power: to set their own discretionary and arbitrary minimum BEE requirements a contractor must meet if it wants to be considered for doing business with an organ of state.

Prior to these regulations, organs of state could take BEE into account, but only as part (approximately between 10% and 20%) of the total points based on which tenders were awarded, he said.

The finding that the regulations are invalid has been suspended for 12 months, to give the current finance minister Tito Mboweni, time to rectify them.

“In the meantime, however, we point out to organs of state the clear finding against pre-disqualification on the basis of BEE and similar criteria,” said Le Roux.

“The appropriate and morally correct step for all organs of state would be to waive pre-requisites until the Minister has promulgated new regulations.”

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