Although Black Economic Empowerment (BEE) is well-intentioned for creating an inclusive economy and reversing the stubborn legacy of apartheid that still determines access to opportunity for black citizens, the policy has become a major pitfall during the Covid-19 storm.
The pitfall of BEE has been underscored by the state’s current and enormous procurement processes of personal protective equipment (PPE) and other Covid-19-related goods.
Before SA’s first case of Covid-19 was officially confirmed on 5 March, the BEE policy had long been built into the state’s procurement ecosystem – valued at almost R1-trillion annually – and is crucial for how tender bids by companies are evaluated.
In other words, a company’s empowerment/transformation profile (black ownership and management) is one of the main criteria used by the state to determine if it is worth being awarded a tender to supply PPE and Covid-19 related goods such as face masks/shields, hazmat suits, gloves, hand sanitisers and ventilators.
But BEE has not (in some cases) been empowering for the nation; during the devastating pandemic, the policy was used as a vehicle for corruption and to blatantly flout procurement laws. These laws include the Public Finance Management Act and the Municipal Finance Management Act, which call for state procurement to be done in a “fair, equitable, transparent, competitive, and cost-effective” manner.
It didn’t help that the National Treasury relaxed procurement rules in April, allowing national departments, provinces, and municipalities to procure goods on an expedited basis – at a time when countries around the world were hoarding crucial health products.
In recent weeks, the nation has been angered by the scandal around the procurement of PPE and other Covid-19 related goods in Gauteng and around SA, as companies with favourable BEE profiles (on paper) were established overnight and emerged as successful tender bidders. Adding insult to injury was that some businessmen/women behind newly established companies had no track record in procuring medical supplies but did so at inflated prices to the state, and enjoyed the proximity to key figures in the state, which probably gave them an advantage in the tender bidding process.
Don’t throw out BEE in its entirety
To stop the feasting on Covid-19 tenders, the National Treasury has tightened procurement rules and stopped the emergency procurement of PPE and other Covid-19 related goods. In other words, the Treasury is returning to onerous tender rules but the BEE requirement from companies will still be in place.
The BEE Commission, which monitors compliance with empowerment legislation by companies, has joined the fray by placing the responsibility squarely on state organs to ensure that contracts/tenders are awarded lawfully and not based on patronage networks.
“Even in the bidding process, there is an obligation on those people [at state organs] assessing tender bids to ensure that the companies have the track record and experience. And where they don’t have the experience, they need to demonstrate where the experience will be coming from to complement their own,” said BEE Commissioner Zodwa Ntuli in a Business Maverick interview.
Ntuli doesn’t believe that incidents of unlawfully awarded tenders are a reflection of the BEE policy, especially its shortcomings.
“There is nothing about B-BBEE [broad-based black economic empowerment] that requires anybody to drop the standards. B-BBEE is about giving people an opportunity to be able to participate in the economy. There is nothing that says where there is a black entity, the standards must be dropped… B-BBEE has nothing to do with corruption. Corruption is a crime and must be dealt with.”
Ntuli hastens to add that not only state organs are complicit in incidents of corruption or BEE gone wrong, as the private sector can equally be blamed for unlawful conduct.
Supporting her view is that it was often privately-owned companies that won tenders by taking advantage of the state’s failure to audit successful bidders or effectively manage its enormous procurement system. After all, it takes two to tango.
The BEE Commission, which was set up in the Department of Trade Industry and Competition in 2017, has the powers to investigate, among other things, BEE deals in the private sector that have not created meaningful empowerment for previously disadvantaged individuals. The commission can also investigate contracts awarded by state organs to companies that have deliberately provided false empowerment information to gain an advantage in the contract bidding process, or contracts that ostensibly don’t have an empowerment element.
An offending company can be slapped with an administrative penalty of 10% of annual turnover by the BEE Commission and the possibility of jail time for directors as the watchdog can refer the findings of its investigation to law enforcement agencies, especially if the findings are related to BEE fronting, which is illegal.
Ntuli didn’t comment on whether the BEE Commission is investigating botched contracts relating to the state’s Covid-19 procurement system. DM/BM