In the context of B-BBEE (Broad-Based Black Economic Empowerment) in South Africa, the Preferential Procurement element of the scorecard measures the extent to which companies buy goods and services from B-BBEE-compliant suppliers. The “minimum threshold” refers to the minimum percentage of procurement spend that needs to be directed towards qualifying suppliers to earn points in this element.
Here’s a breakdown of how the minimum threshold works:
Target Spend: The B-BBEE scorecard sets specific targets for procurement spend with different categories of suppliers, such as:
Black women-owned businesses
Suppliers with a certain B-BBEE recognition level
Minimum Threshold Requirement: To earn points for each category, companies must meet a minimum threshold of spend with those suppliers. If a company fails to meet this threshold, it may not earn any points for that specific category, even if some spend was directed towards those suppliers.
Sub-minimum Requirement: In some iterations of the B-BBEE codes, there’s a sub-minimum requirement for spending with certain categories of suppliers. If companies don’t meet this sub-minimum, they can be penalized by dropping a level on their overall B-BBEE rating.
Bonus Points: Some versions of the B-BBEE codes offer bonus points for surpassing targets in specific categories, such as procurement from suppliers that are at least 51% black-owned.
Exclusions: Certain procurement spends, like taxes, salaries, and imports that cannot be sourced locally, are typically excluded from the calculation. Only the qualifying spend is considered when determining if the minimum threshold has been met.
Verification: Companies need to provide evidence of their procurement spend with qualifying suppliers. Verification agencies will assess this evidence to determine if the minimum thresholds (and other targets) have been met.
It’s essential for companies to understand these minimum thresholds and plan their procurement strategies accordingly. Meeting or exceeding these thresholds not only earns points on the B-BBEE scorecard but also supports the broader objectives of economic transformation in South Africa.