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South Africa’s B-BBEE Commission says the recent Supreme Court of Appeals (SCA) ruling, which declared the Preferential Procurement Policy Framework Regulations (PPPFA) invalid, will have no effect on the current B-BBEE Act and your requirements.
In its ruling this week, the SCA said it is “invalid and unconstitutional” for the government to apply pre-disqualification criteria, such as black economic empowerment requirements, to public procurement tenders.
The court determined that the 2017 Preferential Contracting Regulations were in conflict with existing contracting legislation and the Constitution and, consequently, declared it invalid.
The court also found that the finance minister who enacted it at the time, Pravin Gordhan, acted ‘ultra vires’ (beyond his authority), regulating as if he had legislative powers.
However, the B-BBEE Commission said that the B-BBEE Law allows state bodies or public entities to establish B-BBEE qualification criteria for acquisitions and other economic activities and exceed the criteria established in the Codes of Good Practices through of section 9 (6) of Act B-BBEE.
“The declaration of the 2017 PPPFA Regulations as invalid is not a blow to B-BBEE’s requirements for tenders as reported,” he said.
“The invalidity of the PPPFA Regulations of 2017 does not invalidate the B-BBEE Law, and the PPPFA Regulations were not issued under the B-BBEE Law. The framework of the B-BBEE Law and how it is applied is clear and, therefore, it is not affected by the judgment of the Supreme Court of Appeals ”.
The commission said the ruling does not prevent any state entity or department from pursuing and accelerating economic transformation by establishing qualification criteria of 51% black property under the B-BBEE Law.
Instead, it simply means that the PPPFA Regulation cannot be used as a basis for establishing such qualification criteria, he said.
“The processes of the PPPFA Act and the B-BBEE Act should not be confused, considering that section 3 (2) of the B-BBEE Act also introduced the trump effect to address any potential conflict of laws.
“The B-BBEE Commission urges interested parties to follow the prescriptions of the B-BBEE Law with respect to measures and initiatives to promote economic transformation in the manner provided in the B-BBEE Law.”
Small but harmful
The Sakeliga business group, which was a party to the case, said the ruling was of some significance, as the PPPFA regulations constituted a ‘small, but unusually damaging extension’ of black economic empowerment legislation. .
“The Preferential Contracting Regulations of 2017 allowed state bodies to disqualify tenders in advance, simply because a company was not 51% black-owned, for example,” Sakeliga CEO Piet le Roux said.
“The court has now rejected this pre-disqualification as invalid and unconstitutional. It is an important step in the right direction, that is, judging tenders based on trade measures and value to the public, rather than race and other political considerations, ”he said.
Le Roux said the regulations allowed state bodies a new power: to set their own discretionary and arbitrary minimum BEE requirements that a contractor must meet if they want to be considered for doing business with a state body.
Before these regulations, state bodies could take into account the BEE, but only as part (approximately 10% to 20%) of the total points based on the tenders awarded, he said.
The conclusion that the regulations are not valid has been suspended for 12 months, to give current Finance Minister Tito Mboweni time to rectify them.
“In the meantime, however, we pointed out to the state bodies the clear finding against pre-disqualification based on BEE and similar criteria,” said Le Roux.
“The appropriate and morally correct step for all state organs would be to waive the prerequisites until the Minister has issued new regulations.”
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