Doubts cast over BBBEE procurement scores

29 November 2010

29 November 2010 | Nick Martindale

Many South African organisations may have unknowingly distorted procurement’s role in broad-based black economic empowerment (BBBEE) by purchasing from suppliers who have engaged in “fronting”.

Minister of trade and industry Rob Davies admitted the technique, where organisations nominally promote or appoint black individuals into senior positions to achieve a better BBBEE rating, was “pretty rife”.

The government has now announced a probe into the practice. Verification agencies and directors of companies found to be abusing the system could face criminal charges.

“This practice is disempowering people who are supposed to be empowered and is also drawing a benefit from government, parastatals or whoever, which shouldn’t be there,” said Davies.

Business Unity South Africa welcomed the crackdown and called on procurement professionals to insist suppliers agree to meet BBBEE criteria.

A spokesperson said: “Although there is currently no specific offence for fronting, the practice remains fraudulent in nature. We advise those entering into business relationships to pay careful attention to the terms of contracts or shareholder agreements to ensure that future rights and responsibilities are accurately captured in the agreement.”

Meanwhile, South African energy minister Dipuo Peters has announced a study into the level of black participation in the oil industry to assess whether it is meeting requirements outlined in the industry charter of 2000.

“The rationale for this important exercise is to get early warning signals of any potential deviation that might impede the achievement of the intended policy measures and targets, and to develop intervention strategies in instances where hurdles have been encountered,” she said.

A spokesperson for the SouthAfrican Petroleum Industry Associationsaid most of its members were on course to hit the target of buying 25 per cent of goods and services from historically disadvantaged South African suppliers, but admitted there was more of an issue with crude oil companies.

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