COC – Course of Construction: Minimising the risk of B-BBEE non-compliance

A pre-requisite to earning any points within the stipulations of the CSC300 code is the annual submission to CETA by 30th of April every year. Forget about this date and wave your B-BBEEE rating goodbye.

The following criteria must be fulfilled for the Measured Entity to receive points on the Skills Development Scorecard:

  • Workplace Skills Plan
  • An Annual Training Report
  • Pivotal Report which has been  submitted to CETA (Construction Education & Training Authority)
  • Implementation of Priority Skills programme generally, and more specifically for Black People

 

SUB-MINIMUMS, DISCOUNTING & CHALLENGES

According to the scorecard measurement principles of the Skills Development element, any measured entity has to achieve at least 40% of the total weighting points as directed by each sub-element of the Skills Development Scorecard.

These include mentorship participation, facilitating learnerships, internships, apprenticeships and professional registrations, as well as skills development expenditure for black people and adjusted gender recognition parameters according to the categories of the Learning Programme Matrix.

Let’s have a look at the  revised codes relevant to the classification of measured entities, discounting principles and foreseen challenges in more detail:

  • Large Enterprises

For large industry players (Large Enterprises) compliance with all five priority elements will be compulsory, and Skills Development is viewed as a priority element for larger organisations in the construction sector. (page 41 of the Gazette)

The biggest risk here is that non-compliance to the threshold targets on any one of the five elements will result in the B-BBEE status being discounted by one or more levels depending on the compliance gap between actual and subminimum target points.

A prominent challenge for big business would be the potential disruption of services, production and manufacturing processes due to employee time spent in training and development activities and also for key staff involved in prescribed mentorship programmes.

 
  • Qualifying Small Enterprises (QSE’s)

 A measurable Qualifying Small Enterprise has more manoeuvrability in terms of the QSE Scorecard with a compulsory element of Ownership and then the choice of another element which may or may not include Skills Development. (heads up for growing concerns, skills development is a much more nimble element where maximum points can be earned far easier than for instance preferential procurement and supplier development elements)

If a QSE qualifies for an automatic B-BBEE level 1 or 2 status, compliance to the Skills Development element is compulsory as to avoid discounting. The challenging issue this scenario is that the modified flow-through principle cannot be used; only the standard flow-through principle is allowed in this case. For an explanatory infographic regarding the differences between these principles click here.

Another spanner in the works for automatic qualifiers on level 2 due to 51% black ownership is that they will be discounted by one level if a 40% subminimum in terms of the Skills Development element is not met. This change forces QSE’s to still spend funds on Skills Development despite qualifying for Automatic B-BBEE levels.

 
  • Emerging Micro Enterprises (EME’s)

An EME with an annual turnover under 1.8 million for BEP’s and under 3 million for Contractors is not subjected to the discounting principles because they do not need to present B-BBEE verification certificates although proof of EME status is required.

Therefore, they are automatically released from being compliant to the QSE Skills Development Element as long as ownership percentages and annual turnover remains in the boundaries of EME classification. Kudos to Government for being considerate to ‘’small guys”.

However, as an Emerging Micro Enterprise (EME) with automatic B-BBEE status levels from 1 -4 the minimum expenditure target for Skills Development is 40% to avoid discounting action. (These are relevant to EME’s who choose to enhance their B-BBEE status levels)

A particular challenge for smaller construction companies who often find it difficult to achieve 30% black ownership is that they will be discounted from a level 5 to a level 6, by not obtaining a 40% subminimum in the skills development element. This means that their competitiveness in the market when bidding for tenders may be compromised significantly.

  • Start-Up Enterprises

Start-up enterprises are by no means exempted from strict scoring regulations. During the first twelve months of operations, a startup will be measured as an EME regardless of expected revenue if below ten million.

However, tendering on any contract with a value of higher than 10 million (below 50 million) would immediately push the company into a QSE qualification. Similarly, a startup will be measured against the Large Enterprise Scorecard if any tender is made with a deal value higher than 50 million.

Therefore, the Amended Code expects increased compliance standards from a legitimate start-up the moment it secures a high value contract. Obtaining the required Skills Development subminimum will then become increasingly difficult for construction industry start-ups. (Note to all start-ups: Ramp up your internship and learnership recruitment processes with the eSTUDY eRecruitment Solution)

 

NITTY GRITTY, BUT IMPORTANT AMENDMENTS

Noteworthy changes to the Construction Sector Codes are concisely summarised in a recent SANAS publication. We have listed those that may have substantial impacts on future skills development strategies below:

  • Stepped targets have been put in place for Skills Development expenditure with immediate effect, at the end of year 3 and then again from year 5 onwards, which provides for a much-needed scope in medium and long-term planning, to ensure Skills Development compliance.
  • A welcome addition is the extra points being made available based on how and to whom the spend was allocated to, for example, African People, Black Management, Bursaries or Scholarships.
  • The Learning Programme Matrix specially adapted for the Construction Sector now includes Category A Learners as well.
  • Professional Registration Learnerships are capped at 5 years from now on, in terms of the maximum recognition period.
  • Three additional points may be earned for Approved and Verified Membership Programmes going forward.
  • A percentage change increase from 15% to 35% allows for additional informal training to be recognised in the construction sector. (specified in Categories F&G)
  • Mandatory construction industry training cannot be included in the skills spend of companies, and these are clearly defined as Site, Project and Safety Inductions, Toolbox Talks and Operator Re-Certification. Effectively all other training not forming part of these specific mandatory training mechanisms may now be claimed for under the Skills Development Element.

BEE strategies created for the construction industry should be more than just ticking the boxes and adhering to bare minimums. At BEE Analyst and Associates we are ready to assist your company in adapting and achieving compliancy under the Amended B-BBEE Construction Codes and further optimise your scorecard levels in the most cost-effective manner.