How Preferential Procurement works

The Revised Codes of Good Practice that have been in force since the 1st of May 2015 make complying with certain elements of the scorecard unavoidable. Preferential Procurement is one of these priority elements. If a company does not achieve 40% of the 25 point target, that company's BEE score will be discounted by one Level.

How do companies score Preferential Procurement points?

Companies score Preferential Procurement points by spending a portion of their Total Measured Procurement Spend (TMPS) with Empowering Entities. TMPS includes capital expenses, operational expenses and cost of sales. Salaries, taxes and imported goods with a brand or specification unavailable in South Africa are not counted in TMPS. Empowering Entities currently include most companies with an Empowerment Certificate.

Targets and Levels

Empowerment Level makes some difference to Preferential Procurement, but not as much as people may think. The make-up of the Ownership of the supplier is far more important in the points earned. Each rand spent with a Level 1 supplier may be multiplied by 135% when calculating Procurement points. Spend with a Level 4 supplier is multiplied by 100% and so on.

Procurement points are earned in proportion to TMPS spent with the following suppliers:

Target Points
Empowering Entities: 80% 5
Majority Black Owned Entities: 40% 9
> 30% Black Woman Owned Entities: 12% 4
Exempt Micro Enterprises - (EME) turnover < R10m: 15% 4
Qualifying Small Enterprises - (QSE) turnover R10m to R50m: 15% 3
Majority Designated Group Owned Entities (bonus points): 2% 2

Spending 8% of TMPS with a 25% Black Owned, Level 1, Generic Enterprise (turnover greater than R50m per year) will achieve:

135% × 8%÷80% × 5
= .675 of a point

Signing a new contract with an EME or QSE (or renewing the contract for a further three years) allows the purchasing company to multiply the spend by a factor of 1.2. So, signing the right contract for the same 8% of TMPS with a Majority Black Owned; 30% Black Woman Owned QSE will achieve:

125% × 1.2 × 8% ÷ 80% × 5
8% ÷ 40% × 9
8% ÷ 12% × 4
8% ÷ 15% × 3
= 10.65 points

A supplier with the correct ownership structure will provide its clients with in excess of 15 times more Preferential Procurement points than some Level 1 rated companies can.