1 July 2020 by and Dispute Resolution Alert

The application of BBBEE prescripts when doing business with government

Section 217 of the Constitution of the Republic of South Africa directs National, Provincial or Local spheres of Government, or any other institution identified in national legislation to contract for goods or services in accordance with a system that is fair, equitable, transparent, competitive and cost-effective.

The Broad-Based Black Economic Empowerment Act 53 of 2003 (BBBEE Act) is one of the national legislations envisaged in section 217 of the Constitution. The BBBEE Act is a framework for how Government may prefer historically disadvantaged companies when contracting for goods and services.

The applicability of the prescripts of the BBBEE Act when tendering for goods and services was considered by the Supreme Court of Appeal (SCA) in Airports Company South Africa SOC Ltd v Imperial Group Ltd & Others (1306/18) [2020] ZASCA 02.

The Airports Company South Africa SOC Limited (ACSA) published a Request for Bids (RFB) inviting members of the public to submit tenders for the hiring of car rental kiosks and parking bays at nine airports operated by the ACSA. The ACSA’s RFB set out a qualification criteria based on a 50/50 price and BBBEE compliance ratio.

Imperial Group Limited objected to the BBBE compliance ratio on the basis that it deviated from the criteria set out in the BBBEE Act.

In determining the applicability of the BBBEE Act in the circumstances, the court referred to section 9 and 10 of BBBEE Act.

Section 9 of the BBBEE Act empowers the Minister of Trade and Industry (Minister) to issue Codes of Good Practice on black economic empowerment (BBBEE codes) that may include a qualification criterion for preferential purposes for procurement and other economic activities.

Section 9(6) of the BBBEE Act provides organs of state with recourse to deviate from the qualification criteria for procurement and other economic activities set out in the BBBEE codes. Sectio 9(6) of the BBBEE Act reads as follows:

If requested to do so, the Minister may by notice in the Gazette permit organs of state or public entities to specify qualification criteria for procurement and other economic activities…”

Further, section 10(2)(a) permits the Minister to consult with organs of state or public entities and pursuant to such consultations allow the organ of state to deviate form the requirements of the BBBEE code.

The SCA found that the provisions of the BBBEE Act constituted mandatory provisions and stated that “it is plain that it is not open to an organ of state, without the Minister’s consent, to design its own custom-made set of qualification criteria that deviate from the provisions of the applicable B-BBEE code.”

The BBBEE Act, thus, limits the discretion afforded to organs of state when drafting the BBBEE terms of their tender documents. Organs of state must be careful that they follow the letter of the law in applying the prescripts of the BBBEE Act unless they have obtained the Minister’s consent. In the event that an organ of state fails to obtain the Minister’s consent, it exposes its tender to judicial scrutiny.

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