Supplier Development Element

The Codes have defined the Supplier Development Programme and Supplier Development Contributions sub-elements of the Preferential Procurement and Supplier Development element as a Priority Elements in terms of transformation imperative.

The Supplier Development Programmes - sub-element has set a 40% subminimum of the points available

i.e. - 2 out of 5 points for Contractors and 1.6 out of 4 points for BEPs

i.e. - Should the Entity not achieve the required 40% subminimum in relation to the Supplier Development Programmes sub-element subminimum target its B-BBEE Status will be discounted by 1 level.

The Supplier Development Contributions - sub-element has set a 40% subminimum of the points available

i.e. - 4 out of 10 points for Contractors and 2 out of 5 points for BEPs

i.e. - Should the Entity not achieve the required 40% subminimum in relation to the Supplier Development Contributions sub-element subminimum target its B-BBEE Status will be discounted by 1 level.

A Supplier Development Programme is a programme whereby the Measured Entity provides structured co-operation and assistance to Qualifying Beneficiary Entities in the form of Qualifying Supplier Development Contributions.

For the Supplier Development Programme to earn the Measured Entity any recognition, the programme must comply with the following additional criteria:

With respect to the Qualifying Beneficiary Entity:

• The Measured Entity may not hold more than 20%, calculated in terms of the normal flow-through principle, of the the Qualifying Beneficiary Entity’s equity;
• The Qualifying Beneficiary Entity must employ a minimum of three permanent employees;
• The Qualifying Beneficiary Entity must be in possession of a valid tax clearance certificate;
• The Qualifying Beneficiary Entity must be in possession of a sworn affidavit (where applicable), or B-BBEE certificate that was valid at the date of entering into the agreement.

The programme must be evidenced by the following:

• A written agreement signed by the Measured Entity and the Qualifying Beneficiary Entity;
• A documented “needs analysis” of the Qualifying Beneficiary Entity signed by both the Measured Entity and the Qualifying Beneficiary Entity;
• A documented ‘Supplier Development Plan’ signed by both the Measured Entity and the Qualifying Beneficiary Entity, which must contain with reference to the Measurement Period:
• Clear objectives with respect to the development of at least three needs as identified per the “needs analysis” (see paragraph 9.2.2.2) from at least two areas that were identified for development. For avoidance of doubt, a developmental need is a specific requirement to be implemented under a development area, and this specific need requires defined objectives.

The areas that may be targeted for development are not limited but could include:

• Management and labour skills transfer;
• Establishment of an administrative system;
• Planning, tendering and programming skills transfer;
• Business skills transfer with an emphasis on negotiation skills;
• Technical skills transfer with emphasis on innovation;
• Legal compliance;
• Procurement skills transfer;
• Establishment of credit rating and/or history;
• Establishment of financial loan capacity and/or history;
• Contractual knowledge transfer
• Marketing and branding;
• Access to or implementation of business systems;

A Supplier Development Champion that will be accountable and responsible for the ‘Supplier Development Programme’ must be appointed at Senior Management or higher level in the Measured Entity. He/she must be suitably qualified and experienced to monitor progress and complete a portfolio of evidence for verification.

Formula and Example

 

Step 1: To apply the formula first position the Measured Entity on Table 1 with respect to the highest

applicable Revenue category:

 

Table 1:

Contractors			BEP's
Total Annual Revenue of the Measured Entity for the Measurement Period	Requirements related to current Measurement Period		Total Annual Revenue of the Measured Entity for the Measurement Period	Requirements related to current Measurement Period
	X	Y		X	Y
≥ R1 billion	7	5%	≥ R 300 million	3	5%
≥ R500 million	5	5%
≥ R300 million	4	5%	≥ R100million	2	5%
≥ R35 million	2	5%	< R100 million	1	5%
< R35 million	1	5%

 

 

Formula
A = (B/X x C/Y) x D
Where:
A	Is the score for the measured indicator.
B	is the number of Qualifying Beneficiary Entities that participated in Supplier Development Programmes during the Measurement Period
X	Is the appropriate target number
C	is the aggregate of the total annual Revenues of the Qualifying Beneficiary Entities counted in B (based on their latest financial periods as at Measurement Date)
Y	is the appropriate Revenue ratio requirement
D	Is the weighting for the measured indicator.

 

Example

INFO Beneficiary A Beneficiary B Beneficiary C Turnover: R 18 000 000 R 7 000 000 R 2 000 000   The following information is relevant to the Contractor in terms of Supplier Development programmes:   The measured entity has a Turnover of R650 000 000   Based on table 1 above, the target number of programmes are 5, with a combined Revenue of R32 500 000.     Step 1 - Calculate the applicable number of Supplier Development programmes:   Based on table 1 above, the target number of programmes are 5, with a combined Revenue of R32 500 000.   Step 2 - Calculate the total Revenue of the Supplier Development Programme Beneficiaries:   = R18 000 000 + R7 000 000 + R2 000 000 = R27 000 000   Step 3 - Calculate the score:   = (Actual number of qualifying programmes / Target Number Of Programmes x Combined Turnover of Beneficiaries / 5% of Entity Revenue) x Available Points = (3 / 5 x R27 000 000 / (R650 000 000 x 5%)) x 5 = 2.49 points

 

Priority element subminimum

 

The subminimum for the Supplier Development subminimum is 2 points.

 

We have scored 2.49 points, which is above the subminimum of 2 points.

 

Therefore there will be no discounting applicable for the element category.

Qualifying Supplier Development contributions means Supplier Development Contributions targeting Entities:

1. which are at least 51% Black Owned; and
2. an EME or QSE; or
3. in the event of a Large Enterprise Measured Entity a beneficiary entity who’s total annual Revenue, for the financial period that preceded the contribution for the Measurement Period, did not exceed 30% of the Measured Entities total annual Revenue for the Measurement Period.

A Supplier means any distributor, supplier, service provider, consultant or Contractor to the broader Construction Industry (i.e not necessarily to the Measured Entity).

Qualifying Supplier Development Contributions can include:

• Monetary or non-monetary contributions.
• Recoverable or non-recoverable contributions.

The following is a non- exhaustive list of some examples of qualifying Supplier Development Contributions:

• Grants.
• Investments.
• Seed and development capital
• Loans and Preferential credit facilities
• Relaxed security requirements
• Early Payment-
• Exceptional Discounts.
• Free product or services.
• Training and Mentoring
• Provisions of services including professional and consulting services, licensing and registration fees, industry specific levies and fees IT services.
• Creation of development capacity and expertise to manufacture or produce goods or services not produced, manufactured or provided for in South Africa. .
• Administrative and Salary Costs associated with running a Supplier Development Program or unit.
• Contributions to third party organisations that perform Supplier initiatives on behalf of the measured entity.

Not all Supplier Development contributions will attract 100% recognition. The Benefit Factor Matrix records the recognition percentages for the different types of Supplier Development contributions.

The entity measure its Supplier Development Contributions for the current period of assessment only ( a 1 year period);

No Supplier Development Contributions payable after the date of measurement will be recognised.

Multiple year programmes

With contributions, programmes and initiatives that span over multiple years the average annual contribution amount can be utilized for the current assessment period.

The average annual contribution amount is calculated by dividing the total contribution by the number of years of the project.

Supplier Development Plan

Measured Entities are encouraged to develop and implement an Enterprise and Supplier Development plan, which should include:

• Clear objectives
• Priority interventions
• Key performance indicators
• A concise implementation plan with clearly articulated milestones

The compliance Target is based on the average NPAT of the Measured Entity over the three financial years that precedes the Measurement Period and will be the basis for determining the Targets unless:

• The Measured Entity did not make a profit on average over this three year period; or
• The average net profit margin of the Measured Entity over this three year period was less than a third of the industry norm net profit margin during the same three year period.

Where, either of these factors are present then the Indicative NPAT of the Measured Entity for the three financial years that precedes the Measurement Period, will be the basis for determining the Targets.

The Indicative NPAT is the Revenue of the Measured Entity for the Measurement Period, multiplied by a third of the average industry norm net profit margin for the three financial years that precedes the Measurement Period.

These industry norms are published by Statistics South Africa on a quarterly basis in the Quarterly Financial Statistics publication.

Priority element subminimum

The subminimum for the Supplier Development Contributions subminimum is 4 points.

We have scored 2.20 points, which is below the subminimum of 4 points.

Therefore there will be discounting, and the measured entity’s overall B-BBEE Status level will drop by 1 level.