Municipal BEE compliance could lead to better service delivery

Many businesses that service local municipalities are probably aware of a black economic empowerment (BEE) requirement to do business with that municipality. Typically this means the submission of a BEE scorecard or affidavit along with the bid.

Unfortunately, this aspect of BEE is often the only thing that the municipality itself is aware of.

Most municipalities are unaware that they are, in fact, legally obligated to not only measure their procurement spend but implement an entire BEE scorecard for their municipality.

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The uptake of BEE compliance in organs of state (including municipalities) is so dire that the BEE Commission, in its National Status and Trends on Broad-based BEE Transformation Report 2021, observed that of the 326 organs of state, only 82 submitted BEE reports to the commission, something that the BEE Act compels them to do. Interestingly of these 82 entities, one-third were non-compliant.

The BEE Commission might not appear to carry much weight in this process, but the auditor-general may flag this as non-compliance in that entity’s overall governance, which may impact a municipality’s clean audit status.

Many municipalities are far behind on service delivery and need to show their constituents that they are making progress towards a good governance track record.

Most people think about black ownership as being the most important element of BEE compliance. But in the case of municipalities, ownership isn’t a consideration at all.

Municipalities are, after all, ‘owned’ by the government and hence are exempt from the ownership element. They are, however, required to implement programmes and measure their performance each year in the form of a BEE scorecard.

Creating cohesion

This article is not about what is required for a municipality to comply with a scorecard. Instead, we have chosen to look at how the implementation of a BEE programme can create greater cohesion within a community. To illustrate, we have only focused on three of the four elements.

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The first one is the skills development of black people. Some of the budget can be used on internal staff, but a lot of the money could be used for the development of core and critical skills in the community that could lead to better service delivery and more efficient governance.

We have come across bursary schemes in local communities that aim to develop young people in competencies that strive toward better service delivery. All of these programmes contribute to the skills development scorecard.

In one rather unique situation, a municipality paid for the education of one individual while that person was undergoing an internship in a local business.

Procurement of local goods and services does not have to be concentrated on black-owned businesses exclusively. Any business with a turnover of less than R10 million need only complete an affidavit, and they are automatically BEE compliant.

By supporting these types of businesses as well as black-owned businesses, municipalities are encouraging local employment. These companies can talk to municipalities about the skills they require so the municipality can start working on the development of those skills and prioritising them in their skills development programme.

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Service delivery is a problem in almost every municipality. Some of that service delivery can be outsourced to small black-owned businesses. This needs to be tied into the skills development programme that we discussed above to achieve a sustainable service delivery programme. These small businesses will need equipment, raw materials and other goods and services, all of which can be sourced from the businesses in the community.

And finally, a municipality-driven programme that focuses on programmes like early childhood development will pay dividends for the next generation to come.

Each of these programmes contributes to an ultimate BEE level in the municipality’s BEE scorecard.

Not only has the municipality complied with the law, but it has made a positive difference in its communities. It has created the necessary skills, developed small businesses, purchased from those small businesses as well as many of the other small businesses in its communities and, on top of that, invested in the future of its ratepayers.

In other words, they’ve delivered on their mandate and coincidentally complied with a BEE scorecard which, at the outset, seemed so complex.

Rudolf Rautenbach is a chartered accountant.