The Broad-Based Black Economic Empowerment Act and Preferential Procurement Policy Framework Act make provision for subcontracting parts of a tender.
To illustrate by way of an example, a build or maintenance contract to the value of R10 million has been issued to the main contractor. Three million rands (R3 million) or 30% of the contract value must be subcontracted to a compliant SMME. The subcontracted value must cover labour, materials, overheads and a reasonable profit.
The subcontracted portion of the tender should be spent as follows by the SMME:
- Labour R 1 000 000
- Materials 1 200 000
- Overheads 300 000 (overheads include equipment rental, wear and tear of assets, salaries of advisors and head office personnel, portion of office rental, etc)
- Profit margin R 500 000
Subcontractors must not be squeezed to use their allocated money on more than their fair share of 30% of the contract i.e., spend more money that results in not making a profit, use substandard or less material or under-paying workers in order to safe cost.
Compliance and monitoring
The small businesses, rural and township enterprises and designated groups that want to participate in the tender must be tax compliant, BEE compliant, promote health and safety standards, registered with the CIDB and have the relevant experience and expertise and registered on the Central Supplier Database (CSD). However, SMME’s that fail to prequalify or don’t have the necessary experience can approach the main contractor or any other contractor to become part of their Enterprise and Supplier Development programme in terms of its BEE scorecard, to develop the relevant skills and expertise.
The Construction Sector Charter Council has been mandated to ensure that all main contractors comply with the conditions of the tender and Construction Sector Charter. Non-compliance with the conditions of the tender and the Sector Charter must be reported to the Council.
Non-compliance must also be reported to the Municipality, Agency, organs of state or SOE that issued the tender. These enterprises have an obligation to comply with the Preferential Procurement Regulations and Preferential Procurement Policy Framework Act i.e., they must ensure that the appointed SMME’s get their fair share of the tender. Non-compliance can also be reported to the B-BBEE Commission. Main contractors could be sanctioned for not complying with the conditions of the tender, contract and B-BBEE legislation.
Therefore, it in the interests of SMME’s and stakeholders to report defaulting main contractors if they are marginalised in subcontracting allocations.
Note: The above information is based on our interpretation of B-BBEE legislation, regulations and best practice guidelines that are relevant at the time of publication of article.