What every SMME needs to know when doing business with government
According to the SAICA 2016 SMME Insight Report, over 80% of SMMEs do not do business with Government at any level. This is due to SMMEs viewing the government bidding process as being too complicated, taking too long, and lacking in transparency. Other important factors relate to the slow rate of payment by Government and the B-BBEE process being too onerous.
The Preferential Procurement Regulations which took effect on 1 April 2017 bring new opportunities for SMMEs to participate in the government procurement process by requiring that, if feasible to subcontract for a contract above R30 million, an organ of state must apply subcontracting to advance designated groups such as exempt micro enterprises, qualifying small enterprises, and cooperatives. If an organ of state applies subcontracting, a minimum of 30% of the value of the contract must be subcontracted.
Central Supplier Database
The starting point for SMMEs who are interested in doing business with Government is to register on the central Supplier Database (CSD) (www.csd.gov.za). The CSD maintains a database of organisations, institutions and individuals who can provide goods and services to government. The CSD serves as the single source of key supplier information for organs of state from 1 April 2016. The CSD provides consolidated, accurate, up-to-date, complete and verified supplier information to procuring organs of state. Registration on the CSD represents an expression of interest from the supplier to conduct business with the South African Government. Key information required when registering on the CSD includes banking details, tax information, company registration details, contact details, and B-BBEE confirmations.
The South African Government maintains an e-tender portal www.etenders.go.za which provides a single point of access to information on tenders made by public sector organisations at all spheres of government. This includes tenders of, among others, all national and provincial departments, metros, district municipalities, local municipalities, municipal entities, public entities, state-owned enterprises, and constitutional bodies. SMMEs will find more information on the e-tender portal on advertised bids, awarded bids, closed bids, cancelled bids, and templates of bid documents.
Free B-BBEE confirmations
Under the amended B-BBEE codes, SMMEs that qualify as exempt micro enterprises (EMEs) and black-controlled and -owned qualifying small enterprises (QSEs) are no longer required to obtain B-BBEE certificates to confirm their status level. They are merely required, on an annual basis, to obtain a sworn affidavit confirming their annual total revenue and level of black ownership. The affidavit is valid for 12 months from the date it is signed by a commissioner of oaths.
An EME in an entity with an annual turnover of R10 million or less while a QSE is an entity with a turnover of R10 million or more but less than R50 million. According to the B-BBEE Commission, the purpose of this intervention is to reduce the cost of compliance and the cost of doing business for small businesses in South Africa.
All EMEs automatically qualify as Level 4 contributors, EMEs and QSEs that are at least 51% black-owned qualify as Level 2 contributors, while 100% black-owned EMEs and QSEs qualify as Level 1 contributors. The Department of Trade and Industry (DTI) has made available a template of affidavits for EMEs and QSEs that entities can use to ensure compliance with the requirements of the amended codes. The template can be accessed at http://www.dti.gov.za/economic_empowerment/bee_codes.jsp
Getting paid on time
Late payments remain one of the major reasons for SMMEs not being interested in doing business with Government. Section 38(1)(f) of the Public Finance Management Act (PFMA) requires accounting officers to settle all contractual obligations and pay all money owing, including intergovernmental claims, within the prescribed or agreed period. Treasury Regulations 8.2.3 states that unless determined otherwise in a contract or other agreement, all payments due to creditors must be settled within 30 days from receipt of an invoice or, in the case of civil claims, from the date of settlement or court judgment.
According to section 65(2)(e) of the Municipal Finance Management Act, the accounting officer must take all reasonable steps to ensure that all money owing by the municipality be paid within 30 days of receiving the relevant invoice or statement, unless prescribed otherwise for certain categories of expenditure.
SMMEs can take the following steps to mitigate the risk of being paid late:
- Ensure that they are responding to a valid bid. This is due to the prevalence of fake tenders in the market where fraudsters take advantage of SMMEs looking to do business with Government.
- Take steps to confirm that the organ of state has followed the correct bidding process when awarding the contract. This is important as delays may be experienced while the organ of state tries to ratify deviations from the bidding process before payment is made to avoid audit findings.
- Keeping the entity’s tax affairs in order.
SMMEs can also make use of the Small Enterprise Development Agency’s SMME payment assistance hotline at https://www.seda-smme.co.za/ to obtain further support when trying to resolve late or non-payment issues with organs of state.
- SAICA Media Release