South Africa's Preferential Procurement Policy Framework Act (PPPFA) ensures that government procurement advances economic transformation by giving preference to businesses with higher B-BBEE status. Understanding how this works can significantly improve your chances of winning government contracts.
Who This Is For
- All bidders participating in government tenders
- SMEs seeking to maximize their bid scores
- Businesses planning their B-BBEE strategy
- Anyone wanting to understand tender scoring
What Is the PPPFA?
The Preferential Procurement Policy Framework Act (Act 5 of 2000) implements Section 217(2) of the Constitution, which allows government to use procurement to advance economic transformation. The Act:
- Establishes a points-based evaluation system for tenders
- Reserves points for B-BBEE status
- Allows for specific goals to advance designated groups
- Sets thresholds for different point systems
The 80/20 Point System
For tenders valued at R50 million or less, the 80/20 system applies:
- 80 points: Allocated for price
- 20 points: Allocated for B-BBEE status
This system gives more weight to B-BBEE, making it particularly advantageous for EMEs, QSEs, and Level 1-4 contributors.
The 90/10 Point System
For tenders valued at more than R50 million, the 90/10 system applies:
- 90 points: Allocated for price
- 10 points: Allocated for B-BBEE status
This system gives more weight to price, making competitive pricing more important for larger contracts.
How B-BBEE Points Are Allocated
Your B-BBEE status level determines how many preference points you receive:
| B-BBEE Level | 80/20 Points | 90/10 Points |
|---|---|---|
| Level 1 | 20 | 10 |
| Level 2 | 18 | 9 |
| Level 3 | 14 | 6 |
| Level 4 | 12 | 5 |
| Level 5 | 8 | 4 |
| Level 6 | 6 | 3 |
| Level 7 | 4 | 2 |
| Level 8 | 2 | 1 |
| Non-compliant | 0 | 0 |
EME and QSE Advantages
Exempted Micro Enterprises (EMEs) and Qualifying Small Enterprises (QSEs) have special advantages:
EMEs (Turnover up to R10 million)
- Automatic Level 4 status (51%+ black ownership = Level 2)
- Can use sworn affidavit instead of verified certificate
- No cost for B-BBEE verification
- 100% black-owned EME = Level 1
QSEs (Turnover R10 million - R50 million)
- Simplified scorecard with fewer elements
- 51%+ black ownership = automatic Level 2
- 100% black-owned = Level 1
- Lower verification costs than generic enterprises
Calculating Your Total Score
Your total bid score is calculated using this formula:
Ps = X × (1 - (Pt - Pmin) / Pmin)Where: Ps = price score, X = max price points (80 or 90), Pt = your price, Pmin = lowest price
In simpler terms: the lowest price gets full price points, and other bidders get proportionally fewer points based on how much higher their price is.
Example: 80/20 Scoring
Consider a tender with these bids:
| Bidder | Price | B-BBEE | Price Points | B-BBEE Points | Total |
|---|---|---|---|---|---|
| Company A | R1,000,000 | Level 1 | 80.00 | 20 | 100.00 |
| Company B | R950,000 | Level 4 | 80.00 | 12 | 92.00 |
| Company C | R900,000 | Non-compliant | 80.00 | 0 | 80.00 |
Even though Company C has the lowest price, Company A wins because their B-BBEE Level 1 status adds 20 points.
Example: 90/10 Scoring
For a tender over R50 million:
| Bidder | Price | B-BBEE | Price Points | B-BBEE Points | Total |
|---|---|---|---|---|---|
| Company A | R60,000,000 | Level 1 | 85.50 | 10 | 95.50 |
| Company B | R57,000,000 | Non-compliant | 90.00 | 0 | 90.00 |
In 90/10, B-BBEE still matters, but competitive pricing becomes more important.
Specific Goals & Subcontracting
The 2022 PPPFA Regulations introduced mandatory subcontracting requirements for tenders over R30 million. Organs of state can require:
- Minimum 30% subcontracting to designated groups
- Subcontracting to EMEs and QSEs
- Subcontracting to businesses in specific regions
Designated Groups
The PPPFA and B-BBEE legislation recognize certain designated groups for preferential treatment:
- Black-owned enterprises (51%+ black ownership)
- Black women-owned enterprises (51%+ black women ownership)
- Black youth-owned enterprises (51%+ ownership by youth under 35)
- Enterprises owned by people with disabilities
- Cooperatives
- Township and rural enterprises
- Military veterans
Local Content Requirements
Certain products are designated for local content requirements under the PPPFA. This means a minimum percentage of the product must be manufactured locally.
Designated sectors include:
- Textile, clothing, leather, and footwear
- Rail rolling stock
- Power pylons
- Furniture
- Electrical cables
- Valves and valve products
Maximizing Your Score
Strategies to improve your preferential procurement score:
- Improve B-BBEE status: Focus on ownership, skills development, and enterprise development elements
- Get proper certification: Sworn affidavit for EMEs, verified certificate for larger enterprises
- Partner strategically: JVs with black-owned businesses can improve combined B-BBEE level
- Price competitively: B-BBEE points help, but price still matters significantly
- Build subcontractor network: Have qualified EME/QSE subcontractors ready for mandatory subcontracting
Frequently Asked Questions
Can I tender if I don't have a B-BBEE certificate?
Yes, but you'll score 0 for B-BBEE points. In an 80/20 tender, this puts you at a significant disadvantage. EMEs can get a free sworn affidavit confirming their status.
Which system applies to a R50 million tender?
The 80/20 system applies to tenders of R50 million or less. A tender of exactly R50 million uses 80/20. Over R50 million uses 90/10.
How do JVs affect B-BBEE scoring?
The JV's B-BBEE status is calculated based on the consolidated position of all JV partners, weighted by their participation percentage.
What if I'm a foreign company?
Foreign companies can tender but typically score 0 for B-BBEE. To score B-BBEE points, you need a South African entity with appropriate ownership and employment equity.
Does functionality affect B-BBEE scoring?
No. Functionality is evaluated separately and used as a threshold (you must meet minimum functionality score). Price and B-BBEE are only calculated for bidders who pass functionality.
Next Steps
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