South Africa: Companies recommended to proactively manage BEE certification risk during lockdown

Posted in Southern Africa Blog post

On 18 March 2020, the South Africa National Accreditation System (SANAS) amended the requirement for on-site visits as part of the Black Economic Empowerment (BEE) verification process to take into account the social distancing measures imposed by the South African government. However, as a five-week lockdown has since been imposed, SANAS will need to take further action in order to address the lapse of BEE certificates during the lockdown (including possible extensions). In the interim, companies are advised to proactively manage the risk arising from the possible lapse of their BEE certificates in the next few months.

As part of the BEE verification process, SANAS requires BEE verification agents to verify and evaluate companies based on information confirmed through an on-site visit. Since social distancing measures were Due to the lockdown imposed in South Africa with effect from midnight on 26 March 2020, verification agents have been unable to undertake these site visits. Without this on-site assessment, no BEE score could be given. In practical terms, the failure to renew the BEE certification may result in the following:

  • a breach of contractual obligations where the company has agreed to obtain or maintain a particular BEE level or ownership target;
  • a disincentive for clients to procure goods or services from the company as they will not be able to claim BEE points for the spend; or
  • the company not being able to respond to RFPs or Bids (in the private or public sector) as they will be unable to provide evidence of their BEE status which is often a gatekeeping criteria to any opportunity.

In light of the social distancing measures applicable at the time, SANAS issued the following revised verification process:

  • Verification agents to conduct virtual visits via any suitable recorded video communication channel;
  • While all necessary documents must still be provided, such documents could be provided by any suitable video communication channel (provided that the video is recorded) or by virtual data room;
  • Interviews may be conducted via any suitable video/teleconferencing communication channel (provided that the interview is recorded);
  • A director of the company must provide a sworn affidavit confirming the physical location of the company and that all information provided to the verification agent is true and correct; and
  • The company is required to provide proof of physical address which is not older than 3 months.

While SANAS’ approach was welcomed at the time, the revised verification process was rendered impractical by the lockdown that was imposed on 26 March 2020. In particular, with travel limited to essential workers, even a virtual visit by verification agents and the commissioning of an affidavit would not be possible. SANAS announced that its revised procedure will be kept under review and may further revise its requirements.

In the interim, companies are advised to proactively manage the risk of the lapse of the BEE certificate during the lockdown (including possible extensions) or even shortly thereafter. If it is within the next few months (or particularly the next few weeks), companies should engage with their verification agent to ensure that they will be able to conduct the verification and issue the certificate timeously. If there is a risk that the BEE certificate will lapse, companies should review their contractual arrangements to understand ongoing obligations to maintain a BEE status. To the extent that clients rely on the BEE status, companies should engage with them to explain the reason for the delay and mitigate any unnecessary concerns that may be raised.

The author would like to thank Ugendran Odayar, Senior Associate, for his assistance with this blog.

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