Withdraw fundamentally flawed draft BEE codes, IRR Legal urges Tau

IRR Legal has urged Minister of Trade, Industry and Competition Parks Tau to withdraw the fatally flawed draft amendments to the “B-BBEE” Codes of Good Practice, warning that they are procedurally defective, legally uninterpretable, substantively unlawful, and highly vulnerable to judicial review under the Promotion of Administrative Justice Act (PAJA).

The “draft” Codes are so defunct that none of them even qualify as a draft.

IRR Legal has identified three critical areas of failure within the gazetted measures:

1. The Transformation Fund paradox

The proposed addition to Schedule 1 introduces a newly proposed "Transformation Fund" but fails to establish its institutional or legal form, rendering it void for vagueness.

Furthermore, the draft Codes improperly utilize a definitional clause to execute a massive policy shift aimed at dismantling private Enterprise and Supplier Development (ESD) programmes.

Crucially, the drafts create an impossible compliance paradox. The Codes legally define the Fund as a replacement, to be used “rather than” the traditional ESD. This has driven commentary claiming that there will be no, or minimal, extra costs, as the prescribed contributions of 3% of net profit after tax will simply shift from one form to another.

Conversely, the operative clauses in draft Statement 000 frame the Fund as a cumulative addition to existing ESD prescriptions.

This irreconcilable conflict means the draft Codes fail a basic test of legality, namely the law should not contradict itself.

2. Illegible drafting and procedural flaws

There are so many, and in some cases such severe, drafting errors that the draft Codes are illegible.

For example (one of several), draft Statement 000 on “General Principles and the Generic Scorecard” repeatedly refers to “Paragraph 6.3” at crucial periods defining the “basis for measuring” BEE points and what the “Priority Elements” are that all large companies are “required to comply with”.

However, “Paragraph 6.3” does not exist. The reference is void.

The draft Codes also make at least a dozen deletions without legally required notice in documents. Even the multiple deadlines for public comment on the draft Codes were mutually conflicting, some violating the B-BBEE Act’s requirement that notice of “at least 60 days” be given.

The public cannot meaningfully assess the financial or operational impact of the amendments, which deprives affected parties of a fair opportunity to make meaningful representations. The “draft” is a dud.

3. Violation of statutory strategy and economic risk

The draft Codes are, where legible, also demonstrably inconsistent with the foundational B-BBEE Strategy document in terms of section 11 of the B-BBEE Act. While the Strategy mandates that BEE processes must be “inclusive” and geared toward enhancing economic growth, the drafts introduce prescriptions for "100% Black Owned" companies that are unprecedented in their scope of onerous exclusion. This racially exclusive shift flagrantly violates the Strategy.

Additionally, by adding further administrative and investment burdens, the Codes threaten to depress overall economic activity, exacerbate South Africa's severe unemployment rate, and disincentivise domestic and foreign investment.

Furthermore, there is not a shred of evidence that Minister Tau has applied his mind to the warnings of the Zondo Report against deviations from “maximum value-for-money” procurement. Rather than heed the Zondo Report’s advice to allow procurement to move in a “value-for-money” direction, the Codes push the other way aggressively, further violating the Strategy document’s requirements for evidence-based solutions that do not help just a connected “elite”.

Required remedy

IRR Legal submits that the only lawful remedy to avoiding administrative action that is ultra vires the BEE Act is for Minister Tau to begin afresh. The Department must withdraw the current drafts, fix the errors, resolve the material contradictions, and republish the corrected text for a new 60-day public commentary period in terms of Section 9(5) of the B-BBEE Act.

The new Codes should relax BEE prescriptions, cut red tape, and allow for the Strategy’s requirement of “deracialisation” to take place by focusing on investment and jobs rather than race.

Media contact: Gabriel Crouse, IRR Legal Executive Director Tel: 082 510 0360 Email: gabriel@irrlegal.org.za 

Media enquiries: Michael Morris Tel: 066 302 1968 Email: michael@irr.org.za