Broad-based BEE: Caxton wants court backing
Printing and publishing giant challenges rival Novus, casting doubt on its rapid increase from a level 4 rating to level 1
It’s an unprecedented move that is set to shake up the controversial world of black empowerment verifications. Printing and publishing group Caxton has asked the Cape high court to prevent manufacturing and printing group Novus from using the level 1 broad-based BEE (BBBEE) certificate it was awarded by Express Verification Services (EVS) on May 16.
The improved BBBEE rating — to the highest level possible — gives Novus a significant advantage over Caxton when competing for clients in a tough market.
Given all that’s at stake in BBBEE and the rather haphazard way in which it is overseen, legal action by some party seemed inevitable.
The Novus certificate, which was apparently issued just hours before EVS was suspended, pushed Novus’s BBBEE status from level 4, as recently as November, to level 1 in just six months. Novus disclosed it in results released on June 12.
In December, EVS, a subsidiary of Empowerdex, certified Novus’s rating as improving from level 4 to level 3. In mid-May, shortly before the SA National Accreditation System (Sanas) slapped a three-month suspension on EVS, it apparently issued a certificate confirming that Novus had a level 1 rating.
Until the December upgrade, Novus had employed a different agency, AQRate, to do its ratings.
In April, Empowerdex’s own certificate of accreditation was suspended by Sanas, following former Bosasa COO Angelo Agrizzi’s testimony at the Zondo commission into state capture. He said the facilities management company had given R40,000 to an Empowerdex employee to "sort out the BEE ratings".
In court papers, Caxton chair Paul Jenkins alleges that not only was the certificate issued on June 11, when EVS was suspended, and backdated to May 16, but the percentage black ownership claimed in the level 1 rating is impossible to substantiate. Essentially, Caxton is questioning the timing and the authenticity of the status.
"Without having conducted a notifiable major BBBEE transaction, it is not clear how Novus could possibly have achieved the percentage black ownership reflected on the certificates [provided by EVS]," says Jenkins, who has trawled through Novus’s shareholder register for signs of such a transaction.
In its court papers, Caxton says it has already lost out on a contract to print guides for Cape Town Tourism because of its lower, Level 4, level 4 BBBEE status.
Novus’s rating allows it to offer clients a 135% procurement recognition level, which means that a customer who spends R100 on procuring goods or services from Novus is able to claim procurement expenditure for the purposes of its own BBBEE of R135. Potentially much more damaging for any entity competing for government (and state-owned entity) business is that a bidder’s BBBEE rating counts for 20% of the available points for contracts below R1m and 10% of the available points for contracts above R1m.
For Caxton and Novus, which are competing for the department of basic education’s R2.7bn book supply contract, the BBBEE rating is a critical and urgent issue. As Jenkins notes: "A potential supplier’s BBBEE rating is a significant consideration on which a tender award can — and often does — turn."
Novus CEO Neil Birch tells the FM his group is committed to proactive transformation and is confident of its level 1 rating. "We take transformation very seriously and this is reflected in our approach to skills development, ownership transformation, procurement, succession planning and applying diversity of thought in [our] daily operations."
Birch says the level 1 status is a competitive advantage of which Novus is particularly proud. "It differentiates it from a number of its competitors."
Caxton’s court papers shine a useful light on the darker side of BBBEE accreditation and the arcane but hugely profitable ratings industry that has sprung up around it.
As one empowerment analyst remarks, it proves the old saying: "Whatever is measured is managed." He adds that despite conveying substantial benefits for the "winners", the process is remarkably poorly monitored.
It may be, as suggested by a source close to Novus, that Caxton is motivated by nothing more than mean-spirited competitive considerations. But as things stand, the only way it can address a potentially contrived competitive advantage is to seek urgent action from the courts.
Caxton approached the BBBEE Commission with its concerns and was told the commission would investigate. But it was also told such an investigation could take up to a year and the process and outcome had to be kept confidential. In the meantime, Novus is allowed to use its newly minted level 1 status.
In the fast-moving commercial world, a year is a lifetime. And from Novus’s perspective, it would be a travesty to prevent it from using its level 1 status if it was won properly.
The commission’s Zodwa Ntuli confirms receipt of a complaint from Caxton, but says the commission cannot comment as the matter "is still under consideration".