Govt gets tough on BEE fronting

3 August 2005

The government is to clamp down on companies that claim false black economic empowerment (BEE) credentials to win contracts from the Department of Public Works.

Public Works Minister Stella Sigcau said on Tuesday that 15 companies with no BEE status had illegally claimed to be headed by black people, according to a two-year probe. The companies had therefore defrauded the department of more than R414-million.

“People have made a career out of defrauding government and defeating the objectives of black economic empowerment,” Sigcau said. “The government will not countenance this.”

She said the 15 companies would be blacklisted from the National Treasury and the Construction Industry Development Board, and would be subject to a forensic investigation by the National Prosecuting Authority.

“Where service delivery is unlikely to be heavily affected, contracts executed by fronting enterprises will be cancelled,” the minister said.

“From today, all contractors claiming BEE status will have to submit an accreditation certificate that attest to their claim before they can do business with my department.”

The probe focused on contracts worth more than R10-million, executed for the department’s capital and maintenance programmes. These contracts accounted for over 70% of the department’s construction spending during the 2003/4 and 2004/5 financial years.

“We selected 63 contractors, 11 of whom had not claimed BEE status. These were white companies which had committed to certain contract participation goals, such as to use black subcontractors,” she said.

She said that in some cases the main company would do the work while the skeleton company would issue the invoice. The money would then flow back into the main company.

“In other cases the black subcontractor would get the subcontracts, but would be told to lower their rates while the main contractor was charging the department much higher rates,” she said.

Of 45 companies probed, 15 were found to be fronting – including companies listed on the Johannesburg Stock Exchange. Only 19 companies were in fact black-owned or black-empowered.

Nineteen other companies – together awarded contracts worth R516-million – refused to cooperate with the investigation.

Source: BuaNews