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More clarity on what constitutes BEE fronting
BEE September 2017

“I recently lost a big tender. I’ve heard that the winning bidder,
although more expensive, had a better BEE level than me
because they are 51% black owned. But now I also hear that
they are subcontracting most of the work to another company.
Surely this is not allowed?”

The Broad-Based Black Economic Empowerment Amendment
Act of 2013 (“BEE Act”) introduced the crime of fronting, defining a
fronting practise as including a “transaction, arrangement or other
act or conduct that directly or indirectly undermines or frustrates the
achievement of the objectives of this Act…”.

The definition is very broad and there has been a lot of confusion as
to how this definition will be interpreted in practice. Our courts recently
provided more transparency on the matter, in the case of PRASA v
Swifambo Rail Agency (Pty) Ltd. In this case Swifambo was accused
by PRASA of fronting because they had applied for a tender and then
subcontracted the job to a multinational company.
The Codes of Good Practice on Black Economic Empowerment (“BEE
Codes”) require that multi-national companies invest substantially in
empowerment initiatives and the court found that the arrangement
between Swifambo and the international company had the effect of
circumventing these requirements. The international company could
reap the benefit of the contract without having the obligation of
complying with the BEE requirements and the communities who would
have benefitted from the empowerment initiatives were harmed by this
transaction in general, which undermined the objectives of the BEE Act.

The court therefore found that Swifambo was “merely a token participant
that received monetary compensation in exchange for the use of its
B-BBEE rating” and that on a balance of probabilities they were guilty of
fronting. The court held that it was not a requirement that there should
be misrepresentation or even that there should be exploitation of a
specific individual for fronting to be present.

If one then looks at your situation, based on the above decision, it
does appear that there may be grounds for potential fronting by the
company that has won the tender. Our advice is to consult with your
attorney to consider the merits of bringing the potential allegation to
the attention of the relevant authorities.

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