/ 2 August 2005

BEE-fronting companies cost govt R44m

Fifteen companies have cost the Department of Public Works R441,1-million in the past two years by fronting as black economic empowerment (BEE) entities, Minister of Public Works Stella Sigcau said on Tuesday.

A further 18 companies — given contracts worth R516-million — refused to have their compliance with the department’s BEE requirements checked, she told reporters in Johannesburg.

”Given the amount of work we have awarded to these contractors, I will not let them off so easily,” she said.

The minister said she has instructed consultants probing the 18 companies’ BEE compliance to give the contractors another chance to submit their documents and report to her in a month.

”Those who refuse to cooperate run the risk of having their payments being stopped.”

The fronting companies will be referred to the National Prosecuting Authority for a forensic audit, she said.

Sigcau said 19 fully-fledged BEE companies were awarded contracts worth R363,3-million and 11 others, which did not claim to have BEE status, were given contracts worth R374-million.

All these companies account for 70% of the department’s construction spending during the 2003/04 and 2004/05 financial years, and were given contracts worth more than R10-million each during that period.

Sigcau said her department started the probe into the firms to ascertain the level of fronting in the construction industry, especially with companies doing business with her department. She also wanted to develop her department’s BEE policy.

Contracts below R10-million are usually carried out by black contractors or small and medium enterprises.

”Because of the scale of work and size of the enterprises, there is little possibility for fronting in the lower categories,” the minister said.

”Another reason for this decision was that contracts of above R10-million contributed more than 70% of our construction spend over the period.”

Some of the fronting companies had legitimate documents but the owners were really not shareholders. Others claimed to be black-owned or black-empowered when the work was actually done by a white firm.

In some cases, the black-owned companies claim to be in a joint venture with a white company. It was later found that the black-run company did not have any responsibility in the venture, Sigcau said. — Sapa