Black firm in BEE victory
African auctioneers are celebrating after the Johannesburg High Court granted Tirhani Auctioneers an order interdicting Transnet and Aucor from conducting an auction of Spoornet rolling stock. The case hinged on a BEE score, which Tirhani said had been unfairly awarded to Aucor.
The judge has agreed, adding that Transnet’s procurement policy was neither fair nor reasonable.
The interim relief was granted to Tirhani Auctioneers pending the finalisation of the court’s review of the tender process.
“This test case is a first within the auctioneering industry. Hopefully, it will make government and parastatals such as Transnet pause and take note of the shenanigans happening daily in their procurement processes. Small guys such as Tirhani Auctioneers are being systematically shut out of auctioneering business through entrenched discriminatory procurement practices,” said Tirhani Mabunda (right), the CE of Tirhani Auctioneers.
His company was one of three candidates shortlisted by Transnet to conduct auctions of scrap metal. The tender was awarded to Aucor in September last year, which scored 96 points in the tender evaluation process. Tirhani Auctioneers scored 94,2 points and Auction Alliance, the third candidate, scored 77 points. The project is worth R150-million over a two-year period, which would result in between R7,5-million and R15-million in fees.
But Tirhani Auctioneers argued that Transnet should have given a 100% black-owned company, such as Tirhani, the opportunity “given that we were very competitive,” said Mabunda. He said that his company, which is wholly black-owned, had received the maximum score of 100% for BEE. But Aucor, which is only 26% black-owned, had been scored 80% for BEE. This, he said, had undermined his company’s competitive advantage. Despite Transnet’s claim that the tender was given to Aucor because of its access to international markets, his own company’s joint venture with an international associate had been disregarded.
“This begs the question as to how emerging companies such as Tirhani Auctioneers will ever get a break with an attitude like that of Transnet; which happens to be a government parastatal which should be promoting companies such as Tirhani Auctioneers anyway,” Mabunda said.
Mabunda’s case against Transnet highlights issues plaguing black-owned auctioneering firms. The South African Auctioneering Transformation Action Group (Saatag), of which Mabunda is a founding member, complains that there is widespread fronting in the industry and that genuinely empowered firms are not being given work. Mabunda said black-owned, controlled and managed firms account for less than 1% of the auction industry’s R2-billion annual revenue.
The group said that there is little transformation taking place in the industry. “Due to the fact that the auctioneering industry is not regulated, it is virtually impossible for previously disadvantaged individuals to gain access and participate meaningfully in the industry. Unfortunately this has led to increased incidents of fronting, lack of proper skills transfer and the continued monopoly of the industry by the untransformed entities of the other,” explained Balisa Mangxaba, a founding member of Saatag and a shareholder in Auction Alliance.
Saatag alleged that certain white companies attract passive joint venture partners or create parallel structures that allow the established company to present itself as empowered while it remains white-owned. These joint ventures are used to solicit work from clients requiring BEE credentials while the work is executed by the white firm. “No attempt whatsoever is made to build capacity in the newly created parallel company or joint venture. In effect, the newly created company only exists in name, with no supporting structure of its own,” explained Lot Mahlangu, Saatag secretary general, in a letter to the Free State provincial government.
The group is trying to create awareness of the poor state of transformation in the industry, and is lobbying for more work to be given to African firms. They say if the deals are genuine, companies should invite African partners into their existing structures. Saatag also wants to see an industry-specific scorecard for the auctioneering industry, which would encourage transformation.
“The lack of scrutiny for the genuineness of BEE companies makes a fallacy of empowerment and transformation in general. When engaging most users of auctioneering services, one gets the sense that they are quick to allocate work to previously advantaged white-owned companies with minimum BEE credentials. The flouting of BEE rules is so prevalent that the empowerment value brought by preferential procurement is still realised by whites—even if fronting is eliminated,” Mabunda said at the launch of Saatag.
“While people of colour occupy most senior positions [in government and parastatals], middle management and key committees such as tender boards and evaluation committees are still predominantly controlled by white people,” he continued. “More often than not, fake black-empowered companies secure contracts, but their so-called black partners are nowhere to be found on the day of auction. In most instances, the white partners initiate, negotiate and conclude a contract for auctioneering work and thereafter arrange a meeting with the client to supposedly ‘introduce’ their BEE partners.”
Mabunda said Saatag wanted tender adjudication systems to be reviewed to give more weight to BEE scores and less weight to price, which currently accounts for 80 or 90 points. “Established businesses abuse this system by undercutting BEE companies on price and thus nullifying the insignificant points allocated to BEE,” he said.
Bill Hartard, the chairperson of the South African Institute of Auctioneers (SAIA), said the size of the auctioneering industry is unknown, but is estimated at about R2-billion in turnover. But he disagreed with Mabunda’s claim that empowered companies account for only 1% of this turnover. “The three largest auction houses in the country are SAIA members and account for a huge portion of the ‘guesstimated’ annual turnover. They are fully BEE compliant,” he said in response.