Understanding the Preferential Procurement Policy (PPPFA)

What Is the PPPFA?

The Preferential Procurement Policy Framework Act (PPPFA) is South Africa's law governing how government evaluates and awards tenders. It was designed to use government purchasing power to advance economic transformation and support historically disadvantaged groups.

Every government tender in South Africa must comply with the PPPFA. As a supplier, understanding how it works directly affects your chances of winning.

The Point System

The PPPFA uses a points-based evaluation system that combines price and BBBEE status.

80/20 System (Tenders Below R50 Million)

Component	Points
Price	80
BBBEE Status	20
Total	100

90/10 System (Tenders Above R50 Million)

Component	Points
Price	90
BBBEE Status	10
Total	100

How Price Points Work

The price formula awards maximum points to the lowest bidder and reduces points proportionally for higher bids:

Price Points = Max Points × (1 - (Pt - Pmin) / Pmin)

Where:

Pt = your bid price
Pmin = the lowest acceptable bid price

Example (80/20 System)

If three companies bid:

Company A: R1,000,000 (lowest) → 80 points
Company B: R1,100,000 → 80 × (1 - 100,000/1,000,000) = 72 points
Company C: R1,200,000 → 80 × (1 - 200,000/1,000,000) = 64 points

How BBBEE Points Work

80/20 System BBBEE Points

BBBEE Level	Points
Level 1	20
Level 2	18
Level 3	14
Level 4	12
Level 5	8
Level 6	6
Level 7	4
Level 8	2
Non-compliant	0

90/10 System BBBEE Points

BBBEE Level	Points
Level 1	10
Level 2	9
Level 3	6
Level 4	5
Level 5	4
Level 6	3
Level 7	2
Level 8	1
Non-compliant	0

Putting It Together: Who Wins?

Using the 80/20 system example above:

Company	Price	Price Points	BBBEE Level	BBBEE Points	Total
A	R1,000,000	80	Level 4	12	92
B	R1,100,000	72	Level 1	20	92
C	R1,200,000	64	Level 1	20	84

Companies A and B tie at 92 points. In a tie, the tenderer with the higher BBBEE points wins — so Company B wins despite being R100,000 more expensive. This demonstrates how a strong BBBEE level can compensate for a higher price.

Functionality Threshold

Before price and BBBEE are evaluated, many tenders include a functionality evaluation (technical/quality assessment). Common criteria include:

Experience and track record
Methodology and approach
Team qualifications
Project management capability

A minimum functionality score (often 60-70 out of 100) is required. Bids scoring below this threshold are eliminated before price evaluation.

Set-Asides and Designated Groups

The PPPFA allows government to set aside tenders for specific groups:

EMEs (Exempted Micro Enterprises) — annual turnover below R10 million
QSEs (Qualifying Small Enterprises) — annual turnover R10-50 million
Women-owned businesses — at least 51% owned by women
Youth-owned businesses — at least 51% owned by persons under 35
People with disabilities — at least 51% owned by persons with disabilities
Businesses in specific townships or rural areas

When a tender is set aside, only qualifying businesses may bid.

Local Content Requirements

Some tenders specify minimum local content requirements, particularly in manufacturing and construction. This means a minimum percentage of the goods or services must be produced or sourced locally in South Africa.

The Department of Trade, Industry and Competition (DTIC) designates sectors for local content requirements.

Common PPPFA Mistakes

Submitting without a valid BBBEE certificate — even a sworn affidavit for EMEs is acceptable
Assuming lowest price always wins — BBBEE points can swing the result
Ignoring functionality criteria — a perfect price score means nothing if you fail the functionality threshold
Not understanding which system applies — check the tender value to know if it is 80/20 or 90/10
Fraudulent BBBEE certificates — this is a criminal offence and will result in blacklisting