Construction firms face public sector ban

The 15 construction companies, including seven listed firms, that reached settlements with the Competition Commission and agreed to penalties collectively totalling R1.46 billion for bid-rigging and collusive tendering, face possible civil damages claims and being barred from doing public sector work for 10 years. Economic Development Minister Ebrahim Patel yesterday welcomed the settlement agreements with the commission as “a first step in addressing collusion and price-fixing in the construction industry”. But Patel stressed that where the state had suffered losses because of collusion it was “entitled to take that forward with the companies concerned”.

Shares in Aveng increased 5.17 percent to R29.29, Basil Read stock added 0.49 percent to close at R8.20, Group Five dropped 3.24 percent to R35.80, Murray & Roberts advanced 0.88 percent to R25.31, Stefanutti Stocks fell 1.08 percent to R9.13, and Wilson Bayly Holmes-Ovcon rose 1.94 percent to R152.91 yesterday. Patel said the 300 projects covered by the commission’s investigation affected both public and private sector projects valued at R47bn, of which R28bn related to public sector contracts and R19bn for private sector work. He said the Construction Industry Development Board (CIDB) had a process for deregistering firms. The CIDB last year confirmed that it had an obligation in terms of its code of conduct to remove companies that were guilty of collusion and bid-rigging from its grading system database. Companies require a CIDB grading to bid for public sector work.

However, Patel emphasised the government was seeking to ensure an appropriate balance between the actions that were necessary to stamp out collusion and price-fixing while still ensuring the country had the necessary construction and project management capacity for both state and private sector infrastructure programmes. Patel added that other laws that were breached by construction firms would also be looked at by the relevant law enforcement agencies. He said the level of collusion had been “deep, persistent and had stretched across a number of projects” and had clearly required a high level of co-ordination by the private sector players. “They are in the private sector equivalent of what in the public sector is called corruption,” Patel said.

Competition commissioner Shan Ramburuth said the competition authorities had an understanding with the National Prosecuting Authority (NPA) that it would not proceed with criminal investigations until the fast-track settlement process had been concluded. This process incentivised companies to make full and truthful disclosure of bid-rigging in return for penalties lower than what the commission would have sought if it had prosecuted these cases. It was launched after the commission in 2009 initiated a complaint into alleged prohibited practices in terms of the Competition Act, related to collusive conduct in the construction of the stadiums for the 2010 World Cup.

Ramburuth said 21 firms responded to the commission’s offer of a fast-track settlement but Group Five, Construction ID and Power Construction had not accepted the commission’s settlement terms. The three remaining firms were not liable to settle with the commission because they were the first to apply, thereby qualifying for conditional immunity for all the projects they disclosed and they were not implicated in any other project. Out of the 300 projects, 160 were excluded because the three-year time frame stipulated for prosecution had elapsed, resulting in the commission proceeding with the remaining 140 projects. Ramburuth said construction firms that had not used the opportunity to disclose or settle contraventions would now be investigated and prosecuted.

The process had achieved something beyond just the fines that were imposed because all the parties, in admitting their involvement in a project, had implicated other parties and broke some of the trust that maintained the cartel, he said. The process had also created a lot of awareness about what collusion and collusive tendering was, which would ensure better compliance with competition law in future.