Construction industry rules ‘in need of reform’

Changes to construction industry regulations, including procurement regulations and practices, are among the “serious reforms” in the industry that are being sought by the Competition Commission. This was confirmed by Competition Commissioner Tembinkosi Bonakele, who said the regulations that the commission was seeking to reform included the Construction Industry Development Board (CIDB), the regulatory body for the industry. Bonakele told Bloomberg in an interview last month that the commission wanted “serious reforms” in the industry. This follows the commission in 2013 concluding consent agreements with 15 construction companies in terms of a fast-track settlement process that resulted in these firms agreeing to pay penalties totalling R1.46 billion for collusion and bid-rigging. The fast-track settlement process was launched by the commission after it uncovered widespread anti-competitive practices in the industry. It resulted in 21 firms responding to the commission’s offer of a speedy settlement on favourable terms and more than 300 instances of bid-rigging being revealed.

However, 24 firms that did not participate in the fast-track settlement process were implicated in 31 allegedly rigged projects by firms that had participated in the process. The commission confirmed last year that it had completed the first phase of its investigation into collusion and bid-rigging in the construction sector that arose out of the fast-track process, and the focus would now be on the litigation of cases that were referred to the tribunal for prosecution. Bonakele told Bloomberg that the commission planned to make recommendations about overhauling the regulation of builders working for the government after an extensive review of the industry, but was not looking at “tweaking here and there” because the commission believed “the entire industry needs serious reforms”. Bonakele told Business Report the commission was starting this engagement with the relevant stakeholders and details would be provided to them. He stressed it was also important that this was seen as “a collective initiative” rather than a single regulator driven process because it related to an issue that was important for everyone.

Bonakele said the commission had its internal staff working on a review of the industry and the recommendations from this review would be made to the relevant stakeholders, which might include government departments, as well as industry regulators. He was unable to comment on how long the review would take to complete. Bonakele’s comments are aligned to that of Public Works Minister Thulas Nxesi, who told Parliament’s portfolio committee on public works last month that the government was “itching” to do a complete overhaul of the laws governing the local construction industry, which continued to be dogged by allegations of collusion. Nxesi added that the current sanctions available to the government to punish construction companies found guilty of breaching the CIDB code of conduct with regard to collusion was inadequate. Sanctions that can be imposed by the CIDB include a fine not exceeding R100 000 and prohibiting companies from participating in public sector work. Business Report asked Bonakele where the commission got the power to take the action envisaged by the industry review.

Bonakele said section 21 of the Competition Act empowered the Competition Commission to implement measures to increase market transparency and to review regulations that permitted anti-competitive behaviour in markets. “This section also empowers the commission to review any legislation or regulations and to give advice to any regulator, including the CIDB and the National Treasury,” he said. Attempts to obtain comment from the SA Forum of Civil Engineering Contractors were unsuccessful.