Geotechnical firms fined R1.65m for collusion

Geotechnical construction firms Geomechanics and Geomech Africa, which are both part of the same group, have agreed to pay a total fine of about R1.65 million for collusive tendering on certain Gautrain projects and the Lesotho Highlands Water project. A Competition Tribunal hearing yesterday heard details about the settlement agreement entered into between the two firms and the Competition Commission. The tribunal confirmed the settlement agreement. The proposed fine constitutes about 2.8 percent of Geomechanics’ total South African revenue in its financial year to February last year and about 4 percent of Geomech Africa’s total South African revenue in the same period. Layne Quilliam, counsel for the commission, said the commission had initiated a complaint in 2009 because of an alleged general understanding between Geomechnics and certain competitors of collusive tendering in the market for geotechnical services.

Quilliam said this involved the exchange of cover prices to facilitate the allocation of certain tenders to specific firms. He said the commission had initiated a further complaint in 2010 alleging that there was specific collusion on certain tenders involving Geomechanics related to certain Gautrain projects and the Lesotho Highlands Water Project. An investigation by the commission found that Ground Engineering Limited (GEL), a division of the civil engineering business of Grinaker-LTA, which is part of listed Aveng, Geomechanics, Rogel, Dura Soletanche-Bachy, Diabor and Esorfranki colluded in bidding for the geotechnical drilling investigation services for the Polihale Dam and transfer tunnel in Lesotho. In terms of this arrangement, GEL, Geomechanics, Dura, Diabor and Esorfranki submitted higher bids than Rogel to ensure Rogel won the tender. In return, Rogel agreed to provide Geomechanics, Esorfranki and Diabor a cover price for the Gautrain rapid rail link project.

In 2006, GEL, Rodio, Esorfranki and Dura attempted to form a consortium to bid for all the geotechnical work for the construction of the Gautrain, but the Bombela Concession company, the operators of the Gautrain, was not interested in their proposal. Agreements were subsequently entered into in terms of which Rogel and Esorfranki agreed to give a cover price of R50 million on a section of the Gautrain project to ensure the Dura-Geomech Africa joint venture would win the contract. In addition, Rogel and Dura then agreed to provide a cover price to the DGS joint venture between Diabor, Geomech Africa and Soiltech, Esorfranki’s geotechnical drilling division, to ensure that DGS won a contract for a drilling investigation project at OR Tambo International Airport for the Gautrain. In June 2007, Rogel, the joint venture between GEL and Rodio Pyrotechnics, entered into a collusive arrangement with Dura for the tender for grouting services for the second phase of the Braamhoek Dam grouting project.

In terms of this arrangement, Dura and Geomech Africa agreed to submit a cover price through a joint venture to ensure Rogel won the contract. Quilliam said Geomechanics and Geomech Africa had both admitted to their conduct and agreed to pay a fine in 20 instalments, which covered a period of about five years. He said the commission had agreed to this payment period after the firms approached the commission and requested it to soften the negative impact of the fine because it would have a significant financial effect on them and their ability to be an effective competitor in the market if they were required to pay the full amount immediately. Quilliam said the tribunal may baulk at the length of the payment period but it was fair when taking into account the interest rate payable and the similar settlement terms agreed to with both Murray & Roberts and Stefanutti during the commission’s fast-track settlement process.