R6.2bn construction scam

They met secretly for “Cape Club Meetings” and colluded on three major construction projects in the Western Cape, one of which was the Cape Town Stadium. Several top construction companies, including Group Five, Murray & Roberts, Stefanutti Stocks and Aveng, set themselves up in a group called the Western Cape Building Market to share out contracts for the R4.5 billion stadium, the R87 million “state-of-the-art” Graça Machel Hall at the University of Cape Town and the “flagship” Berg River water project in Franschhoek. The companies met to discuss distorting tender processes, agreeing on cover prices to help one another win bids and arranging loser’s fees of up to R500 000 for firms who agreed to submit bids that would allow another firm to win a tender.

Their activities are detailed in documents filed at the Competition Commission as part of its investigation into collusion and tender-rigging in the construction sector. Graça Machel Hall, a three-storey building on UCT’s lower campus, was officially opened by the chancellor in 2007. Aveng admitted to tender collusion on the residence contract. The project, Aveng said in the documents filed at the commission, was “one of the projects that were subjected to an overarching collusive arrangement in the Western Cape known as the Western Cape Building Market or Cape Club Meetings”. Stefanutti acknowledged reaching an agreement with Grinaker LTA and Group Five, on or about November 2005, in which the companies agreed on a cover price and a loser’s fee.

“In terms of the cover price and the loser’s fee agreement, Grinaker LTA and Stefanutti would submit cover prices to ensure that Group Five would win the tender. “Further, they agreed that Group Five would pay Stefanutti and Grinaker LTA a loser’s fee in the amount of R500 000 each,” Stefanutti wrote. Group Five, which won the UCT contract and completed the residence, was granted complete leniency by the commission for being the first company to disclose 25 rigged projects. But the company has not admitted to collusion on the UCT residence contract, which is one of four Group Five contracts which will be further investigated by the commission. Several companies also colluded on the construction of a R1.6bn dam on the Berg River for the Trans Caledon Channel Authority. The dam was officially inaugurated by former president Kgalema Motlanthe in 2009.

In 2004, Murray & Roberts subsidiary Concor, while in a joint venture with Hotchief, reached an agreement with two other groupings, the Grinaker LTA, Group Five, WBHO, and Western Cape Empowerment joint venture, and the Basil Read, Ceccon, Olderbrecht joint venture, and agreed to pay a loser’s fee for the project. The companies agreed that the joint venture which included Grinaker, Group Five, WBHO and Western Cape Empowerment (the BRP joint venture) would win the tender, then pay a loser’s fee to the two other joint ventures, according to Murray & Roberts documents. “In line with the collusive agreement, the tender was awarded to the BRP joint venture,” Murray & Roberts said. They did not disclose what loser’s fee was paid to the others.

In its disclosures, WBHO said it had reached an agreement with Group Five in 2006 that Group Five would not win the Cape Town Stadium contract. The contract was awarded to WBHO in a joint venture with Murray & Roberts, and the stadium was completed in 2009. In total, 15 companies have admitted to rigging 300 projects nationwide, but they have only been penalised for 145 projects as the others date back more than three years before the commission’s investigation started in 2009 and fall outside the scope of the investigation. The firms who admitted to rigging and tender collusion have settled with the commission and will pay a total of R1.5bn in penalties.