The Competition Commission has reached settlement with 15 construction firms for collusive tendering, in contravention of section 4(1) (b) of the Competition Act. The firms have agreed to penalties collectively totalling R1.46billion.

The settlements were reached in terms of the Construction Fast Track Settlement Process, launched in February 2011. The fast-track process incentivised firms to make full and truthful disclosure of bid rigging in return for penalties lower than what the Commission would seek if it prosecuted these cases.

Twenty one firms responded to the Commission’s offer of a fast-track settlement. While over 300 instances of bid rigging were revealed through this initiative, the settlements were reached only with respect to projects that were concluded after September 2006, before which transgressions are beyond the prosecutorial reach of the Competition Act. The breakdown of penalties per firm is as follows:

Firm	Settlement amount
Aveng	R306 576 143
Basil Read	R94 936 248
Esorfranki	R155 850
G Liviero	R2 011 078
Giuricich	R3 552 568
Haw &Inglis	R45 314 041
Hochtief	R1 315 719
Murray & Roberts	R309 046 455
Norvo	R714 897
Raubex	R58 826 626
Rumdel	R17 127 465
Stefanutti	R306 892 664
Tubular	R2 634 667
Vlaming	R3 421 662
WBHO	R311 288 311
TOTAL	R1 463 814 392

 

The responses to the Construction Fast Track Settlement offer revealed various ways in which firms historically determined, maintained and monitored collusive agreements. These included meetings to divide markets and agree on margins. Different combinations of firms coordinated tenders over different projects. Firms colluded to create the illusion of competition by submitting sham tenders (“cover pricing”) to enable a fellow conspirator to win a tender. In other instances, firms agreed that whoever won a tender would pay the losing bidders a “loser’s fee” to cover their costs of bidding. Sub-contracting was also used to compensate losing bidders.

Three firms did not accept the Commission’s settlement offer in terms of the fast track process. These are: Group 5, Construction ID and Power Construction.

Construction firms that have not used the opportunity disclose or settle contraventions will be investigated and prosecuted. With the evidence gathered during this process, theCommission will investigate and prosecute firms that have not disclosed any projects but are implicated by others or those that have elected to settle only some of the projects that they are implicated in.

Competition Commissioner, Shan Ramburuth, was pleased with participation in the fast track settlement. He emphasised that “in revealing the extent of collusion in the construction industry, the Commission’s fast track settlement broke up existing cartels and created awareness of collusive practices in the industry. Embedding a competitive culture will be critical to bringing down the costs of future infrastructure investments and will incentivise firms toward innovation and efficiency in future projects.”

cidb weighs in

Following the Competition Commissions announcement, the Construction Industry Development Board (cidb) yesterday, 25 June 2013, released a statement adding that they welcomed the announcement by the Competition Commission that a settlement has been reached following admission of guilt by 15 of the companies accused of collusion in the construction industry.

“This paves the way for the cidb to initiate its own process of investigation and inquiry into the firms’ conduct, in terms of Section 28 of the Construction Industry Development (CID) Regulations of 2004, as amended, and the cidb Code of Conduct.

“The cidb now awaits the report of the Competition Commission and decision of the Competition Tribunal, which are crucial and pivotal to its investigation and enquiry. It is also in the process of constituting an investigation team and a presiding officer for the cidb enquiry.”

The cidb Acting CEO, HlengiweKhumalo, also used the opportunity to commend the Competition Committee on the case, “which has brought to light this undesirable conduct with the potential to entrench itself insidiously within the industry.” She said collusion by its nature is exclusionary and therefore has the impact to undermine development and transformation that is necessary within the construction industry.

The cidb is established in terms of the CIDB Act 38 of 2000 to regulate the construction industry and promote its development, including the development of the emerging sector.

“Contrary to media statements the cidb has not yet decided on the nature of sanctions that will be imposed as this would be pre-empting the outcome of the formal inquiry,” concluded the statement.