Six of the fifteen companies involved in the collusion uncovered by the Competition Commission have signed a Voluntary Rebuild Programme (VRP) Agreement with government which will see them make a significant financial contribution to the industry.

The companies are Aveng, Raubex, Steffanutti Stocks, WBHO Construction, Basil Read and Group Five. A seventh company, Murray & Roberts, is expected to advise shortly whether it will join the agreement.

In terms of the agreement, the parties will collectively make a contribution of R1.5 billion to the Tirisano Trust to be established for social and economic development with a direct bearing on the construction sector.

The contribution is additional to the R1.4 billion administrative penalties already imposed by the Competition Authorities. Among others, the concerned firms will further adopt a formalised development programme targeted at the emerging contractors, involving mentorship as well as attainment by the emerging contractors, of specified turnover targets.

The Construction Industry Development Board (cidb) has welcomed the signing of the VRP Agreement. cidb Acting Chief Executive Officer Hlengiwe Khumalo commented that the agreement embodied the principles of development and growth of the emerging sector, which are in line with the cidb legislative mandate to advance national social and economic development objectives.

Although the cidb is not a party to the agreement, it has a monitoring role, along with the Presidential Infrastructure Coordinating Commission (PICC), to ensure that the signatories comply with their obligations under the agreement. The parties are obliged to report progress to the cidb.

In view of the outcome of the negotiations between government and the construction firms, Khumalo announced that the cidb has reached a separate independent agreement with the firms which will see the organisation withdraw its disciplinary proceedings against them.

The agreement between the cidb and the seven parties obliges the companies to comply with their obligations as assumed under the VRP Agreement, to additionally withdraw their high court applications for review of the cidb legislative framework, and to contribute to the costs incurred by the cidb and the Minister of Public Works for the court proceedings.

 

Growing the sector

The money contributed to the Tirisano Trust will support many initiatives including financial support for young trainee artisans and engineers from disadvantaged backgrounds, support for the teaching of maths and science education at public schools, funding for social infrastructure and the development and promotion of construction companies owned and managed by black people.

It also includes funding the appointment of professionals to provide the government with engineering, project management and other services to strengthen its capacity to deliver the public infrastructure so desperately needed through, among others, the secondment to state departments, municipalities and entities, of skilled personnel from organisations operating in South Africa.

 

Commitments to transformation

In addition to existing enterprise development programmes, each of the companies will undertake further transformation initiatives, with two models. Firstly, that the companies become fully transformed (with at least 40% of equity in the hands of black South Africans – the “equity model”);  or secondly, that they commit to initiatives that will result in each of the construction companies mentoring up to three emerging black-owned enterprises so that they develop the necessary skills, systems, status and quantity of work to be able to sustain a cumulative combined annual revenue equal to at least 25% of each of the mentor companies’ annual revenue by 2023 (the “partner model”).

The referenced revenue is from civil and building works delivered in South Africa and should all companies elect to utilise the partner model, it would result in partner black-owned companies with a combined turnover in excess of R9 billion an annum within seven years.

 

CEO’s commit to integrity

in addition, the seven companies, as leading companies in the industry and government, have committed to business practices that are based on integrity, transparency and fair competition. As part of the agreement, each company has signed a declaration to promote ethical and legal operations, free of collusion or corruption and to confirm that they will expose, confront and eradicate any sign of wrong-doing in the industry.

The agreement provides a framework for settlement of claims by the industry regulator, the CIDB as well as civil claims by public entities against companies arising from the investigations by the competition commission for a period up to 2010, which were brought before the Competition Tribunal in 2013.

The parties will address a number of legal, regulatory and administrative requirements that have to be met to ensure the agreement is capable of implementation. It is expected that the Fund will be launched in the next financial year and will become operational shortly thereafter.

The arrangement agreed will focus on transforming the industry through:

1. Increasing investment in the sector to promote development, education and upliftment opportunities for all, especially for those who were previously disadvantaged
2. Creating employment and entrepreneurial opportunities, especially for young South Africans
3. Promoting and supporting black-owned construction companies and small business development and assisting them to be competitive and sustainable
4. Identifying opportunities for South African companies in infrastructure projects elsewhere on the African continent
5. Building deeper partnerships with regulators and other key stakeholders such as Government and organised labour

 

Support from all sides

Welcoming the agreement, the chairperson of the Management Committee of the PICC, Minister Gugile Nkwinti, hailed it as a new beginning in the relationship.

“The success of government’s infrastructure programme requires strong internal capacity in the sector and competitive prices. Through the transformation commitments in the Agreement, we can rebuild the relationship with the companies concerned and work in partnership in future,” Nkwinti said.

SAFCEC CEO Webster Mfebe has also welcomed the agreement. “As an industry we are committed to strengthen our partnership with government for the benefit of all, and especially to encourage and support economic growth through the development of the economic assets of our country.

“This arrangement also demonstrates the commitment to a transformed, transparent and ethical industry, which has a major role to play in delivering much needed infrastructure to the economy of South Africa. We believe this partnership will reinforce the framework for a more sustainable and competitive industry and is set to advance the social and economic welfare of all South Africans,” said Mfebe.