Building collusion brick by brick

For those who suspected that the feel-good times of June last year, when we revelled in our splendid stadiums and marvelled at the shining Gautrain, would in time bring some nasty hangover after the party, here it is.

The Competition Commission has disclosed that major players in the construction industry have been meeting secretly since 2006 and conspiring to profit dishonestly from the building of infrastructure such as World Cup stadiums and the Gautrain.

Its investigation uncovered secret meetings of a body, known as the Party, in the industry. It is said by the commission to include key players in the sector, who are believed to have held meetings to allocate tenders and police one another.

But instead of meeting in smoke-filled bars or dark alleyways, the Party would convene in the offices of major construction firms. The meeting places would rotate, according to Thembinkosi Bonakele, the commission’s deputy commissioner.

The commission has the names of some of those who attended these meetings and they are well-known players, he said.

When the commission launched the investigation, the Party went to ground and the gatherings became less regular, but they were still conducted.

The commission’s investigation includes 65 bid-rigging cases involving 70 projects with an estimated value of R29-billion.
The ongoing investigation covers all World Cup stadiums.

Bonakele said that he could not yet name any of those implicated in bid-rigging because “we are getting more information for some than we are getting for others”.

Fast-track settlement
On Tuesday the commission announced a fast-track settlement in which construction companies could come clean about their involvement in bid-rigging and qualify for reduced penalties. The settlement was launched because of the large number of cases it has to process.

Bonakele said the investigation was more startling than most others because of the sheer number of cases involved. He described the contravention of the Competition Act in the construction industry as endemic. “The fact that so many companies are involved is quite staggering,” he said.

The 70 projects identified by the commission constitute more than 10% of the national construction industry, estimated by the Construction Industry Development Programme at R221-billion a year.

Bonakele said that the commission conducted studies into the sector in 2008 when concerns were raised over the cost of infrastructure. The studies looked at the cost of materials and the cost of building structures like stadiums. “We also found limited competition,” he said. “We didn’t find the level of competition one would expect.”

A formal investigation was launched in February 2009.

In the invitation to settle, the commission said that, based on investigations in the sector, it was evident that there were widespread contraventions of the Act. These included referrals and settlements in cast concrete products, plastic pipes and reinforcing steel.

The document said that there were ongoing investigations in markets such as cement, bricks and piling. “Many of the firms that have been respondents in these cases are also alleged to be implicated in bid-rigging of construction projects.”

The culture of the industry was anti-competitive, Bonakele said.

Complete and truthful disclosure
The commission invited construction firms to apply for a fast-track settlement, with complete and truthful disclosure of information regarding collusion.

Bonakele said each contract was a separate case and the number was increasing so rapidly that the total would increase significantly in the next two months. Most of the leniency applications, he said, had been made and awarded to Group Five, Grinaker-LTA (a building company within Aveng) and Murray & Roberts.

The consequences of not applying for leniency or a fast-track settlement, Bonakele warned, were significant. “I don’t want to sound like I am issuing threats,” he said. But for those who refused to settle, the penalties would simply be too big. Bonakele referred to a penalty amounting to a potential 10% of the turnover of each project implicated in bid-rigging. The amounts were quite staggering, he said.

The fast-tracking system was a matter of practicality—there were too many contracts to prosecute and the firms could not afford the penalties that would be imposed. For those who settled only a particular division of a company would be fined 10% of turnover and the fine would be staggered.

Bonakele warned that small firms were most vulnerable in this process.

“We urge them to seek assistance and we encourage them in particular to come forward.”

The commission has set a deadline of April 15 2011 for settlement.

The industry responds
In the wake of the revelation of widespread contraventions of the Competitions Act by the Competition Commission, the Mail & Guardian asked major construction firms for comment.

Millard Arnold, the group legal counsel at Murray & Roberts, said the firm continued to monitor all its operations with regard to competition law. Where isolated irregularities had been found, the group had engaged with and placed leniency markers with the Competition Commission.

He said the group had been cooperating with the commission since 2007 and it continued to run awareness programmes to ensure that its employees did not breach competition legislation—as might have been the case in the past.

Group Five said that it had adopted a proactive stance following the commission’s announcement and had, since 2008, conducted extensive in-house education and awareness programmes to ensure that its employees did not breach competition legislation, as might have been the case in the past.

It said that “during the latter part of 2009, after having conducted an internal investigation and to protect shareholder value, Group Five submitted a number of markers in respect of potential contraventions of competition legislation and has to date been the most proactive in the sector”.

It said the group was negotiating several leniency applications with the commission.

Adrian Hopgood, the group legal manager at Grinaker-LTA, said: “We have long been working with the competition authorities and will continue to support them in rooting out historical anti-competitive practices in the industry.

“We have come forward on previous occasions and will continue to take a lead in this regard to ensure that business is conducted fairly and ethically across the industry as a whole.”

The spokesperson for Wilson Bayly Holmes-Ovcon (WBHO) informed the M&G that he could not give comment at short notice. Basil Read was unable to provide comment before the print deadline.

Lisa Steyn

Lisa Steyn

Lisa Steyn is a business reporter at the Mail & Guardian. She holds a master's degree in journalism and media studies from Wits University. Her areas of interest range from energy and mining to financial services and telecommunication. When she is not poring over annual reports, Lisa can usually be found pottering about the kitchen. Read more from Lisa Steyn

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