Construction cartel barons still in the saddle

Construction industry leaders allegedly fixed state and other contracts –including five World Cup stadium deals – worth billions of rand, yet at least two executives remain in their positions at their companies.

The executives named in affidavits submitted to the National Prosecuting Authority (NPA), in a bid for leniency by construction sector senior officials, are alleged to have attended meetings before 2000, when co-ordinated price fixing and project allocation took place during regular meetings.

According to statements made to the NPA, Mike Wylie – who has chaired WBHO since 2002 –attended these early ­"co-operation" meetings as managing director of WBHO. They were later attended by Willie Meyburgh, chief executive of Stefanutti Stocks.

This directly contradicts statements made to Competition Commission head Shan Ramburuth.

During an announcement that fines of R1.46-billion would be imposed on 15 construction companies, Ramburuth told the media on June24 that chief executives and senior executives had denied awareness of any anticompetitive behaviour.

This behaviour included agreements among construction companies to divide the allocation of projects relating to the stadiums or discussions around a general inflation of pricing at 17.5%.

Elite club
The affidavits in the Mail & Guardian's possession indicate that the practice was widespread and widely known about – and continued around large projects for some years after 2000 on an informal basis, making it hard to believe that executives and senior staff members did not know.

One affidavit said a senior executive – not Meyburgh – had told him that their company had been asked to join an "elite club" in the early 1990s. Up to that point the construction company in question, Stefanutti, had been too small to be considered to join the group, but had apparently landed some important contracts.

The meetings took place in secret at the offices of contractors and were attended by one or two managing directors from each of the companies invited to take part.

At these meetings, participants agreed on which company would be awarded a particular tender and a schedule of project allocations was drawn up based on the perceived market share of the companies, evidence before the Hawks said.

A co-ordinator was tasked with maintaining the schedule. This included the payment of bidding fees to the companies who, as part of maintaining the illusion of a fair bidding process, submitted tenders they never intended to be successful. Another tenderer was appointed to "police" the winning bid to ensure that the "price offered was market related and the agreed mark-up was in order".

Affidavits name a number of people, all of whom have moved to other companies since the meetings but are well-known in the sector.

Anticompetitive behaviour
These include John Willmott, former group managing director of Concor and former executive director at Group Five; Trevor Robinson, a former director at Concor and later chief executive; Hylton Macdonald, group risk manager at Aveng and former managing director of Grinaker-LTA; Duncan Barry, a managing director at WBHO who attended the meetings for Murray & Roberts; and Richard Saxby, former chief executive of Stocks & Stocks civil engineering and a former managing director at Murray & Roberts.

Meyburgh took part in a later group.

Despite assurances in at least two affidavits that anticompetitive behaviour had almost come to a halt after 2000, at least two submissions to the Competition Commission reveal that a meeting was held in 2006 by representatives of top construction firms to divide up the stadiums, in the same manner they had previously divided up large projects.

Companies present at this meeting included WBHO, Murray & Roberts, Grinaker LTA, Concor, Group Five and Basil Read, according to information put before the Competition Commission.

Of the 15 companies fined, the ­JSE-listed companies have made statements to the media saying they were implementing the necessary checks and balances, and training to ensure that future corruption does not take place.

The companies issued with fines are Aveng, Basil Read, Esorfranki, G Liviero, Giuricich, Haw & Inglis, Hochtief, Murray & Roberts, Norvo, Raubex, Rumdel, Stefanutti Stocks, Tubular, WBHO and Vlaming.

Group 5 still has to settle with the Competition Commission.

Key projects
Wylie and Meyburgh are household names in the construction industry and have overseen a number of key projects over the years.

Wylie, who has a bachelor of commerce degree, spent a few years working for the Cape Town city council before joining Wilson-Homes, which became WBHO in 1975, as a site engineer. He was appointed chairperson in 2002.

Meyburgh, who also has a BCom and civil engineering qualifications, served as managing director of the Gauteng division at Stefanutti from 1996 until 2007 before being appointed chief executive – a position he still holds.

In response to questions from the M&G, Meyburgh said Stefanutti had agreed to co-operate with the Hawks and National Prosecuting Authority investigation and therefore employees were not permitted to reply.

"As you are aware, a number of Stefanutti Stocks executives, along with executives from other construction companies, are seeking amnesty from possible prosecution by offering to make full disclosure to the National Prosecuting Authority. The NPA has bound Stefanutti Stocks and relevant executives to a confidentiality undertaking and we are therefore not in a position to respond to your questions."

The questions posed to Wylie and Meyburgh related to whether the company had benefited from the meetings held before 2000 and whether it was appropriate for executives who were involved in the earlier meetings to still be employed at the companies concerned.

Moving forward
Wylie was unwilling to confirm or deny his attendance at the meetings.

A statement issued by WBHO on behalf of Wylie said: "The Competition Commission has now dealt with the issue and we are moving forward."

Responding to questions relating to issues raised in affidavits made to the NPA around meetings held before 2000, Wylie said he was un-able to reply to questions that "seem to relate to unspecified documents, which makes it very difficult to respond".

Stefanutti is credited with being the first company to come forward to the NPA, providing 11 affidavits which provide insight into the sector's activities for well over a decade. A number of other companies have since come forward to make statements.

The unravelling of the construction sector began with complaints to the NPA and the Competition Commission around possible inflated pricing with regard to World Cup projects.

The Competition Commission launched a fast-track settlement process in February 2011, inviting construction firms to disclose projects and tenders that were subject to bid rigging. In return, the commission said companies that came forward first would receive immunity from prosecution for that project.

It soon became clear that companies were eager to take advantage of immunity. This put pressure on other companies to come clean.

Corporate leniency
However, the South African Local Government Association (Salga) – which filed papers on July 5 to join the Competition Tribunal hearings – and the Cape Town municipality are questioning the effectiveness of the fast-track process. These issues will be raised at the Competition Tribunal hearings on July 17 and 18.

The two entities argue that, while it has speeded up the halting of anticompetitive practice in the sector, it may also have provided immunity on projects that have been commissioned and paid for by municipalities.

Salga's legal representative, John Ngcebetsha, said the corporate leniency clause means that, according to Competition Commission figures, the details of about 73 projects will never be revealed.

Ngcebetsha also questioned the decision to fine companies between 1% and 7%, instead of making use of the full 10% penalty the commission is entitled to fine.

The period under investigation is from February 2006 to September 2009, and any projects outside this period cannot be prosecuted in terms of civil action.

 However, criminal action can be pursued. In terms of civil action only information disclosed during the Competition Commission process can be pursued.

The past few weeks have seen a hardening of government's attitude to the construction sector probe.

Speaking after a meeting of the presidential infrastructure co-ordinating committee, Economic Development Minister Ebrahim Patel said that cartel activity had led to "a significant increase in costs for the build programme" and warned that those who have "not settled will be prosecuted".

At the commission press conference a few weeks earlier he had called for a balanced attitude to the sector, saying that retribution had to be weighed against the need for the infrastructure programme.


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