Construction: Ex-Aveng boss calls for more transparency
Former Aveng chief executive Roger Jardine, who resigned in August soon after the Competition Tribunal endorsed the fines awarded to the sector for collusion, believes that more transparency around the tender process is needed.
Jardine – who was not at the helm in the period investigated by the Competition Commission in its fast track process – told an audience at Wits Business School on Tuesday that there needed to be greater transparency in government tender systems to lessen opportunities for collusion or cover pricing.
He said the high levels of secrecy around pricing and the allocation of tenders at government level allowed for corruption in all sectors.
"There needs to be a public space where authentic engagement must be carved out."
Jardine said there needed to be early dialogue around the capacity of the project and the design and pricing among other things.
The former chief executive, who recounted his horror at receiving his first subpoena from the Competition Commission just weeks after he was appointed head of Aveng, came under criticism from some members of the audience who felt he was not sufficiently supportive of punitive action against managers and chief executive officers's.
Jardine said he believed that people who were found guilty of collusion should be prosecuted but he did not support jail time for chief executives.
He said some companies had paid the price for the actions of staff members who resigned and went on to work elsewhere without any action being taken against them, and this he felt was wrong.
A serious skills shortage in the sector presented Jardine with a serious dilemma after the extent of a collusion became clear.
In June this year, the Competition Commission fined 15 major construction firms a collective R1.46-billion for collusive tendering related to projects concluded between 2006 and 2011.
Aveng was among the companies that incurred the largest penalties for collusive practices with Wilson Bayly Homes Ovcon being fined R311.29-million for 11 projects, Murray & Roberts R309.05-million for 17 projects, Stefanutti Stocks R306.89-million for 21 projects and Aveng R306.57-million for 17 projects.
"My first reaction as a CEO in the wake of this scandal was to fire anyone [in Aveng] who had any link to the corruption," he said.
The problem was that the skills and expertise needed to complete the large projects in which Aveng was part of was difficult to find in the sector, he said. "About 40% of the engineers in the civil sector are over the age of 55 … and the collusion, [which had been going on for decades] was [happening] in this more experienced age group," he said.
Jardine opted to hold disciplinary hearings, withhold bonuses and demote staff in a bid, not only to get to the bottom of the collusion, but to try to reform the company culture.
Morale in the company
The suspicion and destruction of morale in a company undergoing a detailed investigation cannot be imagined, he told the audience.
"To any CEO or manager who is considering engaging in cartel behaviour, my message is simple, the long term costs are far worse that any short-term [financial] benefits," he said.
Excluding large construction companies from applying for tenders was not something that Jardine supported. He said these companies had an important roll to play in rolling out government's present infrastructure plans because they had so much experience in larger contracts and could absorb losses from contracts.
He said one way that government could ensure greater competition going forward is by ensuring that emerging construction companies be included in process.
All companies wishing to take part in government tenders should also be compelled to sign an integrity pact undertaking not to engage in any unethical and illegal activity.
Meanwhile, the Competition Commission penalties handed out to the companies were the result of the Construction Fast-Track Settlement Process, initiated by the commission in February 2011, in which firms were incentivised to make a full and truthful disclosure of bid-rigging or collusion in return for penalties lower than those that would be sought by the commission should it be forced to pursue legal action.
Rather than facing protracted and costly legal action, firms that participated in the process would be liable for penalties that constituted a percentage of yearly turnover for the 2010 financial year.
The commission received applications from 21 firms in the construction industry, which covered instances of collusion or anticompetitive behaviour in over 300 public and private sector projects estimated to be worth about R47-billion.
Of the 21 firms that applied for settlement, 18 firms were found liable to settle and three firms were considered to be exempt from settlement as they were the first to apply and so qualified for conditional immunity.
Of the 18 firms found liable, the commission reached settlement with 15.
An agreement is yet to be reached with Group Five, Construction ID and Power Construction on some projects. Group Five, the only listed company of these three, said it disputed the projects in question.