Dec 5,2013 / News / Legal Brief

The Competition Commission’s enquiry into the activities of construction firms started in 2009, when, on 10 February 2009, it initiated a complaint (“the first initiation”) pertaining to alleged collusive tendering in the construction of the stadia for the 2010 FIFA Soccer World Cup. Following the first initiation, the Commission received seven applications for immunity in terms of its Corporate Leniency Policy (“CLP”) which related inter alia to collusive tendering in respect of construction projects across different sectors of the economy.

In response to information received pursuant to the first initiation, the Commission initiated a wider complaint into collusive tendering in the construction industry on 1 September 2009 (“the second initiation”).Thereafter, the Commission received a further 138 CLP marker applications. In consequence of these developments, it became evident to the Commission that the construction industry was characterised by an entrenched and ubiquitous cooperation and endemic practices of collusive tendering conduct. The Commission was particularly concerned by the fact that the conduct disclosed affected a number of government projects under the Infrastructure Build Programme.

In light of the scale of the contraventions and the extensive period which they encompassed, the Commission considered it vital to uncover the full extent of this conduct but was concerned about the impact which a full-scale investigation would have on its resources. To address these problems, the Commission decided to take an innovative approach to dealing with the issues in the construction sector by issuing an Invitation to Firms in the Construction Industry to Engage in Settlement of Contraventions of the Competition Act (“the Invitation”). The Commission’s ability to launch such a process was based on the fact that section 21(1)(f) of the Competition

Act, 89 of 1998 (“the Act”) permits it to negotiate and conclude consent orders. The settlement process outlined in the Invitation was launched on 1 February 2011 (“the Settlement Process”). The closing date for applications thereunder was 15 April 2011. The objectives of the Settlement Process were inter alia to:

  • investigate firms in the construction industry in terms of section 4(1)(b) of the Act;
  • incentivise firms to disclose and admit their anti-competitive conduct in exchange for settlement on financially advantageous terms;
  • minimise the legal costs associated with the complaints and cases that would arise from the Commission’s investigations;
  • strengthen the evidence available to the Commission against those firms that did not participate in the Settlement Process; and
  • set the construction industry on a competitive path which would result in an efficient industry, providing consumers of construction services with competitive prices. To achieve this outcome the Commission was of the view that it would require an understanding of the full extent of the collusive practises.  This led to the requirement that firms disclose prescribed and non-prescribed prohibited practices which they had been or were involved in.

The Settlement Process was concluded this year, with 15 firms out of the 21 that responded to the Invitation entering into settlement agreements with the Commission. Which settlement agreements were confirmed by the Competition Tribunal (“the Tribunal”) at the end of July 2013. Three of the firms [1] that responded to the Invitation refused to settle, while the remaining three firms [2] were not liable to settle.[3]

In terms of the Settlement Process the following firms all entered into settlement agreements with the Commission: Aveng (Africa) Ltd, Basil Read Holdings (Pty) Ltd, Esorfranki Ltd, G Liviero & Son Building (Pty) Ltd, Guiricich Bros Construction (Pty) Ltd, Haw & Inglis Civil Engineering (Pty) Ltd, Hochtief Construction AG, Murray & Roberts Ltd, Norvo Construction (Pty) Ltd, Raubex (Pty) Ltd, Rumdel Construction Cape (Pty) Ltd, Stefanutti Stock Holdings Ltd, Tubular Technical Construction (Pty) Ltd, Vlaming (Pty) Ltd, WBHO Construction (Pty) Ltd (“the Firms”) (“the settlement agreements”).

The penalties paid by the Firms range from R155 850 [4] to R311 288 311 [5]. The penalties imposed total R1,46 billion. The conduct admitted to by the Firms included bid rotation or direct allocation of tenders, payment of losers’ fees and cover pricing, which, in this context, refers to an agreement amongst conspiring firms that one or more of them will submit a bid that is not intended to win the contract.

The settlement agreements are all substantially the same and only differ with respect to the prohibited conduct each firm admitted to. Collectively the Settlement Process uncovered 300 [6] rigged projects worth an estimated R47 billion.

With the conclusion of the Settlement Process the Commission has now turned its attention to further investigating all the other construction firms implicated in anti-competitive behaviour, in contravention of section 4 of the Act, by the disclosures made by the Firms.

A further interesting development which is likely to result from the Settlement Process is that affected customers, such as the City of Cape Town, have indicated that they are investigating and will pursue claims for civil damages against some of the Firms for the damage they suffered as a result of the increased cost of infrastructure projects, due to bid rigging agreements.

[1]    i.e. Group 5, Construction ID and Power construction.
[2]    i.e. NMC Construction, JT Ross and Rodio.
[3]    Information obtained from the Commission’s presentation to Presentation the Portfolio Committee on Public Works on the Outcome of the Construction Fast Track Project dated 10 September 2013.
[4]    Paid by  Esorfranki Ltd for one disclosed contravention, which occurred in one engineering subsector, being the civil engineering sub-sector.
[5]    Paid by WBHO Construction (Pty) Ltd for 11 disclosed, 4 non-disclosed contraventions of the Act, which contraventions occurred in 2 construction subsectors, namely, civil engineering and general building.
[6]    Of the 300 projects which were brought to the Commission’s attention, 160 projects had prescribed.