Construction cartel not off the hook yet

2013-06-30 10:00

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Clients ripped off by implicated firms weigh up civil claims options

A R1.46?billion fine is not where it ends for the construction cartel. Not only do a number of the implicated firms have unfinished business at the competition tribunal, clients whom they have ripped off in the public and private sectors are now weighing up civil claims.

Criminal prosecution is not entirely off the table either, and there could also be more regulatory sanctions as new inquiries get off the ground.

The colluding firms effectively neutered the institution of competitive bidding for tenders to first divide the work between them and second to ensure the winning bids contain large enough margins.

The state bore most of the brunt, but those who were also cheated include major companies such as Anglo Platinum, Impala Platinum, Xstrata, Assmang, Sappi, British American Tobacco and Pretoria Portland Cement.

For the state, it was the SA National Roads Agency (Sanral) that was hit hard, with the World Cup-hosting metros also paying more than they should have for their stadiums.

Sanral spokesperson Vusi Mona said: “Naturally, we are outraged. We are studying the commission’s report and will thereafter determine what steps to take.

“It is likely there will be a review of procurement systems in the public sector, (and) we will?.?.?.?look at how to strengthen (our) own procurement system.”

The collective R1.46?billion fine that was announced this week will hit the pockets of 15 construction companies, but the competition commission is still in negotiations with 25 other firms for alleged violations of the Competition Act.

In the announcement on Monday, it was confirmed that 15 construction companies had settled a total of 90 violations, with 70 still to be pursued.

Public opinion has it that the fast-track settlements have been too lenient – a sentiment reflected in the market, as most of the listed cartel members’ share prices actually rose on the announcement of the settlement.

Effectively, their collusion means that prices were inflated for R28?billion in public infrastructure projects. Projects totalling R19?billion in the private sector were also colluded on.

The competition commissioner, Shan Ramburuth, said: “One of the key outcomes of the fast-track settlement process is the fact that the cartel has been dismantled.”

He also argued this week that the process of airing the dirty laundry had broken the trust among cartel members.

In the course of the fast-track scheme, most of the companies confessed to some violations, but were implicated in others by their fellow colluders.

When asked about the potential of government launching civil claims, Economic Development Minister Ebrahim Patel said that due process must be followed.

But some of the country’s major cities have already confirmed mandating legal experts to look at civil claim possibilities.

The City of Cape Town’s executive deputy mayor and mayoral committee member for finance, Ian Neilson, said the city would be pursuing the matter legally. “We have appointed a group that includes lawyers and analysts to assist us with this.

“If the City of Cape Town has been overcharged, we have a responsibility to reclaim the funds. And it is our intention to do so,” he said.

The City of Johannesburg said it has been following proceedings in the competition commission and will take necessary action against those found guilty of wrongdoing.

“The city’s legal and contracts department are studying the findings of the commission with a view of taking the necessary action to restore and protect the municipality’s interests,” it said.

Ethekwini municipal spokesperson Thabo Mofokeng said the municipality “will be liaising with the commission with a view of determining if there is a need to take any further action”.

The Black Business Council in the Built Environment (BBCBE) this week announced that it is “seeking advice on the institution of a class action lawsuit”.

That is in addition to the organisation calling for every conceivable legal and regulatory sanction there is, including blacklisting by the treasury and the Construction Industry Development Board (CIDB), the body tasked with registering and grading firms for participation in construction tenders.

The BBCBE also wants to approach the Hawks to investigate the “consulting fraternity” for the role they played in helping construction firms rig tenders.

Thandi Ndlovu-Molokoane, the founder of Motheo Construction and a member of the BBCBE, said: “They took advantage of government inefficiencies.”

The BBCBE is further aggrieved that the cartel not only overcharged government, but added to the exclusion of new emerging firms. “These guys literally said, ‘we will make sure no one else gets this work’,” said Ndlovu-Molokoane.

According to the BBCBE’s general secretary, Gregory Mofokeng, all companies guilty of collusion “should be blacklisted”. The BBCBE has at least one member among the firms that have settled, Group Five.

When asked about this, the body said it will “look at internal disciplinary action”.

The CIDB said in a statement that it is “in the process of constituting an investigation team and a presiding officer”.

It stated further that it will not pre-empt its inquiry and has not decided on what sanctions to apply.

Responding to questions about civil claims from City Press this week, implicated construction firm WBHO said: “(We have) not had any formal indication from the Cape Town municipality that it intends taking any legal action in this regard.”

The firm said it does not believe there is any basis for a claim against it for damages in relation to the Green Point Stadium.

Aveng was less sanguine, but told City Press that it “will consider and deal with each potential claim appropriately at the relevant time”.

It further said: “Civil damages litigation arising from cartel conduct is a new area of law in South Africa?.?.?.?we have been advised that, to date, no private litigant in South Africa has concluded an action in the civil courts for damages suffered as a result of anticompetitive practices.”

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