Salga to pursue damages for stadiums

2013-07-07 14:00

The SA Local Government Association (Salga) has been given “the overwhelming support” of all the municipalities that built soccer stadiums for the 2010 World Cup to pursue damages from the construction cartel.

Salga convened a meeting on Friday with the municipalities of Polokwane, Tshwane, Johannesburg, eThekwini and Rustenburg to consider the fast-track settlement announced by the competition commission on June 24.

Mbombela, Nelson Mandela Bay, Mangaung and Cape Town sent directives as well. The country’s leading metros decided to file an intervening application in the competition tribunal hearing set down for July 17 where the settlement will be considered.

“Salga is further exploring the opportunity to obtain the necessary authority from municipalities to engage in settlement discussions, and, failing which, institute civil proceedings against identified respondents,” said the organisation.

“Yes, we want our money back. We want to ensure municipalities receive back what they are entitled to,” said Lance Joel, chief of operations of Salga at a simultaneous news conference in Pretoria on Friday.

The settlement last month allowed 15 firms who admitted to rigging tenders to admit guilt and pay fines significantly lower than the 10% they could have faced.

Three other construction companies, who haven’t settled, will still be prosecuted by the competition commission. These are Group Five, Construction ID and Power Construction. The announcement that the cartel may indeed face more sanctions comes as the Construction Industry Development Regulations were quietly changed this week in a move that may further break the hold of large firms on the sector.

Construction firms are graded on a sliding scale between 1 and 9, 9 being those companies who qualify for projects of unlimited size. Each grading principally depends on the size of the company’s revenue in the previous year. Until now, only firms with revenue of more than R270?million could apply for the largest tenders. That has now been dropped to R200?million.

The drop is highly unusual, as the threshold is lower now than when the system was put in place in 2005. The original threshold was R240?million, which was increased in 2008. It has been cut to a level that potentially opens the field to smaller companies.

Stats SA this week released its benchmark survey on the industry, which is used to calculate the national accounts.

The report compares the industry as it stood in 2007 with its standing in 2011, revealing an ongoing trend of consolidation, with the largest firms controlling more and more of the country’s construction work, while small and microenterprises in the sector seem to have been decimated.

Other major findings are that South Africa’s construction industry has grown less profitable and far more dependent on state business in recent years.

According to Stats SA, in 2007 the top 10 firms earned 16.3% of all construction income. By 2011, this had grown to 20.7%.

Small and microenterprises (turnover below R12?million a year) have shrunk from contributing 22% of the industry’s income to only 14.5%.

The entire construction industry’s income in 2011 was R267?billion, compared with R169?billion in 2007.

Profit margins have, however, been squeezed from an average of 4% in 2007 to 2.8% in 2011, says the report.

At the same time, work done for the private sector shrank from 71.9% of all income to 58.5%, with parastatals and the various levels of government rapidly growing in importance as clients.

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