Cartel firms face huge fines

2015-03-09 15:00

Guilty companies that did not follow the Competition Commission’s fast-track settlement process will lose millions

Construction firms that refused to comply with the Competition Commission’s fast-track settlement process, despite the fact that they were implicated in collusive tendering, are about to be slapped with millions in fines.

This week, the commission referred three cases to the tribunal against Siya Zama Gordon and Verhoef & Krause (GVK), which involved collusive tendering on office space, a hospital, a mall and a warehouse project, all in the Western Cape.

City Press understands the commission wants to wrap up all referrals for outstanding construction-cartel cases by the end of March, which means more referrals are imminent.

GVK is facing a potential fine of 10% of turnover for each of the three cases in which it has been found guilty by the Competition Tribunal.

GVK celebrated its 50th anniversary in the construction sector in 2010. In 2013, in an interview with Engineering News, CEO Richard Williams said the company had an annual turnover of R1?billion.

This means the fines, if GVK is found guilty, could be in the hundreds of millions of rands.

The three referrals against GVK become the first time the commission has named construction-cartel executives implicated in collusive tendering.

Until now the names of executives involved were protected under the fast-track settlement process.

This lack of transparency by the competition authorities was criticised by many in civil society.

However, these three latest referrals do name the allegedly guilty executives.

GVK MD Chris Maughan and its CEO Williams are alleged to have sourced cover prices from rival construction firms.

A cover price is obtained when a firm wants to tender on a project but doesn’t want to win the tender for a particular reason.

In this case, they asked for a cover price from a rival firm and then made their tender look uncompetitive to the client.

“Collusive tendering destroys the basis of competitive bidding and is particularly harmful to the public because it often distorts markets for procurement,” read the commission’s referral affidavits.

The three projects are the Cape Gate Medi-Clinic in Brackenfell, an office and warehouse for Akila Trading and alterations and extensions at the Tygervalley Shopping Centre.

According to the referral affidavits, GVK colluded with Group Five on the Cape Gate Medi-Clinic in February 2008.

On July 28 2010, they are alleged to have colluded with Neil Muller Construction (NMC) on the Tygervalley Shopping Centre.

On December 1 2010, they are alleged to have colluded again with NMC on the office and warehouse for Akila Trading.

NMC and Group Five have received corporate leniency for taking part in the fast-track settlement process and spilling the beans on the anticompetitive and collusive behaviour they were party to.

But the referral affidavits also name officials at Group Five and NMC implicated in the collusion.

These are Keith Miller, who appears still to work at Group Five as an area director, Barend Badenhorst, who is a senior estimator at NMC, and Paul Symington, who until April 2014 was a senior estimator at NMC but has since left to start Paul Symington Estimating Services.

Badenhorst was only an estimator at NMC until July 2012, so it seems he’s been promoted since the collusion with GVK.

NMC and Group Five refused to answer questions about whether disciplinary action was taken against their implicated staff members, claiming the corporate

leniency they received from the commission prevented them from doing so.

“NMC elected to voluntarily participate in the Competition Commission’s fast-track and corporate leniency programmes,” reads NMC’s response to City Press.

“NMC has conducted thorough internal reviews with the assistance of external legal advisers, and all relevant information was handed over to the Competition Commission.

“NMC did not win any of the tenders relevant to its leniency applications and did not gain any financial reward from any of the relevant projects.

“As a leniency applicant, NMC is confined by certain confidentiality obligations to the Competition Commission in relation to ongoing legal proceedings and is not able at this stage to provide further detail.”

GVK’s Maughan responded to City Press’ questions by email, writing that the company had only recently received the referrals from the commission and were discussing them with their lawyers.

“I am thus not in a position to make any comment at this stage,” adds Maughan.

Fines and crimes

In July 2013 the Competition Commission announced the results of its fast-track settlement process for construction cartels.

In total, 15 construction companies settled 90 contraventions of the Competition Act with the commission and agreed to pay a collective fine of R1.46?billion.

The commission investigated 300 construction projects for collusion, with a total value of R47?billion.

The biggest victim of the collusion was the state: the breakdown was R28?billion for public projects and R19?billion for private projects.

Of the 300 projects, 140 fell outside the three-year time frame for prosecution, 90 were settled and 70 were yet to be settled.

Some of these 70 projects involved another 25 companies that did not take advantage of the fast-track settlement process.

These construction companies will be prosecuted by the commission and could face a maximum fine of 10% of annual turnover for every anticompetitive action they are found guilty of.

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