Construction firms in BBC’s firing line

The construction firms in the BBC's firing line.
The construction firms in the BBC's firing line.

The Black Business Council in the Built Environment (BBCBE) has launched a process to initiate court action to force several government companies and departments to blacklist the country’s biggest construction firms.

Should the move succeed, the country’s largest construction firms – including Aveng, Basil Read, Group Five, Murray & Roberts, Raubex, Stefanutti Stocks and WBHO – will be blacklisted by National Treasury.

And, should the blacklistings happen, the firms will not be allowed to bid for work in the public sector for 10 years.

The BBCBE’s resolution to seek the blacklisting of the seven construction firms follows the organisation’s decision early last year to withdraw from the settlement agreement concluded between the seven construction firms, the government – represented by the department of economic development – and the Construction Industry Development Board (CIDB) in 2016, in order to promote and fast-track the transformation of the construction sector.

The agreement was conceived by the construction firms to make reparations and fend off a number of legal actions initiated by government entities, following a finding by competition authorities that during the lead-up to the 2010 Fifa World Cup, the construction firms had rigged bids, colluded and divided construction projects among themselves.

In 2011, a number of construction firms pleaded guilty to having attended meetings where they had discussed and subdivided bids among themselves.

In 2014, the SA National Roads Agency Limited (Sanral), one of the 12 government entities affected by the collusion and tender-rigging, initiated a civil claim against Basil Read, WBHO, Stefanutti Stocks, Raubex, Murray & Roberts, Aveng and three other companies in connection with the fixing of tenders.

However, Sanral later withdrew the court challenge following the signing of the settlement agreement.

The BBCBE’s chief executive, Gregory Mofokeng, told City Press that his organisation’s decision to walk away from the settlement agreement was prompted by its slow implementation.

He also said that despite extensive negotiations, the BBCBE’s “non-negotiables” – a blueprint for the transformation of the sector – were not taken into account when the settlement agreement was signed.

While the BBCBE has not filed court papers as yet, correspondence seen by City Press shows that the organisation is consulting its lawyers with a view to issuing summons soon.

In a letter penned last Friday, seen by City Press, Ledwaba Mazwai Attorneys advised the BBCBE to rather drag one of the 12 government companies to court.

The 12 companies are the entities that had issued the tenders that the construction firms had allegedly rigged.

“LM [Ledwaba Mazwai] understands that the BBCBE intends to institute action against the CIDB and organs of state in order to compel the CIDB and the organs of state to act in accordance with applicable legislation in instances where tenderers are found guilty of collusive practices and corruption,” reads the letter.

We are not just calling for the buying out of all the big construction firms by black people

“In this regard, LM recommends that the BBCBE institute action against only one of the organs of state in order to determine the applicable principles. This approach, in LM’s view, will be the most cost-effective.”

Among the BBCBE’s non-negotiables are the following provisions: that the organisation chooses seven black construction firms to partner with the seven firms found guilty of collusion; that a R600 million fund be established and used by black firms as capital; and that all the seven large firms be bought out by black and emerging contractors.

“We are not just calling for the buying out of all the big construction firms by black people,” said Mofokeng.

“We also demand that they are run and operated by black people. It would be of little help for a big construction firm to be bought out by black people, only for white managers to remain and call the shots.

“Our vision would have seen a substantial number of emerging contractors, owned by black women and youth, being subcontracted – thereby ensuring a much broader beneficiary base, as opposed to a few beneficiaries who enjoy proximity to the established companies.”

The 12 government entities which were affected by the collusion include: Johannesburg Water, City of Johannesburg, East Rand Water Care Company, Lepelle Northern Water, Polokwane Local Municipality, Nelson Mandela Metropolitan Municipality, Mbombela Local Municipality, Ethekwini Metro, Eskom, Sanral, Transnet and the Trans Caledon Tunnel Authority.

The Competition Commission had initiated the investigation into tender-fixing and anti-competitive practices in the construction industry in 2009.

In 2011, a number of construction firms pleaded guilty to having attended meetings where they had discussed and subdivided bids among themselves.

In exchange for leniency, 15 companies in the sector pleaded guilty and accepted fines totalling R1.4 billion from the Competition Commission.

Read: Mozambique gas can spur SA construction and manufacturing sector

In addition, seven of the 15 companies agreed to sign the settlement agreement, which committed them to donating R1.5 billion to the Tirisano Fund, a socioeconomic development fund administered by the Industrial Development Corporation, over a 12-year period. The R1.5 billion is aimed at supporting black and emerging construction companies.

Other projects associated with the settlement agreement, signed in October 2016, include the construction of social infrastructure such as schools, roads, clinics and bridges, along with skills development and technical capacity development projects in municipalities.

The companies also agreed to refraining from getting involved in fixing tenders.

In February last year, the BBCBE withdrew from the settlement agreement, saying it was negotiated in bad faith.

In a letter to trustees of the Tirisano Fund, Mofokeng said that when the agreement was signed, his organisation had protested but was assured by the then economic development minister, Ebrahim Patel, as well as Gugile Nkwinti, in his capacity as chairperson of the presidential infrastructure coordinating committee, that the BBCBE’s non-negotiables were considered.

“The black business leadership was vehemently opposed to the signing of the settlement agreement because of the lack of sufficient consultation,” reads the letter.

It has now become apparent that our ministers negotiated with us in bad faith

“The BBCBE made it very clear that it will not support the signing of the settlement agreement due to the fact that its contents were not shared with the organisation, prior to the signing ceremony, for its input (as previously requested in writing), and that from the discussions that ensued in the meeting, it was very apparent that there were certain fundamental principles key to the continued support of the Voluntary Rebuilding Programme by the emerging sector which were not factored into the agreement,” wrote Mofokeng in the letter, which City Press has seen.

The ministers, wrote Mofokeng, noted the concerns raised by the BBCBE leadership and gave an undertaking that engagements would be held between the two parties after the signing of the agreement to take on board issues tabled by the emerging sector and to amend the agreement.

“It has now become apparent that our ministers negotiated with us in bad faith as they had no intention whatsoever to amend the settlement agreement in order to take on board concerns as raised by the BBCBE. Essentially, we were lied to,” Mofokeng wrote.

“We hereby inform you that we are officially withdrawing our representative, Tommy Oliphant, from the board of trustees,” he said, adding that the BBCBE would take steps to dissolve the settlement agreement and compel the 12 government companies and the CIDB to blacklist and deregister the construction firms found guilty of collusion.

The CIDB and the department of economic development did not respond to questions sent to them on Thursday.

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