Construction firms face big penalties
The Competition Act allows for millions in fines
THE Competition Commission is pushing for maximum penalty against the four listed construction firms named in the filing notice to the Competition Tribunal on collusion and bid rigging on the 2010 World Cup stadium tenders.
The filing notice indicates that the commission will be seeking the maximum penalty of 10 percent of annual turnover in the cases against WBHO Construction, Group Five Construction, Stefanutti Stocks and Basil Read.
But any penalty imposed will only be based on the annual turnover of these firms in the general building and/or civil engineering services market and not the total annual turnover of each group.
Murray & Roberts (M&R) and Aveng are also named in the filing notice. M&R has been granted conditional leniency and Aveng concluded a consent settlement agreement with the commission in June last year that included these offences.
Aveng’s consent agreement was one of 15 concluded by the commission with construction firms that resulted in these firms paying penalties collectively worth R1.46 billion for bid rigging and collusive tendering infringements.
WBHO, Group Five Construction, Stefanutti Stocks and Basil Read did not include the stadium collusion case in their settlement agreements.
Fhatuwani Mudimeli, the lead investigator, said in an affidavit that the collusion and bid rigging in many instances took place through cover pricing. A cover price for a tender was not intended to win the tender and was sufficiently high and/or contained conditions that would be unacceptable to the client to ensure the firm providing the cover price did not win the tender.
Mudimeli said a cover price maintained the appearance of competition, indicated the supplier giving the cover price wished to participate in future invitations to tender and enabled the supplier that wished to win the tender to submit a lower bid.
He said WBHO disclosed the conduct as part of the settlement process but elected not to settle the matter because it did not believe it was a contravention of the Competition Act.
Mudimeli said Group Five did not apply for settlement in terms of the fast-track settlement process but was implicated in the stadium collusion contravention.
He said neither Stefanutti nor Basil Read disclosed this contravention and when invited by the commission to settle it, both elected not to do so.
Group Five this week welcomed the referral of the case and the opportunity to address the issues surrounding its involvement in the World Cup.
Neville Nicolau, the chief executive of Basil Read, said it was confident the outcome of this process would confirm that Basil Read had not contravened the Competition Act.
Mudimeli said the Fifa local organising committee (LOC) invited construction firms and industry stakeholders to a meeting in Sandton in July 2006 to discuss the construction of the World Cup stadiums.
Mudimeli said the invitation indicated the current excessive workload of the construction industry was a challenge.
The major industry players needed to inform the LOC about their current activity in rand value terms and geographic spread and relate this to the skills capacity to take up “additional projects of international importance”.
Mudimeli said representatives of WBHO, Grinaker LTA and Group Five stated the projects could be delivered on time subject to certain conditions.
The parties represented at the meeting agreed the existing structures for the delivery of projects, such as standard tendering processes, would not be capable of meeting the timing requirements and “other modes of procurement were to be considered”.
Mudimeli said the LOC indicated it was the responsibility of the private sector to deliver the projects on time although it recognised there were resource and capacity constraints.
Following the LOC meeting, two meetings took place in 2006 at which the construction firms discussed and agreed on the allocation of tenders and cover pricing arrangements, he said. MINING output made a surprising rebound in September, soaring to an annualised 5.3 percent from a revised 9.2 percent fall in August, against expectations of 2.2 percent growth.
The highest positive growth rates were recorded for iron ore, manganese ore and diamonds, according to Statistics SA figures yesterday.
The main contributors to the growth were iron ore, coal, and manganese ore.
Seasonally adjusted mining production increased by 7 percent month on month while it increased by 0.7 percent in the third quarter compared with the previous one.
Nedbank said despite the improvement in production in September, mining activity was likely to remain soft in the coming months as a slowdown in global growth fed into lower commodity prices while infrastructure constraints locally keep output relatively weak.
Monique Mathys, a senior economist at the SA Chamber of Mines, said: “It was a pleasing result. There was a momentum on volumes but prices are still weak, particularly in iron ore.”
She said a significant supply of iron ore had come on line, moving into oversupply, which put pressure on prices. Iron ore prices were down 48 percent.
Platinum group metals (PGM) remained a negative contributor to production growth. PGM production, which accounts for 24.6 percent of total mining production, increased by no less than 34.7 percent month on month in September.
Mathys said this disappointing figure was because of the six-months strike in the sector this year.
Azar Jammine, the chief economist at Econometrix, said the preceding strike between January and June and the subsequent strike in the metal industries in July appear to have inflicted considerable damage on the ability of the PGM industry to restart production through August.
Mathys said coal production was up 35 percent to date because of volumes of exports.
Nedbank said mining figures were volatile and had little influence on policy decisions in the short term. It said the latest economic data, including manufacturing production, had shown some improvement in economic activity, but the general trend still reflected a subdued economy.
Jammine said the sharp improvement in mining produc- tion in September did not translate into a substantial upward revision in forecasts for growth in the overall economy in the third quarter.
He said under the circumstances, there would be little incentive for the Reserve Bank to raise interest rates at its meeting of the monetary policy committee next week.
“This is especially endorsed by the fact that signs of inflationary pressures have been receding in recent weeks, culminating in the estimated decline in retail inflation calculated yesterday from 6.2 percent in August to 5.7 percent in September.”