Con­struc­tion firms face big penal­ties

The Com­pe­ti­tion Act al­lows for mil­lions in fines

The Star Early Edition - - BUSINESS REPORT - Roy Cokayne

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.”

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