Construction firms settle collusive tendering cases with R1.5 billion in penalties

The Competition Commission ("Commission") has reached settlement with 15 construction firms for collusive tendering, in contravention of section 4(1) (b) of the Competition Act. The firms have agreed to penalties collectively totalling R1.46bn.

The settlements were reached in terms of the Construction Fast Track Settlement Process, launched in February 2011. The fast-track process incentivised firms to make full and truthful disclosure of bid rigging in return for penalties lower than what the Commission would seek if it prosecuted these cases.

Twenty one firms responded to the Commission's offer of a fast-track settlement. While over 300 instances of bid rigging were revealed through this initiative, the settlements were reached only with respect to projects that were concluded after September 2006, before which transgressions are beyond the prosecutorial reach of the Competition Act. The breakdown of penalties per firm is as follows:

The responses to the Construction Fast Track Settlement offer revealed various ways in which firms historically determined, maintained and monitored collusive agreements. These included meetings to divide markets and agree on margins. Different combinations of firms coordinated tenders over different projects. Firms colluded to create the illusion of competition by submitting sham tenders ("cover pricing") to enable a fellow conspirator to win a tender. In other instances, firms agreed that whoever won a tender would pay the losing bidders a "loser's fee" to cover their costs of bidding. Sub-contracting was also used to compensate losing bidders.

Three firms did not accept the Commission's settlement offer in terms of the fast track process. These are: Group 5, Construction ID and Power Construction.

Construction firms that have not used the opportunity disclose or settle contraventions will be investigated and prosecuted. With the evidence gathered during this process, the Commission will investigate and prosecute firms that have not disclosed any projects but are implicated by others or those that have elected to settle only some of the projects that they are implicated in.

Competition Commissioner, Shan Ramburuth, was pleased with participation in the fast track settlement. He emphasised that "in revealing the extent of collusion in the construction industry, the Commission's fast track settlement broke up existing cartels and created awareness of collusive practices in the industry. Embedding a competitive culture will be critical to bringing down the costs of future infrastructure investments and will incentivise firms toward innovation and efficiency in future projects".

Appendix 1 - Background to the media statement Background

The Commission launched the Construction Fast-track Settlement Process on 1 February 2011, by inviting firms in the construction industry to disclose projects and tenders that were subject to bid-rigging conduct, for the purposes of settlement. The closing date for this invitation was 15 April 2011.

This process ran concurrently with the Commission's Corporate Leniency Policy in that the first firm to disclose a rigged project would earn conditional immunity from prosecution for that project.

Applicants were required to, inter alia, provide the Commission with truthful and timely disclosure of information and documents relating to the prohibited practices and to provide full and expeditious co-operation to the Commission concerning the prohibited practices.

The Commission received applications from 21 firms in the construction industry, including the top six construction firms, covering 300 projects worth an estimated R47bn. From these 300 projects, 160 projects are prescribed while 140 are not prescribed (i.e. within the time- frame stipulated for prosecution and hence eligible for settlement). From the 21 firms that applied for settlement, 18 firms are liable to settle and the balance of 3 firms are not liable to settle as they are first to apply (qualify for conditional immunity) for all the projects they disclosed and are not implicated in any other project.

The applications from firms were investigated from April 2011 to November 2012, when settlement discussions with implicated firms commenced.

The initial complaints

On 10 February 2009 the Commission initiated a complaint in terms of section 49B(1) of the Competition Act into alleged prohibited practices relating to collusive conduct in the construction of the stadiums for the 2010 FIFA Soccer World Cup against Murray & Roberts Limited, Grinaker-LTA Ltd, the construction operating business unit of Aveng (Africa) Limited, Group Five Limited, Basil Read (Pty) Ltd, WBHO Construction (Pty) Ltd, Stefanutti Stocks Limited, Interbeton Abu Dhabi nv llc, and Bouygues Construction SA.

On 01 September 2009, following the receipt of applications for immunity in terms of its Conditional Leniency Policy, the Commission initiated a wider complaint into prohibited practices relating to collusion in the construction industry. The complaint concerned alleged contraventions of section 4(1) (b) of the Act as regards collusive tendering, price fixing and market allocation in respect to tenders.

The investigation was initiated against the following firms: Murray & Roberts, Grinaker LTA Ltd, Aveng (Africa) Ltd, Stefanutti Stocks Holdings Ltd, Group Five Ltd, Concor Ltd, G. Liviero & Son Building (Pty) Ltd, Giuricich Coastal Projects (Pty) Ltd, Hochtief Construction AG, Dura Soletanche-Bachy (Pty) Ltd, Nishimatsu Construction Co Ltd, Esorfranki Ltd, VNA Pilings CC, Rodio Geotechnics (Pty) Ltd, Diabor Ltd, Gauteng Piling (Pty) Ltd, Fairbrother Geotechnical CC, Geomechanics CC, Wilson Bayly Holmes-Ovcon Ltd and other construction firms, including joint ventures.

Methodology for calculating penalties

A key principle underpinning the CSP is that the penalty imposed on a firm is calculated for a basket of the rigged projects. Penalties are imposed on projects on which the firm was not granted immunity, in other words, it was not the first to disclose the project to the Commission.  The  projects  are  organised  according  to  classes  of  construction  work  as defined  by  the  regulations  of  Construction  Industry  Development  Board;  namely  Civil Engineering, General Building and Mechanical Engineering.

The penalties imposed by the Commission differentiate  between firms on the basis of guidelines provided by legislation and precedent. The key variables that were factored into the penalty calculation for each firm were:

• the number of contraventions in each construction subsector;
• whether profit margins were fixed
• whether projects were allocated directly
• the number of projects won;
• the payment of a loser's fee;
• the level of co-operation provided by the firm during the course of the investigation; and
• whether the firm had settled any claim for damages that may arise as a result of the prohibited practices.

Damages claims

The Competition Act makes provision for victims of anti-competitive conduct to lodge claims for damages suffered as a result of such conduct.

Statement issued by Trudi Makhaya, Deputy Commissioner, Competition Commission, June 24 2013

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