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Bid-Rigging Scandal Engulfs 15 Firms

Friday, July 5, 2013

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Years of contract collusion involving six World Cup stadiums and hundreds of other public and private projects have 15 South African construction firms facing $140 million in potential fines.

South Africa's Competition Commission announced the proposed settlement fines last week after a three-year investigation.

Cape Town Stadium
Hilton1949 / Wikimedia Commons

Anti-trust regulators in South Africa say contractors engaged in bid-rigging practices on many projects, including six stadiums constructed to host the 2010 World Cup.

The Commission said that it had found evidence of bid rigging on 300 projects (both public and private) valued at 47 billion rand ($4.7 billion USD).

Proposed settlements were reached with 15 firms, but only with respect to projects concluded after September 2006. Collusion activity that occurred before that date was out of prosecutorial reach of the Competition Act, the regulators said.

The largest fines were issued against some of the country’s biggest builders, including Murray & Roberts, Aveng, WBHO and Stefanutti.

Firms and settlements
Competition Commission

The companies colluded over several years to create the illusion of competition by submitting sham bids, regulators say.

 

The Commission will refer the proposed settlements to the Competition Tribunal for final approval.

Construction Cartels

Prominent projects implicated in the investigation included six World Cup stadiums, including Cape Town’s Green Point venue, as well as South African National Roads Agency Gauteng freeway projects, according to reports.

“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,” Competition Commissioner Shan Ramburth said in a statement.

“Embedding a competitive culture will be critical to bringing down the costs of future infrastructure investments and will incentivize firms toward innovation and efficiency in future projects,” he said.

Commission
Competition Commission

The fraud extended to more than 300 construction projects, officials said. The Commission began its investigation in February 2011.

The fast-track process encouraged companies 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,” according to the Commission.

Collusion Activity

The contractors who settled via the fast-track process revealed a variety of ways in which they determined, maintained and monitored collusive agreements.

Meetings were held in order to divide markets and agree on margins, the Commission said. Different combinations of firms coordinated bids 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,” the Commission reported.

On other occasions, firms agreed that the company that won a bid would pay the others a “loser’s fee” to cover their bidding costs. Subcontracting was also used to compensate the losing bidders, according to the Commission.

Firms That Didn't Settle

Three firms did not accept the fast-track settlement process and are still negotiating with the Commission. Those companies are Group 5, Construction ID, and Power Construction.

The Commission said firms that haven’t used the opportunity to disclose or settle contraventions will be investigated and prosecuted.

In addition, evidence gathered during the investigation will be used to investigate and prosecute additional firms that have been implicated by others.

Company Statements

Several companies involved in the case have released statements.

Murray & Roberts Group said the settlement amount is “not materially higher from what was provided for by the Group and is payable in three payments—one-third one month after the Tribunal confirms the settlement, one-third after 12 months, and one-third after 24 months.”

Group Chief Executive Henry Laas said that the company was not currently involved in any anti-competition conduct and that it supported “a fully competitive culture in the industry.”

Aveng
Aveng

Public- and private-sector clients were affected by the collusion, according to the Commission. One contractor implicated in the case said, "Such behavior cannot be tolerated if we are to build a modern, competitive economy."

In a statement, Aveng Group CEO Roger Jardine said, “We welcome the conclusion of this investigation which revealed the extent of the anti-competitive conduct in the industry over a period of time,” adding that “such behavior cannot be tolerated if we are to build a modern, competitive economy.”

Reaction Mixed

News of the collusion settlements has prompted much debate across the Internet.

Many suggest the contractor executives should be prosecuted criminally; others take pity and indicate that the only way to “survive” in the industry is to “share bids.”

“This is blatant criminal behavior. Press criminal charges…,” user Dragon Fly wrote on IOL Business Report.

Another commenter, Allritejack, wrote, “Construction companies have very poor profit margins, that’s why I have never invested in them. If they all bid on every job they would all be bankrupt. The only way they can survive is to share the bids as each bid can cost each company R5 million. Punishing them just makes the situation worse.”

Another user wrote, “Why is it a ‘crime’ for two businesses to come together and decide they are going to work together on opportunities available in the business arena—businesses do that all the time for goodness sake.”

Some even laid blame on the South African government.

“This is what happens when the Government accepts an event like the Soccer world cup without any planning or foresight,” commented Mfwetu. “They never bothered to consult industry in their haste to hold a soccer [cup; this is the] only way the construction companies could meet the deadlines with limited resources. This is of their own making.”

   

Tagged categories: Bidding; Business management; Business matters; Commercial Construction; Construction; Government; Government contracts; Industrial Contractors; Infrastructure; Stadiums/Sports Facilities

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