The Competition Commission on Tuesday invited construction companies to engage in a “fast-track settlement” of Competition Act contraventions relating to bid rigging for projects in the public and private sectors.

The Commission is already investigating 65 bid-rigging cases in the construction sector, implicating over 70 projects, with an estimated value of R29-billion.

Officials noted that some of these projects included World Cup stadiums, in particular the Green Point stadium in Cape Town and the Moses Mabhida stadium in Durban, as well as various road construction projects and the Gautrain project.

The proposed fast-track procedure would incentivise companies to enter into a settlement that would be financially advantageous to both the Commission and the companies, in that it would minimise associated legal costs, and speedily resolve cases.

The Commission would settle with participating firms with a reduced administrative penalty compared with the penalty if each transgression were to be prosecuted separately.

Competition Commissioner Shan Rambaruth insisted that this settlement process was intended to streamline matters, and that it did not mean that the Commission was “going soft” on companies involved in collusive behaviour in the construction sector.

“The fines will amount to a substantive amount at the end. This is an efficient and strategic way to deal with transgressions,” Rambaruth said, adding that the Commission needed to incentivise firms to participate in order to rid the industry of collusive practices.

The Commission has received 150 ‘marker applications’, which indicate an intention to apply for corporate leniency. Most of these were submitted by Group Five, which has been cooperating with the Commission since 2009.

Applications have also been received from Aveng subsidiary Grinaker-LTA, and Murray & Roberts (M&R), which have committed to cooperate with the Commission.

The fast-track settlement process would work concurrently with the Commission’s Corporate Leniency Policy (CLP), and a firm that applied for the settlement may also apply for leniency.

A company that has received conditional immunity for a particular conduct would not pay a penalty for it in terms of the settlement process.

Calculation of the penalty would take into account the number of contraventions in a relevant subsector, whether or not the applicant won or lost the bid, the size of the contract, and whether the applicant has settled any claim for damage that may arise as a result of the non-prescribed prohibited practice.

Companies were urged to reveal all projects that they were party to bid rigging in, and this information should stretch as far back as possible. This should be divulged in an application to the Commission by April 15.

Deneys Reitz Attorneys associate Marianne Wagener stated that the Commission appeared to have done a good job in incentivising companies to step forward with information, as it had clarified what companies could expect. This was done through a well-structured explanation of how the Commission would determine penalties.

The Commission said that the penalty would be determined by the number of non-prescribed prohibited practices engaged in by the applicant in a relevant subsector.

If between one and four contraventions were noted, a fine of between 1% and 4% of the applicant's turnover in that specific subsector would be payable. Between five and 12 contraventions would mean a penalty between 4% and 7% of turnover. Between 13 and 22 contraventions the applicant would be liable for a fine of between 7% and 10% of turnover, while 23 or more contraventions could lead to a penalty of between 10% and 12% of turnover.

The year’s turnover in question would be 2010, as this was the most recent year before the announcement made by the Commission on Tuesday.

The Commission also highlighted that this fast-track process would strengthen evidence against those companies not participating in this initiative. These companies could be imposed with the full 10% of turnover penalty. They could also be barred from tendering for government projects in future.

“Some firms are in complete denial, and say that nothing is wrong, this is simply the way they have been doing things for ages,” noted Competition Commission deputy Commissioner Thembinkosi Bonakele.

‘THE PARTY’

The Commission said that its investigations into collusion in the construction industry, which started in 2009, have uncovered widespread anti-competitive conduct through various arrangements.

Major firms in the sector were said to have held meetings to allocate tenders and police each other’s behaviour through a structure referred to as “The Party”.

The Commission said that it had “some very good evidence”, in the form of affidavits and documents from both winning and losing parties involved in bids.

“We are comfortable that the information is not just from people with an axe to grind,” added Bonakele.

The Commission had not estimated a figure that it could categorically say that project prices had been inflated by, but that international studies looking at the impact of this kind of collusion was between 8% and 19%.

Bonakele emphasised that the process instituted by the Commission was not just about retribution, but rather “cleaning up the industry” to enable the market to operate in a more competitive way.

MARKET REACTION

Following the Commission’s announcement, Group Five issued a statement to the JSE saying that it believed that its proactive and cooperative approach in taking advantage of the Commission’s leniency programme had played an important role in mitigating the risk of penalties or fines.

The Group Five share price dropped 6% to a low of R30,16 a share following the announcement, but lifted slightly to R30,95 a share after 15:00.

M&Rs’ share price, which since Friday tumbled some 25%, fell another 5% to a low of R29,51 a share.

Aveng shares dropped by as much as 6,5% on Tuesday to R35,55 a share.