How construction industry price-rigging scam unravelled

A Mail & Guardian report says the beginning of the end for the cartel was brought about by the failure by one of the participants to pay its dues to co-conspirators in the Coega harbour project, and alleged greed in the prices charged for building World Cup stadiums. The newspaper says confidential documents in its possession reveal long-standing and hugely profitable organised co-operation between major construction companies started to fall apart because of a breakdown of arrangements between participants when it came to paying 'loser fees'. One incident in particular, in which a major player, Concor, withheld 'loser fees' from competitors that had helped it to win a major contract, indicates the loss of trust that ultimately saw 15 companies called to account in a process that continued last week. The report says that as a result of that incident, and others like it, a scam worth a conservatively estimated R4.7bn in unfair profits to the companies involved was brought to an end over 'loser fees' that typically did not exceed R30m in value. Now, notes the report, the firms face billions in fines and civil settlements. Full Mail & Guardian report

The Construction Industry Development Board will investigate whether firms that admitted to rigging and collusion should be barred from state tenders, says a Mail & Guardian Online report. Media reports this week suggested the board had appointed a team to investigate the companies, after which it could decide to impose fines, deregister or disqualify companies from tenders. The board could fine a company up to R100 000 and bar it from public sector construction work tenders for up to 10 years. 'The (Competition) Commission has found them guilty of collusion. We will be investigating collusion in terms of the code of conduct,' acting board chief executive Hlengiwe Khumalo was quoted as saying. Full Mail & Guardian Online report

Meanwhile, the Competition Tribunal has confirmed settlement agreements reached with construction companies fined for collusive tendering, it said this week, according to a report on the Fin24.com site. The firms have agreed to penalties collectively totalling R1.46bn. A Business Day report notes the tribunal's confirmation has rendered the settlements legally enforceable and paves the way for municipalities or parties who believe they have been affected by the collusive tendering - admitted by the construction firms - to approach the courts for civil damages. The tribunal heard submissions on settlements by 15 firms, including WBHO, Basil Read, Raubex, Stefanutti Stocks and Murray & Roberts over two days last week. Full report on the Fin24.com site Full Business Day report (subscription needed)

The Competition Tribunal said agreements with the two outstanding construction companies, Aveng and Guiricich Bros Construction, had been concluded, which means all 15 fast-track agreements have now been approved, according to a Mail & Guardian Online report. Its notes three companies, Group Five, Construction ID and Power Construction, will face prosecution after they failed to come to a settlement with the Competition Commission. Four other companies, which did conclude agreements with the Competition Commission, face prosecution for failing to pay fines for projects they were implicated in by other companies. These companies are Basil Read, WBHO, Murray & Roberts and Raubex. These four companies can still make a deal with the competition commission but it won't be as favourable as the fast-track deal, states the report. Tribunal member Yasmin Carrim has proposed a directors' charter for the construction industry, notes a Business Day report. Saying the fast-track process 'feels just like a TRC' of how people do business in SA, Carrim said 'perhaps what needs to happen is a programme which requires a very specific engagement with directors of an entire industry that has been implicated by this process to create a directors' charter'. Full Mail & Guardian Online report Full Business Day report (subscription needed)

The two-day sitting of the tribunal revealed the extent of the collusion within the sector between 1999 and 2009, notes a Mail & Guardian Online report. It also revealed many of the mechanisms used by the companies to facilitate the fraud. The hearing saw companies revealing how payments were hidden on company books. It was heard that cover pricing was also common, and the bid rigging, such as the dividing up of the World Cup projects, were also widespread and took place in other projects. Cover pricing saw companies submitting bids where the prices offered by each company was known to competitors, and this generally happened when the other two bidders did not want the job. Tender, or 'losers' fees, were paid to companies for the cost of submitting dummy tenders. These were hidden by a number of companies in their books under 'plant hire'. In many cases companies said they paid fees but could not find the evidence of the payments because 'it's hard to know how they were recorded in financial statements without knowing the full amount'. Full Mail & Guardian Online report

As more details of the construction cartel emerged during settlement hearings at the competition tribunal last week, a spotlight was shone on the cartel within the cartel, notes a City Press report. It says details emerged of a road-construction cartel into consent-order agreements, which are the documents containing the settlement between the individual construction firms and the competition commission. According to these consent-order agreements, a meeting was held in 2006 where construction companies that work in the road sector met to agree to divide up contracts between them. This mirrors the meetings, also in 2006, where construction companies met to divide work on World Cup stadiums. One of the affected parties, the SA National Roads Agency Limited (Sanral), has already indicated that it is looking into civil damages claims, which suggests that settlement with the commission is not the end of the road for the road cartel. Full City Press report

The slap on the wrist for colluding construction companies highlights a growing tendency in SA to make deals, set up commissions and task teams while the man on the street picks up the bill, notes a Business Times report. It says during the tribunal hearings, it became clear that many incidents were not disclosed and often only revealed because one company pointed a finger at another. According to CEOs, most of the directors involved were retired, not with the company any more or disappeared without a trace. Shockingly, states the report, a number of them were still gainfully employed by these companies and even involved in tender processes. A Sunday Times report says the pervasive opinion that the companies got off lightly is backed up by the figures: compared with their revenue streams from the 2010 financial year, the majority of the 15 companies implicated will barely break a sweat to pay up and get on with business. Full Business Times report (subscription needed) Full Sunday Times report (subscription needed)