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2010 FIFA World Cup: Competition Commmission strikes

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Construction industry implodes

Most of the majors admit to involvement in rigging of tenders for World Cup stadia.

JOHANNESBURG - As the construction industry sags under the pressure of too little work and tardy payments from clients, the Competition Commission on Tuesday invited players to step forward and admit contract rigging.

Shan Ramburuth, head of the commission, said most of the majors admitted involvement in rigging of tenders on contracts and sub-contracts for World Cup stadia. He said the Cape Town and Durban stadia were a particular focus.

Firms that accept the invitation to settle will qualify for corporate leniency. Those who deny involvement in more than 22 contraventions and are subsequently found guilty could be fined from 10%-12% of their 2010 turnover. Those who take advantage of corporate leniency will pay less.

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Colluding firms are offered reduced fines and a fast track settlement procedure if they provide full and honest disclosure.

It is investigating 65 bid rigging cases involving more than 70 projects with an estimated value of R29bn.

In addition, markets for construction products, such as long steel, mining roof bolts, concrete pipes, plastic pipes, wire mesh, reinforcing steelbar installation and piling have also been investigated. Subsidiaries of several major construction companies are involved in these cartels. A case against the primary producers of reinforcing steel bar was recently referred to the tribunal.

In establishing penalties, the following will be taken into account: the number of contraventions, whether the contractor won or lost the bid, the size of the contract and whether the applicant has settled any claim for damages arising from a non-prescribed prohibited practice. Firms have until April 15 to respond.

A firm with four or less contraventions that co-operates and tells all will be subject to a fine of 1%-4% of turnover. One with five-12 contraventions will pays 4%-7% of turnover and one with 13-22 7%-10% of turnover. All fines are paid to the Exchequer.

The commission will ask for maximum penalties on any firm that does not take advantage of the settlement offer.

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Ramburuth told media on Tuesday that some firms may have been guilty of up to ten transgressions, which theoretically meant they could pay 100% or more of last year’s turnover. The commission realised that is not viable, hence an approach that is less heavy handed.

Deputy Commissioner Tembinkosi Bonakele said: “We are not just penalising companies. We are cleaning up industry, giving it a chance to break with the past.”

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Last year the tribunal levied fines totalling R487.3m, compared to R331.4m in 2009 and R99.4m in 2008. The biggest fine was the R250.6m imposed on Sasol (JSE:SOL) Chemical Industries. This year Pioneer Food, which for months denied involvement in the bread price fixing cartel, was fined R500m and ordered to reduce its prices at a cost to the company of R150m. It took disciplinary action against 41 employees, most of whom received merely a warning. Executive directors forfeited their bonuses.

I asked whether government’s monopolistic buying power in the construction sector was not a justification for some of this behaviour.

Said Bonakele: “That’s not a defence. Because of collusion the government paid a higher price. That affected taxpayers.”

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Ramburuth added that each time companies are threatened by a big fine, they plead that the private sector is being bashed. “I feel more for people in shacks who can’t get houses than CEOs, who have their quadbikes and other luxuries.”

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