South Africa Fines Contractors $151 Million for Bid Rigging
South Africa will fine 15 construction firms a total of more than $151 million as part of agreements reached last month that settle bid-rigging claims related to at least $4.8 billion worth of projects.
The Competition Commission of South Africa said the companies "colluded to create the illusion of competition by submitting sham tenders ('cover pricing') to enable a fellow conspirator to win a tender."
The three-year investigation revealed more than 300 incidents of collusive tendering, including on contracts related to six World Cup soccer-stadium projects, such as the $460-million Green Point venue in Cape Town, the agency stated.
According to the report, released in June, "In [some] instances, firms agreed that whoever won a tender would pay the losing bidders a ‘loser’s fee’ to cover their costs of bidding. Subcontracting was also used to compensate losing bidders."
The firms that agreed to settlements include Aveng, Basil Read, Esorfranki, G Liviero, Giuricich, Haw & Inglis, Murray & Roberts, Norvo, Raubex, Rumdel, Tubular and Vlaming, all based in South Africa; WBHO and Stefanutti, both based in Australia; and Germany-based Hochtief.
Aveng, Murray & Roberts, Stefanutti and WBHO each agreed to penalties of more than $30 million.
The settlements were the result of a "fast-track settlement process," first launched in 2011, in which the commission invited firms to disclose their bid-rigging conduct in exchange for immunity from prosecution.
The investigation began with the World Cup projects but has widened.
Three companies—Group 5, Construction ID and Power Construction—have denied the claims and rejected the settlement offer but remain under investigation.
"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,” said Shan Ramburuth, head of the country's anti-trust body.
Ramburuth added, "In revealing the extent of collusion in the construction industry, the … 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 incentivize firms toward innovation and efficiency in future projects.”
Murray & Roberts, which was fined nearly $31.6 million, said the penalty will be payable in three installments over 24 months and that it “is not materially higher from what was provided for by the group."
Aveng was fined $31.3 million. The company stated that it "has already made adequate provision for this amount … [and] welcomes the resolution of this matter."
South Africa’s Construction Industry Development Board, a construction-industry regulatory agency, says it now will investigate the conduct of companies that admitted to collusive bidding and may impose additional sanctions. Acting board CEO Hlengiwe Khumalo said collusive bidding “is exclusionary and undermines development and transformation, which are necessary within the construction industry.”
The South African Federation of Civil Engineering Contractors condemned anti-competitive practices and called for “transparency and an equitable environment” in delivery of infrastructure in Africa’s largest economy.
South Africa’s ruling party, the African National Congress, now is pushing to extend the investigation into other sectors “to fully assess the extent of the problem of bid rigging and collusion.”
