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All South Africa construction majors ‘involved’ in collusion, price-fixing – Patel


Engineering News

By: Natalie Greve

11th April 2013

Economic Development Minister Ebrahim Patel has said that all the major South African civil engineering and construction companies currently active in the sector have been involved in infrastructure-related collusion and price-fixing.

“This problem is huge and pervasive in the infrastructure space,” he said at the inaugural Project and Construction Management Professions Conference on Thursday.

The State reportedly lost billions of rands through large-scale collusion and price-fixing by private sector companies during several past infrastructure projects, which instigated investigations by the Competition Commission into several completed public build projects.

These enquiries, which included investigations into the Gautrain project and several stadium developments, uncovered substantial evidence of collusion and price fixing by private sector participants, the Minister noted.

In cases involving critical projects, a number of companies came forward to acknowledge their involvement in the unlawful practises, Patel added.

“We have received about 400 admissions of incidents of collusion by companies in the sector,” he commented.

South African Council for the Project and Construction Management Professions (SACPCMP) president Professor Raymond Nkado said he was “shocked” that registered members of the SACPCMP had been found to have been involved.

“As a council, we have decided that we might take additional disciplinary action against these [companies],” he said.

Fast-Track Process
Based on the evidence gleaned from the commission’s investigations, which indicated the pervasiveness of the involvement by private companies, it was decided to introduce a “fast-track settlement process”, which would avoid lengthy legal processes that could persist for up to eight years, and which Patel said could potentially distract the project management process.

“We approached the industry and said we were prepared to put a voluntary disclosure process on the table, which would bring this to a conclusion expeditiously. In return, what is required is full disclosure, a commitment to end the cartels and an acceptance that the law must take its course,” he explained.

Once the disclosure process had been completed and admission of guilt received, the commission would then determine appropriate fines or penalties related to the value of the project.

Several such processes between the Competition Commission and private companies were currently under way, with most in the final stages, where the extent of the penalty was being determined in cases where organisations were “improperly enriched”.

Patel added that the first company to come forward and admit collusion would receive preferential treatment in terms of the penalty levied.

“We also take into account the extent of cooperation, so that there is an incentive to come clean. However, these companies will still have to pay substantial penalties as prescribed by the Competition Act,” he cautioned.

In cases where investigations implicated public servants, this information would be referred to law enforcement agencies.

There would be public disclosure once settlements had been reached.

Incentivisation

Public Works Minister Thulas Nxesi added that the findings of the investigation challenged the common perception that corruption and malgovernance was only pervasive in the public sector.

“The opinion that only government has such problems has been proved incorrect. There are huge problems in the private sector and we must expose them,” he said, encouraging the private sector to engage in “self reflection”.

Nxesi noted that key to the prevention of corruption in infrastructure projects was the establishment of a strong financial system, transparent procurement processes and incentivisation.

Moreover, Patel advised that the competition authorities had used the findings of the investigations to identify networks and channels used by companies in collusive practises and had identified the lead players and managers.

This would be used to develop internal preventive controls to reduce the opportunity for future collusion.

In addition, Patel said the CEO of any company awarded an infrastructure tender would be required to sign an “integrity pact” that committed them to competitive and noncorrupt practises and to create a culture in their organisation in which anticompetitive behaviour was discouraged.

“This will require executives to commit personal responsibility and liability,” he said.

The integrity pact was currently being piloted in a number of infrastructure tenders and would be fully implemented throughout the course of this year.

Patel said it was critical that the new phase of national infrastructure development not be characterised by similar high levels of collusion and price-fixing.

“Companies will have to make an important calculation. In the past, they thought collusion was a no-brainer; that they would secure the contract and walk away with the money. Now they see that we have developed the investigatory capacity to track the evidence down and to bring companies to book. That is the most important breakthough for us,” he said.

Edited by: Chanel de Bruyn

Patel outlines new ‘integrity pact’ to screen firms for big-project deals


AScommercialPopNews

February 16, 2012

As the state ramps up its infrastructure spend, Economic Development Minister Ebrahim Patel has insisted on ‘value for money.’

Emboldened by a broadly positive response to infrastructure plans outlined by President Jacob Zuma last week, the government appears to be trying to use the contracts likely to be involved to further bend business and the unions to its “developmental” agenda and its view of how business and labour under a state-led mixed economy should behave.

Yesterday Economic Development Minister Ebrahim Patel said companies wishing to win contracts from the government’s infrastructure development programme would need to sign an “integrity pact” committing them to ethical behaviour, including noncollusion with competitors and competitive pricing.

President Jacob Zuma last week announced an expansion of Transnet’s infrastructure programme to R300bn over seven years. Added to existing plans — which in last year’s budget reached R809bn over three years — and new ones likely to be announced in next week’s budget, the government’s infrastructure spend is set to top R1-trillion.

But, having been burned by cost escalations in previous infrastructure programmes — particularly in the construction of Soccer World Cup stadiums in 2010 — Mr Patel says the government wanted to make sure this time it got “value for money”.

Investigations by the Competition Commission have uncovered “clear and compelling evidence of high levels of collusion ( with public-sector tenders) in construction, which has driven up costs”, Mr Patel told the Cape Town Press Club yesterday.

Speaking in the state of the nation debate in Parliament on Tuesday, Mr Patel said the government would guard against price collusion, corruption and unnecessary industrial action on infrastructure projects.

Our experience in the past showed high levels of collusion between contractors that drove up prices. We faced avoidable industrial action on some of the projects,” he said.

Mr Patel said the government was in discussion with business and organised labour “to address the need for competitive pricing, firm action against public and private sector corruption and co-operative industrial relations”.

In his remarks at the Press Club yesterday, he said he was under no illusion that such a pact would be sufficient to deter anticompetitive behaviour. The Competition Commission would “focus very strongly on the infrastructure programme”, and build on the “very substantial work” done in investigating collusion among construction firms.

The commission is investigating 65 bid-rigging cases in the construction sector with an estimated value of R29 bn.

Mr Patel said since the commission had altered its corporate leniency policy in 2007, awarding parties that are first to come clean, “the risks for private companies in colluding had got much higher”.

He said “clear consequences” would have to apply where contractors failed to deliver. In the inquiry, leniency was granted to Group Five and applications for leniency were made by Murray & Roberts and Grinaker-LTA.

In his state of the nation speech last week Mr Zuma said government procurement processes were being cleaned up by a multi-agency working group led by the Treasury.

This included a review of “the entire system” and “the vetting of supply chain personnel in all … departments”.

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