Government is satisfied that it has broken the back of a longstanding cartel in the construction industry. It is the first time the competition commission has targeted an entire sector, and the settlement amount — R1,46bn — is the largest it has ever administered.
But the industry’s main whistle-blower, Group Five, has failed to agree on a settlement with the commission, despite receiving corporate leniency for 25 projects, more than double any other firm.
Group Five believed itself to have immunity from penalties because of its early disclosures, made in 2009, two years before the commission announced its fast-track settlement process for the construction sector. The firm did not make provision for a fine, unlike almost all other large companies.
But Group Five has been implicated in collusion cases that go beyond the information it has volunteered to the commission. For that, says deputy competition commissioner Trudi Makhaya, it has to face penalties like any other firm would.
Group Five CEO Mike Upton says it came to the group’s attention late last Friday (June 21) that the commission proposed an administrative penalty higher than previously anticipated.
The dispute concerns four projects and is due to “factual and evidentiary discrepancies”, Upton says.
The commission has reached a settlement with 15 firms. Economic development minister Ebrahim Patel says the three firms that haven’t settled — Group Five, Construction ID and Power Construction — can still do so.
Patel says R28bn of the R47bn worth of projects implicated in collusion were public-sector projects. But not all projects were covered by the investigation. The commission’s investigation was limited to 140 (of 300) implicated projects which took place after September 2006, because of the three-year prescription provision in the Competition Act.
Competition commissioner Shan Ramburuth says it is difficult to calculate the overcharge on affected projects. International studies show overcharges are usually between 10% and 30%. But Ramburuth says calculating it in this case is complicated.
Government is still considering whether to take any civil action against firms that have admitted to the collusion. Patel says it will also engage with the Construction Industry Development Board. It wants the board to deregister companies that are found guilty of anticompetitive behaviour in the future.