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Construction companies that didn’t sign VRP settlement agreement are off the hook

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Eight construction companies – that were among 15 firms that reached settlement agreements with the Competition Commission on (2010 infrastructure) bid-rigging, price fixing and collusion charges – are off the hook from disciplinary action planned by the Construction Industry Development Board (CIDB).

The CIDB planned to institute disciplinary action when these companies did not become part of the Voluntary Rebuilding Programme (VRP) settlement agreement with government, which was signed on 11 October 2016.

Sanctions that can be imposed by the CIDB for contraventions of its code of conduct include prohibiting companies from doing public-sector work for up to 10 years and a fine not exceeding R100 000.

However, CIDB director of corporate communications Kotli Molise confirmed to Moneyweb last week that:

“It was concluded that the CIDB does not have the legislative mandate to conduct disciplinary action against these companies as the actions pre-date its code of conduct.”

The VRP agreement settled outstanding and pending civil damages claims against seven listed companies – Aveng Grinaker-LTA, Basil Read, Group Five, Murray & Roberts, Raubex, Stefanutti Stocks and WBHO – from state entities, including the SA National Roads Agency (Sanral), stemming from their admissions about collusion and bid-rigging.

Off the hook

The eight companies in the CIDB’s sights for contraventions of its code of conduct were G Liviero & Sons Building, Giuricich Bros Construction, Haw & Englis, Hochtief Solutions, Norvo Construction, Rumdel Construction, Tubular Technical Construction and Vlaming.

The CIDB confirmed in September 2017 it intended to engage the remaining construction firms that were not party to the VRP agreement, for a possible settlement along similar lines to the VRP.

“Should the engagement fail to yield agreement, the CIDB will reinstate its disciplinary inquiry in terms of regulation 29 of the CIDB regulations of 2004, as amended,” it said.

Ebrahim Patel, then minister of economic development and now minister of trade, industry and competition, confirmed at a media conference in February 2017 to announce the signing of the VRP by the listed companies, that it was now capable of being extended to other parties.

“We will be engaging with the other companies to say to them: ‘This is the framework, you have been implicated and there are still outstanding matters involving you and it would be good for you to come on board.’

“If those talks don’t get anywhere, then we will deal with them,” said Patel at the time.

Another 24 firms that did not participate in the fast-track settlement process were implicated in collusive tendering by the companies that did participate.

These firms were implicated in 31 projects or cases, and seven of them settled with the commission in the second phase of its investigations, resulting in them collectively paying R13.44 million in penalties.

These companies were Harding Allison Close Corporation, B&E International, Cycad Pipelines, N17 Toll Operators, Civcon Construction, Giuricich Coastal Projects (GCP) and Pele Kaofela (Civilcon) Close Corporation.

The commission referred a further 19 cases to the Competition Tribunal for prosecution, two of which resulted in fines. Delatoy Investments agreed to pay a fine of R4.1 million, while GCP was fined R900 000 after being found guilty of engaging in cover pricing.

It would appear that all of these companies are now off the hook from any disciplinary action by the CIDB.

Other parties could still take action …

SA Forum of Civil Engineering Contractors (Safcec) CEO Webster Mfebe said on the weekend that it is understandable that the CIDB code of conduct cannot be retrospectively applied and that the collusion cases with respect to infrastructure in 2010 predate the enactment of this code.

Mfebe said if the CIDB code of conduct is not legally enforceable in these instances, interest might be shown in these cases by societal organisations that are focused on guarding the country from abuses of taxpayer monies, such as the Organisation Undoing Tax Abuse (Outa).

“Such societal organisations, or even individual citizens, might, where warranted, litigate using other avenues – such as the Prevention and Combating of Corrupt Activities Act [Precca] and Prevention of Organised Crime Act [Poca], because collusion is not only anti-competitive, it is also organised crime – and make a case to National Treasury to blacklist convicted offenders from public procurement for a period of time.

“These legal instruments might serve as a deterrent and additional support measures, whether or not the crimes committed predate the enactment of the CIDB code of conduct,” he said.

However, Mfebe stressed that all companies involved have legal rights that need to be respected.

He said it has to be equally understood that citizens for which infrastructure is intended also have rights that must be protected, and that no bidder for public infrastructure procurement should be found wanting at taxpayers’ expense.

Mfebe added that some industry bodies, such as Safcec, incorporate the CIDB code of conduct and their own code of conduct in their constitutions as obligations to be strictly observed by all members, and sanctions in the event of breaches are also enshrined in such constitutions.

He said the majority of Safcec members are committed to these codes, because they are constantly reminded of them as part of the self-regulatory mechanism in line with Safcec’s continuous commitment to promoting the image of SA’s civil engineering construction industry.

The agreement

In terms of the VRP settlement agreement, the seven listed construction companies agreed to:

  • Financial contributions of a total of R1.5 billion over 12 years into a socio-economic development fund, in addition to the R1.4 billion in fines paid by 15 construction companies to the Competition Commission;

  • Commitments to promote transformation and black South African ownership and participation in the sector, either through equity transactions or by partnering with and developing smaller, black-owned construction companies that would result in black-owned companies with a market value of about R5 billion in 2024; and

  • Integrity commitments by the chief executives of the signatory companies to take all steps to avoid collusion and corruption in their dealings with the state, their competitors and their customers, and to partner with government in exposing all forms of corruption and tender irregularities.

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