Colluding Construction Companies are in for another Penalty

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Construction Industry Development Board (CIDB) acting CEO Hlengiwe Khumalo said on Monday the industry body would launch its own investigation into whether companies that admitted to bid-rigging and collusion should be penalised further. Construction Industry Development Board (CIDB) acting CEO Hlengiwe Khumalo said on Monday the industry body would launch its own investigation into whether companies that admitted to bid-rigging and collusion should be penalised further.

Construction Industry Development Board (CIDB) acting CEO Hlengiwe Khumalo said on Monday the industry body would launch its own investigation into whether companies that admitted to bid-rigging and collusion should be penalised further.

This it would do as soon as it had received a report from the Competition Commission and Tribunal.

Construction companies hit with a collective R1.46bn fine for bid-rigging and collusion have been warned they face the prospect of further sanctions, including possible disqualification from state tenders.

Depending on the outcome of its probe, the board could impose fines on the construction companies, deregister them or disqualify them from state tenders.

Last month, the commission reached a settlement with 15 construction firms, including Murray & Roberts, Basil Read and Esorfranki, for contravening the Competition Act. They agreed to penalties collectively amounting to R1.46bn.

On Monday, the tribunal confirmed the settlement agreements with all the firms, except for Aveng and Guiricich Bros Construction pending the receipt of outstanding information on them.

The CIDB is a statutory body and is empowered to fine a company up to R100,000, deregister it and bar it from public sector construction work tenders. A ban could have a significant effect on the profitability and job-creation abilities of the affected construction companies.

Deregistration, should it be imposed, might have as serious an effect on the government and as on the firms. The companies involved are big players and they alone have the financial capacity and expertise to undertake large infrastructure projects.

Ms Khumalo would not be drawn on the possible negative effects of these penalties on the industry, saying only that "the CIDB does not wish to speculate on the impact of any sanction to the economy or job creation".

Neither did Ms Khumalo wish to speculate on what effect the deregistration of the companies might have on the government.

She said the board had begun the process of constituting an investigation team and a presiding officer for the inquiry.

Murray & Roberts spokesman Ed Jardim said it was too early to comment on the CIDB’s investigation or to speculate on the implications of any possible sanction.

While recognising the mandate of the CIDB was to regulate the industry and to take action against unethical behaviour, the CEO of the Master Builders Association South Africa, Tumi Dlamini, hoped the board would consider the economic health of the industry when deciding what action to take.

"We would hope that in undertaking its mandate action the CIDB looks towards corrective measures to ensure that going forward the decisions it takes do not kill the industry," she said.

The industry needed to be cleaned up and made more transparent. The association would push for integrity pacts between contractors and their clients to become standard procedure.

Ms Khumalo said the CIDB was obliged to appoint an investigating officer in terms of regulation 28 (1) of the Construction Industry Development Regulations, to determine whether a company had contravened the board’s code of conduct. "The code of conduct requires contractors not to engage in collusive practices that have direct or indirect adverse impacts on the cost of the project to the employer.

"The list of sanctions that the CIDB can possibly impose is detailed in the regulations."

Ms Khumalo described the collusion the Competition Commission uncovered as "undesirable conduct with the potential to entrench itself insidiously within the industry".

"Collusion by its nature is exclusionary and therefore has the impact to undermine development and transformation that is necessary within the construction industry."

The board, which was set up under an act of Parliament to regulate the industry and promote its development, maintains a register of construction companies. Registration is a condition for contractors to qualify for public sector contracts.

Any company that attempts to take on state contracts without being registered will be guilty of an offence and liable, on conviction, to a fine not exceeding 10% of the value of the contract carried out, according to the law.

The Black Business Council in the Built Environment has strongly urged that guilty construction groups be blacklisted from all public sector construction projects.


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