Colluding construction firms agree to pay R1.5bn to help transformation

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SA government agreed with seven listed construction groups found to have participated in collusion. The companies will contribute R1.5 billion to help black-owned partners grow. SA government agreed with seven listed construction groups found to have participated in collusion. The companies will contribute R1.5 billion to help black-owned partners grow.

The South African Government reached an agreement with seven listed construction groups found to have participated in collusion. The companies will contribute R1.5 billion to help black-owned partners grow.

This is in addition to a R1.4 billion fine imposed on WBHO, Aveng, Murray & Roberts, Group Five, Basil Read, Raubex and Stefanutti Stocks by the competition authorities. The companies have a combined annual construction revenue of approximately R45bn.

The seven major construction and engineering firms met secretly in 2006 to allocate tenders on FIFA World Cup stadium projects and to agree on a 17.5 percent profit margin.

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The groups agreed to sell at least 40% of their shares to black people or help up to three black-owned companies build their turnover.

These commitments were part of an overall agreement imposed by the Competition Tribunal‚ and payment of a further R1.5bn to a fund to support social investment initiatives.

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Minister in the Presidency Jeff Radebe announced at a post cabinet media briefing on Thursday that the CEOs of these companies would sign "integrity commitments" to wide ranging steps to ensure no collusive or corrupt practices took place in their companies in dealings with competitors‚ government and other private sector clients.

"The settlement agreement provides for certain formal processes to be finalised within the next few weeks and these are being processed and attended to and an announcement will be made on conclusion of these processes‚“ Radebe said.

He noted that the "partner model" — the alternative to the "equity model" to sell shares to blacks — would involve construction companies working with up to three black-owned construction partner companies to help them generate turnover equal to 25% of its own turnover.

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"This commitment has been valued in excess of R9bn annual turnover by the end of the agreement period‚“ Radebe said.

The agreement he noted would accelerate transformation of the construction industry.

In addition to paying fines and the commitments made under the new agreement with government, the construction companies also face legal action by a range of institutions such as the Cape Town city council and the South African National Roads Agency (Sanral), which say they had to pay more for their projects as a result of the collusion and bid-rigging.

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The agreement also provides a framework for settlement of claims by the industry regulator, the Construction Industry Development Board (CIDB) as well as civil claims by public entities against companies arising from the investigations by the competition commission for a period up to 2010, which were brought before the Competition Tribunal in 2013.

In June 2013, altogether 15 construction companies agreed to pay fines totaling R1.4bn for collusive tendering. Settlements in the collusion cases were reached in terms of the “construction fast-track settlement process”, which had been started early in February 2011.

In terms of this process, companies were encouraged to make full and truthful disclosure of bid rigging, in return for penalties lower than what the Competition Commission would have sought if the cases were prosecuted.

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Gugile Nkwinti, Minister of Rural Development and Land Reform, and chairperson of the Management Committee of the Presidential Infrastructure Coordinating Commission (PICC), said the agreement that was reached heralds in a new relationship between government and the construction industry.

Read more on:

Murray & Roberts  |  Group Five  |  SANRAL  |  Basil Read  |  Construction Industry Development Board (CIDB)  |  WBHO  |  Gugile Nkwinti  |  Aveng  |  Stefanutti Stocks  |  Raubex  |  Jeff Radebe
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