Johannesburg - Isipani Construction has been ordered by the Competition Tribunal to pay a fine of R21.78 million for engaging in cover pricing for two separate tenders involving construction projects in Stellenbosch.
An investigation by the Competition Commission found that Isipani entered into a collusive relationship with competitor Neil Muller Construction during August and November 2010 for two separate tenders. These tenders were for alterations and additions to Stellenbosch University’s engineering faculty and the construction of the Tienie Louw Building, a private building in Stellenbosch.
A cover price was not intended to win the tender and was sufficiently high and/or contained conditions that would be unacceptable to the client to ensure the firm providing the cover price did not win the tender.
Isipani did not participate in the construction fast track settlement process launched by the commission in 2011, which resulted in 15 construction companies concluding consent agreements in 2013 in terms of which they agreed to pay penalties totalling R1.46 billion for collusion and bid-rigging.
Neil Muller Construction applied to the commission for conditional corporate leniency, which the commission granted to the firm in April 2011.
Isipani admitted two contraventions of the Competition Act in that it provided Neil Muller Construction with a cover price for both tenders but claimed the commission’s insistence on the maximum penalty of 10 percent of its turnover for each contravention of the Act was unjustified.
This led to the commission referring the case against Isipani to the tribunal in November 2014. The case was heard by the tribunal in August last year.
The tribunal heard that Neil Muller Construction did not want to be awarded the tenders but wanted to submit bids because of fears it would be taken off the tender list of pre-selected contractors and not be invited by the client to tender for future projects.
Isipani wanted the work and submitted tenders for both projects but was unsuccessful.
The tribunal considered mitigating and aggravating factors and ordered Isipani to pay a fine of R21.78m for both contraventions of the Act.
Turnover
The fine was based on Isipani’s financial year to June 2014 and was less than 10 percent of the company’s turnover in that financial year.
The tribunal said the harmful effect of cover pricing to competition was that it excluded other more competitive firms from being placed on the tender list and therefore undermined not only that tender process but also future competitive tender processes. It said cover pricing was an unlawful practice, which at the very least may deceive the client about the source and extent of the competition that existed for the work in question.
The tribunal said it agreed with the commission’s argument that cartel conduct was so pervasive in the South African construction industry that the appropriate administrative penalty should be sufficiently high to constitute an effective deterrent to Isipani, as well as other firms, from engaging in such collusive conduct.
BUSINESS REPORT