The Competition Commission is pushing for maximum penalty against the four listed construction firms named in the filing notice to the Competition Tribunal on collusion and bid rigging on the 2010 World Cup stadium tenders.
The filing notice indicates that the commission will be seeking the maximum penalty of 10 percent of annual turnover in the cases against WBHO Construction, Group Five Construction, Stefanutti Stocks and Basil Read.
But any penalty imposed will only be based on the annual turnover of these firms in the general building and/or civil engineering services market and not the total annual turnover of each group.
Murray & Roberts (M&R) and Aveng are also named in the filing notice. M&R has been granted conditional leniency and Aveng concluded a consent settlement agreement with the commission in June last year that included these offences.
Aveng’s consent agreement was one of 15 concluded by the commission with construction firms that resulted in these firms paying penalties collectively worth R1.46 billion for bid rigging and collusive tendering infringements.
WBHO, Group Five Construction, Stefanutti Stocks and Basil Read did not include the stadium collusion case in their settlement agreements.
Fhatuwani Mudimeli, the lead investigator, said in an affidavit that the collusion and bid rigging in many instances took place through cover pricing. A cover price for a tender 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.
Mudimeli said a cover price maintained the appearance of competition, indicated the supplier giving the cover price wished to participate in future invitations to tender and enabled the supplier that wished to win the tender to submit a lower bid.
He said WBHO disclosed the conduct as part of the settlement process but elected not to settle the matter because it did not believe it was a contravention of the Competition Act.
Mudimeli said Group Five did not apply for settlement in terms of the fast-track settlement process but was implicated in the stadium collusion contravention.
He said neither Stefanutti nor Basil Read disclosed this contravention and when invited by the commission to settle it, both elected not to do so.
Group Five this week welcomed the referral of the case and the opportunity to address the issues surrounding its involvement in the World Cup.
Neville Nicolau, the chief executive of Basil Read, said it was confident the outcome of this process would confirm that Basil Read had not contravened the Competition Act.
Mudimeli said the Fifa local organising committee (LOC) invited construction firms and industry stakeholders to a meeting in Sandton in July 2006 to discuss the construction of the World Cup stadiums.
Mudimeli said the invitation indicated the current excessive workload of the construction industry was a challenge.
The major industry players needed to inform the LOC about their current activity in rand value terms and geographic spread and relate this to the skills capacity to take up “additional projects of international importance”.
Mudimeli said representatives of WBHO, Grinaker LTA and Group Five stated the projects could be delivered on time subject to certain conditions.
The parties represented at the meeting agreed the existing structures for the delivery of projects, such as standard tendering processes, would not be capable of meeting the timing requirements and “other modes of procurement were to be considered”.
Mudimeli said the LOC indicated it was the responsibility of the private sector to deliver the projects on time although it recognised there were resource and capacity constraints.
Following the LOC meeting, two meetings took place in 2006 at which the construction firms discussed and agreed on the allocation of tenders and cover pricing arrangements, he said.
Matters allegedly discussed at two meetings by the firms accused of collusion:
- The allocation of projects to build the various stadiums among the construction firms.
- Which construction firms would submit tenders or which construction firms were interested in submitting tenders for building or refurbishing the various stadiums.
- Which construction firms would submit cover prices for tenders for building the various stadiums.
- Which construction firms were not represented at the meeting that could upset the system proposed at the meeting.
- The construction firms the successful tenderer would partner with on the projects.
Deals at the second meeting included:
- The construction firms represented at the meeting would review the proposed bids and cover bids prior to the submission of a tender for the construction or refurbishment of a stadium to establish that in each instance the cover bid was less competitive than the allocated tenderer’s bid and the tender price of each lead bid was lower than the cover price for each tender.
- The tender for the Moses Mabhida Stadium in Durban be allocated to WBHO and its venture partner Group Five, with Grinaker LTA submitting a cover bid.
- The tender for the FNB Stadium/Soccer City Stadium|in Johannesburg be allocated|to Grinaker LTA, with China National Overseas Engineering Corporation (Covec) submitting a cover bid.
- The tender for the Green Point Stadium in Cape Town be allocated to Murray & Roberts in a joint venture with WBHO.
- The tender for the Mbombela Stadium in Nelspruit be allocated to Concor/Hochtief joint venture, with WBHO or Group Five, and Bouygues or Basil Read submitting cover bids.
- The tender for the Peter Mokaba Stadium in Polokwane be allocated to Stefanutti and its at-that-time unidentified joint venture partner, with Concor or WBHO or Group Five submitting cover bids.
- The tender for the Nelson Mandela Stadium in Port Elizabeth be allocated to Stefanutti.
- The net profit margin on these projects would be 17.5 percent and any risk contingencies were to be factored into the rates so that the 17.5 percent net profit margin would not be diluted.
- Then Aveng civils division managing director Schalk Ackerman undertook to communicate the agreements reached at the second meeting to Stefanutti.
Attendees at meetings at which stadium tenders were allegedly discussed and allocated:
- The first meeting on September 27, 2006, was allegedly convened by then WBHO chief executive Mike Wylie, the then Group Five chief executive Mike Lomas and the then Aveng civils division managing director Schalk Ackerman.
- Others who attended the first meeting were the then WBHO building division managing director Louwtjie Nel; the then Murray & Roberts senior estimator Phillip Taylor; the then Concor Civils division managing director Trevor Robinson; and the then Basil Read chief operating officer Kobus von Biljon.
- The purpose of the first meeting was allegedly to discuss the allocation of the tenders for the stadiums to be constructed and/or refurbished for the 2010 Fifa World Cup among the participants.
- The second meeting on October 6, 2006, was allegedly convened by then WBHO chief executive Mike Wylie and was a continuation of the discussions held during the first meeting.
- The attendees at the second meeting were allegedly the same as those at the first meeting with the exception of the then WBHO building division managing director Louwtjie Nel, who did not attend the meeting.