Competitions Commission Fast Track Process on Collusion in Construction Industry
By way of background, the Commission conducted a number of investigations in the product market of the construction and infrastructure sector i.e. concrete pipes, cement, bricks and etc. As part of their assessment of the apparent scale of uncompetitive practices in the sector, they introduced their Corporate Leniency Policy (CLP) and consequently received a number of CLP applications. Many of the CLP applications came from the Construction sector (i.e. cartels and bid rigging) giving rise to the Commission concluding that bid rigging is widespread.
The Competition Commission attended the SALGA National Executive Committee (NEC) meeting held in November 2012 and 13-14 February 2013 and presented on key developments to date. SALGA, as the voice of local government, then already raised concern of what was then appeared to be prima facie evidence of bid rigging in respect of the contracts associated with the 2010 World Cup related infrastructure in some of the hosting municipalities. We have been able to ascertain that our member municipalities were impacted as follows:-
|
Client |
Contract Value (Total R000 000) |
No. Of Projects |
Project Name |
|
|
|
|
|
|
1. Nelson Mandela Bay Metro |
1 967 |
1 |
- Nelson Mandela Stadium |
|
|
|
|
|
|
2. Joburg Metro |
2 027 |
2 |
- Soccer City Stadium - Nasrec Pedestrian Promenade |
|
3. EThekwini Municipality |
557 |
3 |
- Durban ICC - Bayhead Khangela Bridge - Durban Harbour Tunnel |
|
4. Polokwane Municipality |
1 265 |
1 |
- Peter Mokaba Stadium |
|
5. Cape Town Municipality |
7 255 |
2 |
- Greenpoint Stadium - Green point Stadium 2B |
|
Total |
13 078 |
9 |
|
Potential Damages Claims
Under the guidance of SALGA municipalities are now exploring damage claims related to the cartel overcharge. There is a wide range of cartel overcharges that have been estimated, but typically around 10-30%. In United Kingdom, a rebuttable presumption (an assumption made by a court, one that is taken to be true unless someone comes forward to contest it and prove otherwise) is that of an overcharge of 20%.
Surveys of cartels have estimated the overcharges to range between 10% and 30% with a few cartels with an overcharge greater than 50%.In South Africa, the precast concrete products, overcharge is estimated between 16%-28%. Reinforcing bar, overcharge is estimated between 9.25% - 29.9%.
An illustrative ‘back of the envelope' calculation is done to show the amounts that might be claimed in respect of the infrastructure projects under consideration based on the values of the contracts. Given the cartel overcharge estimates, a range of 10% - 30% is a reasonable estimate of the overcharge and this is applied in the illustrative calculation.
|
Municipality |
Contract amount |
|
10% |
20% |
30% |
|
Nelson Mandela Bay |
|
R1 967m |
197 |
393 |
590 |
|
Joburg |
|
R2 027m |
203 |
405 |
608 |
|
EThekwini |
|
R557m |
56 |
111 |
167 |
|
Polokwane |
|
R1 265m |
127 |
253 |
380 |
|
Cape Town |
|
R7 255m |
726 |
1 451 |
2 177 |
|
Total |
|
R13 078m |
1 308 |
2 616 |
3 923 |
SALGA is now, on behalf of municipalities, considering the following Options:-
1. To negotiate with the firms and reach an agreement on damages.
2. Lodge a claim as Intervenor during the Tribunal Hearing.
3. Wait until the Tribunal rules and pursue civil claims based on the ruling of the Tribunal.
Statement issued by SALGA, July 8 2013
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