Analysis – Construction cartel hearings: Not a great day for transparency
Accountability and transparency were sorely lacking at the competition tribunal this week where South Africa’s big construction companies appeared in a bid to come, mostly, clean.
Fifteen construction companies appeared on Wednesday and Thursday in order to confirm their negotiated settlement agreements with the competition commission.
In total they were settling 90 contraventions of the Competition Act, which will see them pay a collective fine of R1.46 billion.
Many of the senior construction executives present spoke about wanting to put this “dark chapter” behind them.
Under cross-examination from the tribunal panel, however, they admitted that many still had implicated executives and managers in their employ – and that some of these employees were still involved in administering tenders for the companies.
The way that the competition commission has managed its fast-track settlement system has also allowed the construction firms to protect their implicated employees from public scrutiny and accountability, because none of them have been named in the consent order agreements.
The frustration with this lack of accountability was evident on the faces of the tribunal panel, particularly that of chairperson Norman Manoim and member Yasmin Carrim.
They attempted to get the representatives of the guilty cartel members to explain how the collusion had happened and what the rationale behind these decisions were.
At one point, Carrim commented that it appeared that the construction companies had “copy and paste” answers for the tribunal.
A member of the commission’s legal team joked that they had even “colluded” on their responses.
“It’s incredible that with the scale of collusion that we are looking at in this hearing, everyone can come and say ‘I didn’t know’,” said Carrim.
Carrim went on to suggest that perhaps the commission needs to look at a “director’s charter” for the construction sector to change this culture of doing business in South Africa.
G Liviero & Son Building CEO Neil Cloete made Carrim’s point for her when asked why the company still had an implicated employee in the company.
“We have taken a view that cover prices were endemic in the industry,” he said. “In our view the individual did not act outside of the inherent behaviour in the industry.”
WBHO CEO Louwtjie Nel hinted at the long-running nature of the construction cartel when he said that collusion was not endemic in the construction sector in the last 10 years, since the Competition Act was promulgated.
He said that collusion had decreased and was mostly just the result of ad hoc phone calls.
What his statement implies is that the situation was far worse before 2000 – something the major construction companies have tried to avoid talking about so far.
Nel described the current South African construction sector as “very competitive” and referred to the bogus bids on tenders as “simple cover prices”.
The commission’s legal head, Wendy Mkwananzi, had to point out that cover prices were a serious violation of the Competition Act.
It appeared throughout the two days as if most executives and managers felt that the collusion was harmless, with some arguing that although they had submitted bogus tenders to ensure another party won the contract, they didn’t have an “intention to collude”.
Many executives admitted that employees had colluded, but couldn’t explain the benefit to them in doing so.
When they tried to explain that they had not benefited, and the client had not been prejudiced, the tribunal’s panels follow up questions would always be, “Why collude then?”.
Both Tubular Technical Construction’s Jorge Bonifacio and Esorfranki’s Roy Mclintock admitted that the collusion really made no business sense.
When Murray & Roberts CEO Henry Laas took to the stand, he described the last few weeks as the “bleakest moment” in the company’s history.
Almost to punctuate his statement, the lights went out, before appearing again – to the amusement of the hearing’s participants.
At one point, Laas testified that Murray & Roberts had only decided to tender on one of the world cup stadiums – Green Point Stadium – as it was all it had capacity for.
He then stated that the Murray & Roberts board did not know that subsidiary Concor had put in bids on the stadiums built in Nelspruit and Polokwane.
The statement left many puzzled faces wondering how a subsidiary can tender on a multi-billion rand construction project, without its group board being aware.
Laas finished his statement by quoting former president Nelson Mandela.
“If there are dreams about a beautiful South Africa, there are also roads that lead to their goal,” he said. “Two of these roads could be named Goodness and Forgiveness.”
Shareholder activist Theo Botha, who was an eager observer over the two days of the hearing, said there were very serious corporate governance issues that the construction companies needed to answer.
Speaking about the claim by Laas that most of the violations of the Competition Act that Murray & Roberts was settling were committed by executives of two companies the group acquired in 2006/07, Botha queried whether Murray & Roberts had done due diligence before acquiring these companies.
The two companies are Concor and Wade Walker and Laas argued that 15 of 17 violations of the Competition Act that Murray & Roberts were implicated in related to these two companies.
“If they didn’t pick these things up during their due diligence, they have failed in their fiduciary duties,” said Botha.
According to Stefanutti Stock’s executive, Schalk Ackerman, who has given an affidavit spilling the beans on the construction cartel to the National Prosecuting Authority in a bid to secure immunity from criminal prosecution, the Concor board is alleged to have become aware of collusion by its executives as early as 2004.
This was a few years before Murray & Roberts acquired the firm.
The tribunal panel had many questions for the companies, specifically about how “losers fees” agreed with tenderers who lodged bogus bids were accounted for.
Some companies like Aveng could not explain how their accounting worked as senior executives responsible had left the country and could not explain how auditors did not ask questions about these payments.
Others like G Liviero & Son Building and Stefanutti Stocks said fake invoices were generated for “plant hire” to disguise payments related to collusion.
Some of the executives, like Raubex CEO Rudolf Fourie, argued that the World Cup was responsible for the collusion, arguing that the only reason they colluded was because of the mammoth amount of construction work that was put out to tender in the build-up to the world cup.
“It was not only stadiums that were built in this country,” said Fourie. “There were substantial road networks upgraded too.”