Colluding Construction giants reach aggreement with Government

Construction companies implicated in collusion have paid their first sum of R117m in terms of the settlement agreement they entered into with the National Revenue Fund, following the findings of investigations by competition authorities.

Construction companies that colluded around the 2010 Fifa World Cup Stadium projects, have paid their first sum of R117m in terms of the settlement agreement they entered into with the National Revenue Fund.

Economic Development Minister Ebrahim Patel says the voluntary settlement agreement between the state and seven major construction groups over transforming the industry does not guarantee an increase in national infrastructure spend.

However, the agreement might mean Murray & Roberts, Group Five, Wilson Bayly Holmes-Ovcon (WBHO), Stefanutti Stocks, Raubex, Basil Read and Aveng — which reached an agreement with the government last year after claims they colluded in the 2010 Soccer World Cup projects — might see better days again, even as Group Five still refuses to acknowledge guilt over certain allegations by the Competition Commission.

"The view of all the participants is that this settlement agreement is a ground-breaking model for effective and massive transformation," Patel said on Monday. He also said an industry summit would be held within the next four months to further transform the sector.

"The settlement agreement is not a direct quid pro quo that government will increase infrastructure spend," Patel said.

Instead it would enable the government and the JSE-listed companies to co-ordinate efforts to improve lives.

All the companies — apart from Murray & Roberts, which has sold its South African business to empowerment entities — have agreed to sell stakes to or mentor and financially support black-owned construction companies.

This included paying R1.5bn over 12 years into a trust governed by a board appointed by the state, the construction companies and the South African Forum of Civil Engineering Contractors.

Patel said the main outstanding potential litigation between state enterprises, including the South African National Roads Agency (Sanral), and these companies had been well defined and "largely covered".

Critically, though, Transport Minister Dipuo Peters said on Monday that Sanral would not pursue a multimillion-rand claim against companies involved in the settlement agreement. "It is proper for Sanral to discontinue [these] claims … and be part of this milestone [agreement]. This is for us ‘the transformation’ [deal] and we are excited to be part of this."

Peters joined Patel, Public Works Minister Thulas Nxesi and Rural Development and Land Reform Minister Gugile Nkwinti in Pretoria to detail the "ground-breaking instrument for transformation".

State spending on infrastructure amounts to about R850bn over each three-year medium-term budget policy period, including all costs. The value of annual infrastructure build in SA by the public and private sectors generally exceeds R400bn, of which about 60% is government spending. However, there has been a lull in big infrastructure projects since the end of the 2010 World Cup.

Nkwinti said the construction sector was the first industry to achieve such a deal. "Business in their wisdom — which government appreciated — wanted to contribute voluntarily to transformation in the industry."

This was over and above the R1.46bn Competition Commission fine that had earlier been levied on 15 construction companies for collusive practices.

In terms of the deal, Murray & Roberts has decided to exit infrastructure and building markets in SA, selling the business to a consortium led by the Southern Palace Group for R314m.

Aveng, SA’s largest construction and engineering group by turnover, had agreed to sell a 51% stake in African subsidiary Aveng Grinaker-LTA to Kutana Construction, a black women-owned group. WBHO would mentor three emerging contractors, enabling them to acquire skills and the volume of work needed to generate a combined annual turnover of at least 25% of WBHO’s yearly South African civil engineering and building revenue within seven years.

Representatives from some of the companies were also at the briefing in Pretoria.

WBHO chairman Mike Wylie acknowledged there had been tension in the three years of negotiations that led to the agreement. But essentially what was also known as the Voluntary Rebuilding Programme was exactly that, as far as the industry was concerned, he said.

Sanral allegedly overpaid by at least 116% for the Gauteng Freeway Improvement Project, a report commissioned by the Organisation for Undoing Tax Abuse (Outa) said earlier in February. This means civil litigation might well continue.

Outa had rejected the settlement agreement between the government and construction firms, and said it wanted a commission of inquiry into collusion in the sector established.