Presentation Transcript

1. DAY 1: BID RIGGING-THE SA EXPERIENCE:THE CONSTRUCTION FAST TRACK SETTLEMENT PROCESS

   ACF/OECD WORKSHOP ON FIGHTING BID RIGGING IN PUBLIC PROCUREMENT DAR ES SALAAM, TANZANIA26– 27 JUNE 2013 LEBOGANG MADIBA COMPETITION COMMISSION OF SOUTH AFRICA
2. OUTLINE Collusive tendering/bid-rigging in terms of SA Competition Act Construction fast-track settlement project (“CFTP”) What is CFTP? What led to initiation of the CFTP? Aims of the CFTP? What the project plan involved (Overview) Challenges experienced in implementation Outcomes of the CFTP Applications(Confessions) Record fines Initiations in related markets Possible damages claims “Possible blacklisting from doing government work”? Where to from here?
3. COLLUSIVE TENDERING I.T.O OF THE SA COMPETITION ACT Collusive tendering is prohibited in terms of section 4(1)(b)(iii) of the Competition Act 89 of 1998 (“the Act”)- Section 4(1)(b)- provides that: “An agreement between, or concerted practice by, firms… is prohibited if it is between parties in a horizontal relationship and if (b) it involves any of the following restrictive horizontal practices: ……… (iii) collusive tendering.” Accordingly in order to succeed in prosecution of a violation of section 4(1)(b)(iii) in SA, evidence must be adduced to show the following: That there is an agreement (need not be in writing or comply with common law requirements of a valid contract-consensus suffices) or a concerted practice That such agreement or concerted practice was reached by parties in a horizontal relationship (competitors or firms in the same line of business who need not be actual competitors) and involve the act of collusive tendering (any of the forms/acts of collusive tendering listed in the OECD slides/Guidelines from cover pricing to bid suppression etc)
4. COLLUSIVE TENDERING I.T.O OF THE SA COMPETITION ACT No requirement to delineate the relevant market and assess effects of collusive tendering. Collusive tendering falls under species of restrictive practices listed in section 4(1)(b) of the Act, outrightly deemed to be harmful [per se contraventions]-CC/United American Pharmacies & others. Onus is on the CC to prove that conduct amounts to collusive tendering It is however open in terms of the SCA decision in Ansac for a party charged under section 4(1)(b) to demonstrate that particular conduct does not fall within the ambit of section 4(1)(b) as it could be characterized as something else falling outside section 4(1)(b). Ansac has not yet been applied in practice A party may also escape prosecution on the basis that conduct prescribed(occurred and/or ceased three years prior to initiation of an investigation) or that conduct was carried out by firms within a single economic unit No collusive tendering case has yet to be contested on whether an alleged form of collusive tendering is covered by section 4(1)(b)(iii), contests have been on whether there is an agreement. [Plastic Cartel Case].
5. COLLUSIVE TENDERING I.T.O OF THE SA COMPETITION ACT Investigatory powers/methods used to gather evidence of collusion tendering include: Search and seizure operations-With or Without Warrants First used in the infamous cement raid of 2000 Has since been successfully employed in over 8 investigations including a raid in the cement, steel, scrap metal, cables, furniture, fertilizer, freight and airline markets Power to compel production of documents-Summons Interrogations Questioning of any persons who are believed to have information that has a bearing on an investigation under oath Most frequently used tool CLP Encourage cartel participants to break ranks(confess all) in return for immunity Very effective in dismantling most cartels Commission powers to grant immunity sanctioned by courts(the SCA)-Agriwire
6. CONSTRUCTION FAST-TRACK PROJECT (“CFTP”) What is CFTP? Launched in February 2011 the CFTP involved inviting and encouraging firms in the construction industry to come forward disclose projects and tenders that they have rigged in the construction industry in return for lesser penalties(fines) or immunity Process run hand in hand with the CLP-Firms could apply for both Firm could only be penalised for projects i.r.o. which it has no immunity What led to initiation of CFTP? Prioritization of bid-rigging and the construction sector by the Commission High number of Markers or CLP applications received from firms active in the construction or infrastructure sector(e.g Cement, Pilings, Bricks, Concrete pipes) High number of Markers/CLPs received from a large construction firm in South Africa pursuant to the Commission’s investigation/initiation against major construction firms that were involved in the construction of FIFA 2010 soccer stadia Commission suspicions that bid-rigging in the construction industry is widespread and thus the need to rid the industry of the practice UK and Holland experience of bid-rigging in the construction industry
7. CONSTRUCTION FAST-TRACK PROJECT (“CFTP”) Aims of the CFTP To incentivise firms to come forward with information about projects and/or tenders that they rigged in the construction industry in return for lesser penalties(fines) or immunity To strengthen evidence that could be used against other firms that could potentially contest the case Minimise legal costs and ensure speed resolution of the complaints in the construction industry To give firms that disclose their involvement in bid rigging better financial settlement terms To clean and set the construction industry on a new trajectory
8. OVERVIEW OF THE PROJECT PLAN
9. OVERVIEW OF THE PROJECT PLAN
10. CHALLENGES EXPERIENCED IN IMPLEMENTATION SCA challenge on the CLP in the Agriwire matter threatened to jeopardise the whole CFTP and other investigations initiated on the basis of the CLP- Fortunately the SCA found that we have powers to introduce and implement policies that are calculated to increase market transparency. Though SCA decision was limited to the CLP, it appears that CFTP also constitutes one such measure engaged by the Commission to increase market transparency and thus a challenge of the CFTP may be incompetent Large number(about 160) of applications in the CFTP related conduct or projects that took place more than three years before the Commission initiation Leniency applications containing incomplete information or circumstances that do not constitute cartel conduct Lack of proper data capturing and analysis system to deal with information to determine applications that were first, second or tenders/projects rigged by each firm etc
11. OUTCOMES OF THE CFTP 21 Firms including top six construction firms applied 300 construction projects worth around R47bn were implicated 160 of the 300 projects prescribed (occurred three years prior to initiation of the investigation-Commission can only prosecute/settle complaints that did not cease three years prior to initiation)-Collusion i.r.o. these projects occurred/ceased before or around 26 September 2006 140 of the 300 projects are not prescribed(conduct fell within the non-prescribed period as the projects either continued or arrangements were reached after 26 September 2006 3 Firms were granted/qualified for conditional immunity for all projects they disclosed
12. OUTCOME OF THE CFTP In terms of conduct- The investigation revealed that the construction firms rigged projects and tenders by ,inter alia,: Engaging in cover pricing- As explored in OECD slides and guidelines with losing bidders agreeing to submit cover qoutes/prices (higher prices) to the customer(s) in order to ensure that their bids are not accepted and the contract/project is awarded to the agreed/predetermined construction firm-creation of false competition Agreement to compensate losing bidders by either giving them sub-contracts or pay losers (those who cover the winning bidder) so called losers fees which are in fact compensatory payments for costs associated with submitting and losing bids[Interestingly in another cartel matter currently under investigation some firms have complained about not been compensated for the time and labour involved in handling and administration of cover qoutes) The collusive arrangements were reached in “secret” meetings wherein parties divided the tenders/projects amongst themselves and agreed on margins to achieve on each tender. CLP applications led to investigations into related markets of pilings, reinforcing steel bar and Wire Mesh etc. Evidence showed that the bid-rigging affected both private sector and public sector
13. OUTCOMES OF CFTP Record setting fines 15 firms that have agreed to settle with the Commission would upon confirmation of the consent agreements collectively pay in the region of R1,46 bn Possible damages claims The victims of the cartel including municipalities, SOEs and government departments are permitted in terms of section 65 of the Act to claim damages against the offending firms unless if such claimant(s) have been awarded damages in a consent order In order to claim damages in civil court- The litigant must comply with other certain requirements laid out in section 65(6)b-65(9) including: Possible naming and shaming of offenders The Commission has already announced names of companies that admitted to bid-rigging in the construction industry The Commission also advocates banning of offenders from doing public work Blacklisting/Deregistration? It remains to be seen whether the offenders in the construction industry would be prohibited from doing work with government for a particular period of time in terms of the Treasury Regulations or whether they would be deregistered by the CIDB(Construction Industry Development Board)-May be catastrophic for jobs in the country or even amount to double jeorpady
14. WHERE TO FROM HERE Investigation and prosecution of the remaining firms The settlement reached with the 15 firms would complete phase one of the CFTP upon confirmation of the consent agreements by the Tribunal The Commission would move to the second phase of the project that would, inter alia, involve investigation and prosecution of the remaining firms that did not disclose or settle contraventions including (Group 5,Construction ID and Power Construction) Parties that have settled with Commission would testify against the remaining respondents Higher penalties Maximum penalties may be imposed by the Tribunal on firms that choose to fight out the case as we would ask the Tribunal to levy penalties for each project rigged by a particular respondent Civil Claims We hope that the victims of the construction cartel would sue for damages
15. END Q&A