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Mar 07, 2008

Contractor promises proactive engagement with competition body in construction sector probe

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Leading South African construction group Murray & Roberts (M&R), which is listed in the JSE and has a market capitalisation of more than R30-billion, says it has adopted a "proactive" policy of engagement with South Africa's competition authorities, which have initiated an investigation into possible anticompetitive practices in the construction industry.

Speaking last week CEO Brian Bruce indicated that it was dealing with requests for information from the Competition Commission and that it would not be a "defensive player" in the unfolding processes.

He refused to be drawn on whether this engagement could result in an application for corporate leniency, saying only that "we are going to be proactive".

"We are not hiding under a tree, we are not going to deny issues, and we will deal with issues as they arise," Bruce said.

The company stressed, though, that "it would be incorrect to assume that corrupt practices are endemic to the industry and its associates".

Late last year, it emerged that the Competition Commission had set up a sizable multidisciplinary team to review the construction-materials and -services sector as a precursor to a full-scale investigation into possible anticompetitive practices in the industry.

Major areas of concern identified related to consistently high rates of price increases for many products, such as bricks, aggregates, cement and reinforcing steel; high levels of concentration and barriers to entry in the construction-materials market; and significant transport costs, which lowered the threat of import competition.

The commission was also concerned about the high levels of concentration in the construction-services sector, and the opportunity this offered for bid rigging, which if left unrestrained, could add to the costs associated with government's R500-billion-plus, five-year public infrastructure roll-out.

In a separate interview with Engineering News, Bruce stressed that, while there was a tendency towards negotiated contracts, there was still a strong competitive element in the sector.

"This [negotiated contracts] usually involves the preselection by the client of two or three preferred partners, which have to go through some initial hurdles. These hurdles are designed to choose the one most suited to go forward," he explained, adding that the key competitive element in these instances related to the economic viability of the project itself.

He acknowledged, though, that historical practices of similar contractors partnering to ensure work flow in the context of a market in decline, would probably be an anathema in the current environment.

"As we move forward into a growing market, it is incumbent on as many players as possible to grow their capacities, so as to be able to deal with the project in their own right and only alliance, or partner, with other players who bring a different set of skills into the mix."

He suggested that market participants with similar capabilities would probably no longer even consider partnering. "I think today, that would be viewed as anticompetitive," he concluded.

Edited by: Creamer Media Reporter
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