Construction industry, government in bid to mend ‘catastrophically’ damaged relations

9th April 2014

By: Terence Creamer

Creamer Media Editor

  

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A formal process has been initiated in an effort to rebuild trust that had been “catastrophically” destroyed between government and the construction industry in the wake of revelations of widespread collusion, Murray & Roberts (M&R) CEO Henry Laas has revealed.

He said it would be premature to disclose who from industry and government was participating in the initiative, which was being facilitated by the South African Forum of Civil Engineering Contractors. However, Laas disclosed that two meetings had already taken place and that four Ministers had participated in the interactions, with the most recent meeting having occurred on April 8.

Following a voluntary fast-track settlement process initiated by the Competition Commission, 15 companies were collectively fined R1.46-billion by the authorities for having breached the Competition Act on 140 projects valued at R47-billion.

In addition, more than 100 certificates of decision confirming the breaches had subsequently been issued to clients, potentially opening the way for civil claims for damages.

M&R itself was fined R309-million when settling 17 of the 21 projects in which it was cited for having participated in prohibited practices. Further settlement talks were under way on the projects not concluded.

The JSE-listed company was also pursuing civil damages against six former executives, one of whom had already settled with the company. Such settlements did not protect the former executives from criminal prosecution, however, with the South African Police Service having been handed information about their alleged transgressions.

Laas said it was vital for government and industry to re-engage and to discuss ways of restoring the image of an industry that remained critical to the implementation of the R847-billion medium-term infrastructure programme, which itself was regarded as vital to improving South Africa’s future growth and development fortunes.

“We have started the process . . . and there is a willingness from the side of government to engage with us,” he revealed, adding that he was optimistic that the discussions, together with the recent Civilution Congress, could help accelerate infrastructure delivery.

The industry was keen to quash perceptions that companies had earned super profits from the projects in which collusion was unearth, which, included some World Cup stadiums, as well as roads, property and mining projects.

“[We acknowledge] that the conduct was completely wrong and that the impact of the conduct was catastrophic from an image point of view . . . and from a trust point of view. But I think the financial consequences [for the clients] has been gross overstated.”

M&R had not received any notice of the initiation of civil claims, but the recent issuance by the Competition Tribunal of Section 65(6)(b) notices to clients considering such claims “added uncertainty”.

Laas even suggested that the threat of claims, together with a suggestion that the Construction Industry Development Board could blacklist companies found guilty of collusion, was probably an “overhang” on the company’s share price.

He also dismissed arguments that it was a lack of private projects that was depressing the outlook for construction companies in the South African market, saying that the domestic portion of its order book was currently dominated by private contracts.

Instead, there was a feeling that part of the reason why the infrastructure programme was failing to live up to expectations was that government was reluctant to award work to firms that it no longer trusted. Alternatively, it related to a lack of capacity within government to manage the project pipeline.

“This brings me to the Civilution process . . . where suggestions on different procurement processes and implementation models were proposed. At the moment government is taking on responsibilities that could be more efficiently dealt with by the private sector.”

Edited by Creamer Media Reporter

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