by Philippa Van Rooyen

Corruption in construction

Construction industry comes crumbling down

Soccer City in Johannesburg
Soccer City in Johannesburg.jpg

South Africa’s construction industry has fallen under scrutiny with reports that top firms rigged contracts worth at least R30 billion, including those for Soccer City in Johannesburg, the Coega development zone in the Eastern Cape, Cape Town stadium and the Gautrain. 

Firms implicated are Murray & Roberts, Group Five, WBHO, Basil Read and Aveng, Stefanutti Stocks, Concor and Grinaker-LTA.

The racket’s been described as a well-established 'secret society', which held meetings where tenders were allocated to certain companies. This 'distribution' of work was done on the basis of perceived market share. Apparently executives from all the big firms sat in on these secret meetings. The collusion was reported to be at its most intense in the late 1990s and 2000s.

City Press broke the story last week, detailing affidavits made by top executives from Stefanutti Stocks to a Hawks investigator and the National Prosecuting Authority. The statements have also been handed to the competition commission for a parallel investigation, which began in February 2011. In this, the commission’s biggest investigation to date, 20 firms have confessed to irregular conduct in more than 300 projects.

According to a subsequent report in City Press, the NPA said it was concerned about the publication of the affidavits, which “cannot be allowed to go ahead”.

In coming clean like this, the Stefanutti Stocks executives hope to gain immunity from prosecution and as such have offered their full cooperation with investigators. So far, however, only one executive has been granted this, according to City Press.

“The Hawks have been investigating corruption and fraud in the construction industry since October 2011 and City Press understands that the prosecution of top executives might follow,” it reported.

“Captain James Hills of the Hawks said in his affidavit there was evidence of criminal conduct involving the top five construction companies: Murray & Roberts, Group Five, WBHO, Basil Read and Aveng.”

Despite these revelations, Business Day reported two days after the City Press exposé, that the Hawks would not say exactly which firms were involved. Hawks spokesperson Paul Ramaloko said only that that “several tenders” were involved and that the directorate would only make an announcement after its investigation had “matured”, it was reported in Business Day.

Meanwhile the National African Federated Chamber of Commerce (Nafcoc) told City Press it had firm suspicions that such collusion had squeezed small black contractors out of the scene.

“We have always suspected there is something and these cartels are colluding and fixing prices,” Nafcoc president Lawrence Mavundla was quoted as saying.

“They would sit around the table and plan around a tender that is not out yet, and bid as a big group with one price. You, as a black small contractor, will have no chance of getting the contract.

“We can’t allow something like this to happen because they have ripped off the taxpayers and they are anti-transformation ... politicians are always blamed and yet they are not the ones fixing prices but the contractors,” Mavundla told City Press.

Government should blacklist the firms found guilty of collusion and corruption, and the Hawks should not grant any immunity to any wrongdoer, Mavundla added in the report.

Despite all these revelations, chances of criminally charging the top colluding executives are slim, Moneyweb reported.

“One of the pieces of legislation that South Africa has in place to deal with this is the Prevention and Combating of Corrupt Activities Act. While there is a possibility of sanction under this act, says Heather Irvine, a director at Norton Rose in South Africa, it can be difficult to sustain a charge.

“It depends on the circumstances of the cartel. Simply agreeing to set certain prices or market segmentation is not enough,” Irvine was quoted as saying.

“Instead, she says, one has to prove that the accused individual received direct gratification in return. One example could include a tendering cartel, where one company artificially inflates its bid in return for a sub-contract from the winning company,” Moneyweb reported.

“Other legislation that could apply is the Prevention of Organised Crime Act, and the Competition Amendment Act. The latter introduces criminal liability for directors or managers in firms found guilty of anti-competitive behaviour. A director or manager of a firm would be guilty of an offence if they cause the firm to engage in cartel conduct or even if they knowingly acquiesce to the firm's engagement in cartel conduct.”

If found guilty, the executive could face a maximum fine of R500 000, imprisonment for up to 10 years, or both, according to Moneyweb.

Fraud and corruption of a somewhat different, yet no less scandalous nature emerged late last week when it was reported that R140-million in assets had been seized from KwaZulu-Natal couple Shauwn and S’bu Mpisane, including the couple’s luxury home and a fleet of 25 cars, IOL reported.

The link to the construction industry came in the part of the report that said Shauwn and her husband were being investigated for supplying false information to the Construction Industry Development Board (CIDB) in order to win multimillion-rand tenders, including contracts for low-cost housing projects which had to be demolished shortly after building as shoddy workmanship rendered them unsafe.

The information supplied to the CIDB was manipulated by the Mpisanes in order for them to gain a higher rating, which indicates that a business can handle large contracts.

“As the drama played out on Wednesday morning, Shauwn questioned the action, saying her company had already carried out the construction work, the Daily News reported.

“Are they now expecting me to go and demolish the schools, clinics and houses built by my company because they feel I should never have been tasked with building them in the first place?” Mpisane was quoted as saying.

“I’m a service provider and carried out the work requested by my clients – beyond the standards expected. It does not make sense to say that I should not have received those projects and therefore the money needs to be recovered by seizing my personal property.

“Should I now go and recover my losses for all the work done by demolishing those projects in return? That wouldn’t make sense,” she told the Daily News.

Daily Maverick reported yesterday that the Mpisanes began to feel the heat in October 2012, “when the noise from the press could no longer be ignored”. For a decade they had been referred to as South Africa’s “Teflon Couple: no-one could make anything stick”.

By this stage “the Mpisanes had been castigated by the National Home Builders Registration Council for building shoddy homes”, the publication added, while it was common knowledge that Shauwn was a fraudster following a 2011 conviction in the Durban Regional Court, which disqualified her from running a business. She was also charged with tax evasion.

Despite all this, eThekwini municipality, where most of her contracts came from, “continued to defend her, and she defended herself by claiming that all accusations were motivated by professional jealousy because she consistently delivered better quality houses at lower cost and refused to become part of construction cartels,” Daily Maverick added.

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