ci d b Presentation to the: Parliamentary Portfolio Committee of Public Works on the:

1. cidb Presentation to the: Parliamentary Portfolio Committee of Public Works on the: Competition Commission -construction cartel 23 April 2013

2. Presentation Layout Purpose Background on the Competition Commission The construction industry cartel The construction fast track settlement process Update on progress Way forward Discussion matters

3. Purpose To brief the Committee about the Competition Commission’s (CC) investigation in the construction sector To brief the Committee about the CC’s Construction Fast Track Settlement To update the Committee about progress made by the CC To discuss a way forward with the CC

4. Background on the Competition Commission The CC is a statutory body constituted in terms of the Competition Act, No 89 of 1998 by the Government of South Africa empowered to investigate, control and evaluate restrictive business practices, abuse of dominant positions and mergers in order to achieve equity and efficiency in the South African economy. The CC has a range of functions in terms of Section 21 of the Act. These include: investigating anti-competitive conduct in contravention of the Chapter 2 of the Act; assessing the impact of mergers and acquisitions on competition and taking appropriate action; monitoring competition levels and market transparency in the economy; identifying impediments to competition and playing an advocacy role in addressing these impediments. In taking these actions, the Commission must balance issues related to competition with the broader social and economic goals outlined in the Act, such as : employment, international competitiveness, efficiency and technology gains, as well as the ability of small and medium sized businesses and firms owned or controlled by historically disadvantaged persons to compete.

5. Background on the Competition Commission In order to ensure the consistent application of the Act across sectors, the CC may: negotiate agreements with other regulatory authorities, participate in their proceedings and advise, or receive advice from, any regulatory authority. The Competition Commission is independent but its decisions may be appealed to the: Competition Tribunal and the Competition Appeal Court. The objectives of the Competition Act are: To promote the efficiency, adaptability and development of the economy; To provide consumers with competitive prices and product choices; To promote employment and advance the social and economic welfare of South Africans; To expand opportunities for South African participation in world markets and recognize the role of foreign competition in the Republic; To ensure that small and medium-sized enterprises have an equitable opportunity to participate in the economy; To promote a greater spread of ownership, in particular to increase the ownership stakes of historically disadvantaged persons.

6. The construction industry cartel Amongst the divisions in the CC, CARTELS is one of the divisions within the CC. Its core functions are to: Investigate cartel complaints and Administer the Corporate Leniency Policy (CLP) The construction industry is but one of the CC’s priority sectors In 2008, the CC conducted research in the industry following an outcry about the costs of the 2010 FIFA World Cup stadiums The CC uncovered evidence of possible collusion In February & September 2009 the CC initiated investigations against major construction firms for the possible collusion in the industry including stadiums In November 2009, the CC received approximately 160 CLP applications CLP: policy used by the CC to bust cartels It encourages firms involved in cartels to come forward in return for immunity to prosecution

7. The construction industry cartel • In February 2011, the CC launched a Construction Fast Track Settlement to process matters expeditiously • An additional 131 rigged projects to a tune of R26bn involving 21 firms were then brought forward, thus giving a total of 291 projects being investigated • The projects include major infrastructure projects such as: stadiums, roads, dam, mines and shopping centres in both public and private sectors

8. Construction Fast Track Settlement process To incentivise firms to admit their anti-competitive conduct To encourage truthful and comprehensive disclosure by firms involved in bid rigging Strengthen evidence against other firms Minimise legal costs and speedily resolve complaints To give firms that disclosed their involvement in bid rigging better financial settlement terms Set the construction industry on a new competitive trajectory

9. Update on Progress From the settlement applications, the 21 firms also implicated an additional 22 firms that had not participated in the settlement process The 22 firms will be investigated after the completion of the settlement discussions with the 21 firms The CC is currently in settlement discussions with the 21 firms The process is envisaged for completion in mid-May 2013 The CC will then file the Consent Agreement with the Tribunal at the end of May 2013 The Tribunal is likely to finalise the Consent Agreement in June/July 2013

10. Way Forward Rule 14 of the CC Rules prohibits sharing of information prior to finalisation at Tribunal stage The CC will only be able to make detailed information available to the cidb when the Tribunal has confirmed the Consent Agreement by issuing “An Order” It is after this process that other stakeholders may be able to proceed with taking steps in terms of possible transgressions of their individual Acts, Codes etc. In terms of Regulation 28(10) of the cid Regulations, 2004 (as amended): If an organ of state, other than the cidb, undertakes an investigation and the finding of that organ of state indicates that a person acted contrary to or has omitted to act in terms of the code of conduct, that organ of state must provide the cidb with its findings and all other documentation relevant to its investigation. In the meantime, the cidb will be scheduling a meeting with all entities (viz. CC, NPA, SARS, NT, DPW etc.) concerned to discuss the possible implications of the outcome of the CC’s investigation report. The meeting is earmarked to take place by the first week of May.

11. Discussion matters