Competition Commission v Guiricich Bros Construction (Pty) Ltd (016972) [2013] ZACT 77 (23 July 2013)

COMPETITION

TRIBUNAL

REPUBLIC

OF SOUTH AFRICA

Case No: 016972

In the matter between:

The Competition Commission Applicant

and

Guiricich Bros Construction (Pty) Ltd Respondent

Panel:

N Manoim (Presiding Member), Y Carrim

(Tribunal Member) and T Madima (Tribunal

Member)

Heard on:

17 July 2013

Decided on:

23 July 2013 Order

The Tribunal hereby confirms the order as agreed to and proposed by the Competition Commission and the respondent, annexed hereto marked “A” and the addendum thereto marked “B.

Presiding Member

N Manoim

Concurring: Y Carrim and T Madima

IN

THE COMPETITION TRIBUNAL OF SOUTH AFRICA

HELD

IN PRETORIA

CT Case No:

CC Case No:2009Feb4279/2009Sep4641

Application for confirmation of a consent agreement

in the matter between:

THE COMPETITION COMMISSION Applicant

GIURICICH BROS CONSTRUCTION (PTY) LTD Respondent

CONSENT AGREEMENT IN TERMS OF SECTION 49D READ WITH SECTION 58(1)(a)(iii) AS

READ WITH SECTION 58(1)(b) OF THE COMPETITION ACT, 1998 (ACT NO. 89 OF 1998), AS AMENDED, BETWEEN THE COMPETITION COMMISSION AND , GIURICICH BROS CONSTRUCTION (PTY) LTD (“GIURICICH

BROS OR GIURICICH”)

IN

REGARD TO CONTRAVENTIONS OF SECTION 4(1)(b)(iii) OF THE COMPETITION ACT, 1998

PREAMBLE

WHEREAS the Competition Commission is empowered to, inter alia, investigate alleged contraventions of the Competition Act, 1998;

WHEREAS the Competition Commission is empowered to, inter alia, conclude consent agreements in terms of section 49D of the Competition Act 1998;

WHEREAS the Competition Commission has invited firms in the construction industry to engage in settlement of contraventions of the Competition Act, 1998;

WHEREAS Giuricich Bros Construction (Pty) Ltd (“Giuricich Bros”) has accepted the invitation and has agreed to settle in accordance with the terms of the invitation;

NOW THEREFORE the Competition Commission and Giuricich Bros hereby agree that application be made to the Competition Tribunal for the confirmation

of this consent agreement as an order of the Competition Tribunal in terms of section 49D as read with sections 58(1 ){a)(ii[) and 58(1 Xb) of the Competition Act, 1998..

1. Definitions

For the purposes of this consent agreement the following definitions shall apply:

1.1. “Act” means the Competition Act, 1998 (Act No. 89 of 1993), as amended;

1.2. "CIDB” means the Construction Industry Development Board;

1.3. “CIDB Regulations” refers to the Construction Industry Development Regulations, 2004 (as amended) (Government Notice No. 692 of 9 June 2004, published in Government Gazette No-, 26427 of 9 June 2004);

1.4. “CLP” means the Commission’s Corporate Leniency Policy (Government Notice No. 628 of 23 May 2003, published in Government Gazette No. 31064 of 23 May 2008);

1.5. “Commission” means the Competition Commission of South Africa, a statutory

body established in terms of section 19 of the Act, with its principal place of business at 1st Floor, Mulayo Building (Block C), the dti Campus, 77 Meintjies Street, Sunnyside, Pretoria, Gauteng;

1.6. “Commissioner” means the Commissioner of the Competition Commission, appointed In terms of section 22 of the Act;

1.7. “Complaints” means the complaint Initiated by the Commissioner of the Competition Commission in terms of section 49B of the Act under case numbers

2009Feb4279 and 2009Sep4641;

1.8. “Consent Agreement” means this agreement duly signed and concluded between the Commission and Giuricich;

1.9. “Cover Price” means generally, a price that is provided by a firm that wishes to win a tender to a firm that does not wish to do so, in order that the firm that does not wish to win the tender may submit a higher price; or a price that is provided by a firm that does not wish to win a tender to a firm that does wish to win that tender in order that the firm that wishes to win the tender may submit a lower price.

1.10. “Giuricich Bros" means a company incorporated under the laws of the Republic of South Africa with its principal place of business at Cedarwood office park, Woodmead, Sandton 2052,

1.10. "Invitation” means the Invitation to Firms in the Construction' Industry to Engage In Settlement of Contraventions of the Competition Act, as published on the website of the Commission on 1 February 2011;

1.11. “Non-prescribed prohibited practices" refers to prohibited restrictive horizontal practices relating to the construction industry that are contemplated in section 4(1 )(b) of the Act and that are on-going or had not ceased three years before the complaints were initiated, as contemplated in section 67 of the Act;

1.12. “Parties” means the Commission and Giuricich Bros;

1.13. “Prescribed prohibited practices’7 refers to prohibited restrictive horizontal practices relating to the construction industry that are contemplated in section 4(1 }(b) of the Act and that ceased after 30 November 1998, but more than three years before the complaints were initiated;

1.14. “Respondent” means Giuricich Bros;

1.15. ‘‘Settlement’’ refers to settlement in terms of the Invitation;

1.16. "Subsector” refers to the classes of construction work defined in Schedule 3 of the CIDB Regulations, substituted by Government Notice No. 8986 of 14 November 2008, published in Government Gazette No. 31603 of 14 November 2008; and

1.17. “Tribunal" means the Competition Tribunal of South Africa, a statutory body established in terms of section 26 of the Act, with its principal

place of business at 3rd Floor, Mulayo building (Block C), the dti Campus, 77 Meintjies Street, Sunnyside, Pretoria, Gauteng,

2. The Complaints

2.1. On 10 February 2009 the Commission initiated a complaint in terms of section 49B(1) of the Act into alleged prohibited practices relating to collusive conduct in the construction of the stadiums for the 2010 FIFA Soccer World Cup against Grinaker-LTA the construction operating business unit of Aveng, Group Five Limited, Basil Read (Pty) Ltd, WBHG Construction (Pty) Ltd, Murray & Roberts Limited, Stefanutti Stocks Limited, Interbeton Abu Dhabi nv lie and Bouygues Construction SA.

2.2. On 01 September 2009, following the receipt of applications for immunity in terms of the CLP, the Commission initiated the Complaint in terms of section 49B(1) of the Act into prohibited practices relating to collusion in the construction industry. The Complaint concerned alleged contraventions of section 4(1) (b) of the Act as regards price fixing, market allocation and collusive tendering. The investigation was initiated against the following firms: Grinaker LTA Ltd, Aveng (Africa) Ltd, Stefanutii Stocks Holdings Ltd, Group Five Ltd, Murray & Roberts, Concor Ltd, G. Liviero & Son Building (Pty) Ltd, Giuricich Coastal Projects (Pty) Ltd, Hochtief Construction AG, Dura Soletanche-Bachy (Pty) Ltd, Nishimatsu Construction Co Ltd, Esorfranki Ltd, VNA Pilings CC, Rodio Geotechnics (Pty) Ltd, Diabor Ltd, Gauteng Piling (Pty) Ltdu Fairbrother Geotechnieal CC, Geomechanics CC, Wilson Bayly Holmes- Ovcon Ltd and other construction firms, including joint ventures.

3. The invitation to Firms In the Construction Industry to Engage in Settlement of Contraventions of the Act

3.1. The Commission’s investigation of the Complaints, as we!! as several other of the Commission’s investigations in the construction industry, led the Commission to believe that there was widespread collusion in contravention of section 4(15(b}(iii) of the Act in the construction industry.

3.2. Section 4(1 )(b) provides-

"4. Restrictive horizontal practices prohibited

(1) An agreement between, or concerted practice by. firms, or a decision by an association of firms. is prohibited if it is between parties in a horizontal relationship and if –

(a) it has the effect of substantially preventing, or lessening, competition in a market, unless a party to the agreement\ concerted practice, or decision can prove that any technological, efficiency or Other pro- competitive

gainresulting from it outweighs, that effect; or

(b) it involves any of the following restrictive horizontal practices:

(i) directly or indirectly fixing a purchase or selling price or any other trading condition;

(ii) dividing markets by allocating customers, suppliers, territories, or specific types of goods or services; or

(iii) collusive tendering

3.3. The collusive conduct engaged in, in the context of the Invitation and this Consent Agreement, was collusive tendering or “bid-rigging”.

Collusive tendering involves particular conduct by firms whereby as competitors they collude regarding a tender resulting in the tender process being distorted. The bid prices and the bid submissions by these competitors as well as the outcome of the tender process Is not the result of competition on the merits. “Cover pricing*1 in this context occurs when"conspiring firms agree that one or more of them will submit a bid that is not intended to win the contract The agreement is reached in such a way that among the colluding firms, one firm wishes to win the tender and the others

agree to submit non-competitive bids with prices that would be higher than the bid of the designated winner, or the price will be too high to be accepted, or the bid contains special terms that are known to be unacceptable to the client Collusive tendering therefore applies to agreements or concerted practices which have as their object or effect the prevention, lessening, restriction and distortion of competition in South Africa.

3.4. In terms of section 2 of the Act, two of the key objects of the Act are to promote the efficiency, adaptability and development of the economy, and to provide consumers with competitive prices and product choices. Section 217 of the Constitution of the Republic of South Africa, 1996 calls for a procurement or tender system which is fair, equitable, transparent, competitive and cost- effective.

3.5. In addition, the Commission is required in terms of section 21(1) of the Act, inter alia, to implement measures to increase market transparency, to investigate and evaluate alleged contraventions of Chapter 2 of the Act, and to negotiate and conclude consent agreements in terms of section 49D for confirmation as an order of the Competition Tribunal in terms of section 58(1)(b) of the Act.

3.6. Therefore, in the interest of transparency, efficiency, disrupting cartels and incenftvisrng competitive behavior in the construction

industry and a cost- effective, comprehensive and speedy resolution of the investigations referred to above, the Commission decided to fast track these investigations and their resolution by inviting firms that were involved in collusive tendering in the form of bid-rigging of projects in the construction industry, to apply to engage In settlement on the terms set out in the Invitation.

3.7. On 1 February 2011 the Commission issued a media release about the Invitation and published same on its website, in the invitation,

hereto attached and marked as Annexure A, the Commission offered firms the opportunity to settle the alleged contraventions of the Act, if they would:

3.7.1. submit an application in terms of PART 2 of the Invitation;

3.7.2. agree to pay an administrative penalty or penalties determined by the Commission as envisaged in paragraph 10.2 read with paragraphs 19- 28 of the Invitation; and

3.7.3. comply with the requirements of the settlement process as set out in PART 1 and PART 3 of the Invitation.

3.8. This agreement sets out the details of the non-prescribed prohibited practices only, which the respondent is liable to settle regard being had to the provisions of-section-67(2) of the Act and the penalty is calculated taking into account only the said non-prescribed prohibited practices.

3.9. Applying firms were required to inter alia provide the Commission with truthfuland timely disclosure of information and documents relating to the prohibited practices and to provide full and expeditious co-operation to the Commission concerning the prohibited practices.

3.10. An applying firm could request the Commission to consider its application in terms of the Invitation as an application for a marker or as an application for, Immunity under the CLP. Firms could also apply for a marker or for immunity under the CLP before making an application in terms of the Invitation.

3.11. The deadline to apply for a settlement in terms of the Invitation was 12h00 on 15 April 2011.

4. Applications by Guiricich Bros

4.1. Giuricich Bros applied for leniency and Settlement in terms of the Invitation. Giuricich Bros is involved in the genera! building

sub:sector and specializes in development, building construction, property development construction, project management, plant, form work and equipment.

4.2. Giuricich applied for leniency and Settlement and disclosed 8 projects, all of which are non-prescribed-practices, Giuricich Bros was first to apply for ail the projects disclosed and was granted Conditions! Immunity in respect of all of the projects..

4.3. Giuricich Bros is further implicated in 1 non-prescribed prohibited practice (1 project) in the general building subsector which it did not disclose.

4.4. The prohibited practice or contravention by Guiriclch Bros of section 4(1 )(b)(iii) of the Act which is the subject of this Consent Agreement, is set out below.

5. Disclosed Project

The Millwood Village Residential Project (Tander No: NPK0366PBC)

Giuricich Bros reached agreement with Vlaming (Pty) Ltd on or about August 2005, in that they agreed on a cover price in respect of this project. In terms of the agreement, Vlaming provided a cover price to Giuricich Bros to enable Vlaming to win the tender. This conduct is collusive tendering in contravention of section 4{1)(b)(iii) of the Act.

The project was for the construction of residential blocks at the Millwood Village in Bryanston, for Finishing Touch Trading 55 (Pty) Ltd. The project was awarded to Group Five and was completed on 22 July 2007,

6. Admission

Giuricich Bros admits that it was involved in collusive conduct in contravention of section 4{1)(b)(iii) of the Act in that it tendered

collusiveiy in respect of the practices described in paragraph 5 above.

7. Co-operation

In so far as the Commission is aware and in compliance with the requirements as set out in the Invitation, Giuricich Bros:

7.1. has provided the Commission with truthful and timely disclosure, including information and documents in its possession or under its control, relating to the prohibited practices;

7.2. has provided full and expeditious co-operation to the Commission concerning the prohibited practices;

7.3. has provided a written undertaking that it has immediately ceased to engage in, and will not in the future engage in, any form of prohibited practice;

7.4. has confirmed that it has not destroyed, falsified or concealed information, evidence and documents relating to the prohibited

practices;

7.5. has confirmed that it has not misrepresented or made a wilful or negligent misrepresentation concerning the material facts of any prohibited practice or otherwise acted dishonestly.

8. Agreement Concerning Future Conduct

8.1. In compliance with the requirements as set out in the Invitation, Giuricich Bros agrees and undertakes to provide the Commission with full and expeditious co­operation from the time that this Consent Agreement is concluded until the subsequent proceedings in the Competition Tribunal or the Competition Appeal Court are completed. This includes, but is not limited to;

8.1.1. to the extent that it is in existence and has not yet been provided, providing (further) evidence, written or otherwise, which is in its possession or under its control, concerning the contraventions contained in this Consent Agreement;

8.1.2. testifying as a witness for the Commission in any cases regarding the contraventions contained in this Consent Agreement

8.2. Giuricich Bros shall develop, implement and monitor a competition law compliance programme incorporating corporate governance designed to ensure that its employees, management, directors and agents do not engage in future contraventions of the Act. In particular, such compliance programme will include the following:

8.2.1. a Competition policy to be drafted and implemented by Giuricich Bros;

8.2.2. provide for specific training on competition law aspects particularly relevant to Giuricich Bros;

8.2.3. ensure that such training will be made available to ail new employees joining Giuricich Bros. Furthermore, Giuricich Bros will update such training annually.

8.3. Giuricich Bros shall submit a copy of such compliance programme to the Commission within 60 days of the date of confirmation of the Consent Agreement as an order by the Competition Tribunal; and

8.4. Giuricich Bros shall circulate a statement summarising the contents of this Consent Agreement to all management and operational staff employed at Giuricich .Bros with]n_ 60, days.,frprri the date of .confirmation of this Consent Agreement by the Tribunal. —

8.5. According to the written undertaking It has provided in compliance with the requirements as set out in the invitation, Guiricich Bros will not in the future engage in any form of prohibited conduct and will not engage in collusive tendering which will distort the outcome of tender processes but undertakes henceforth to engage in competitive bidding.

9. Administrative Penalty

9.1. Having regard to the provisions of sections 58(1)(a}(iii) as read with sections 59(1 Xa), 59(2) and 59(3) of the Act, and as envisaged in paragraph 10.2 read with paragraphs 19-28 of the Invitation, Guiricich Bros accepts that it is liable to pay an administrative

penalty ("penalty").

9.2. According to the Invitation, the level of the penalty is to be set on the basis of a percentage of the annual turnover of Guiricich Bras in the relevant subsector in the Republic and its exports from the Republic for the financial year preceding the date of the invitation.

9.3. The project which Guiricich Bros has been found to have contravened the Act, falls under the General Building subsector

9.4. Accordingly, Guiricich Bros is liable for and has agreed to pay an administrative penalty in the sum of R3 552 568 (Three Million, Five Hundred and Fifty Two Thousand, Five Hundred and Sixty Eight Rand) which penalty is calculated in accordance with the Invitation;

10. Terms of payment

10.1. Giuricich Bros wili pay the amount set out above in paragraph 9.4 to the Commission in two equai payments, the first such payment of R1 776 284 (One Million, Seven Hundred and Seventy Six Thousand, Two Hundred and Eighty Four Rand) on or before 31 JuSy 2013 or .within 30 days from the date of confirmation of this Consent Agreement as an order of the Tribunal, whichever is the later.

10.2. Giuricich Bros will make the second payment of R1 776 284 (One Million, Seven Hundred and Seventy Six Thousand, Two Hundred and Eighty Four Rand) on or before 31 August 2014.

Bank name: Absa Bank Branch name: Pretoria Account holder: Competition Commission Fees Account Account number: 4050778576 Account type: Current Account Brach Code: 323 345

10.3. This payment shall be made into the Commission’s bank account, details of which are as follows:

10.4. The penalty wili be paid over by the Commission to the National Revenue Fund in accordance with section 59(4) of the Act,

11. Full and Final Settlement

This agreement is entered into in full and final settlement of the specific conduct listed in paragraphs 5 of this Consent Agreement

and, upon confirmation as an order by the Tribunal, concludes ail proceedings between the Commission and Giuricich Bros in respect of this conduct only.

Dated and signed at CAPE TOWN on the 16th day of MAY 2013.

For Giuricich Bros

[FILL

IN NAME AND POSITIOM

OF

PERSON THAT IS SIGNING]

Dated and signed at PRETORIA on the 21st day of JUNE 2013.

For the Commission

Shan Ramburuth

(Commissioner)

ADDENDUM

TO THE CONSENT AGREEMENT BETWEEN THE COMPETITION

COMMISSION AND GIURICICH BROS CONSTRUCTION (PTY) LTD

The parties agree that the heading of clause 5 of the consent agreement be replaced to read 5, Non disclosed project.

DATED-AND SIGNED AT JOHANNESBURG ON THE 19th DAY OF JULY 2013

GIURICICH BROS CONSTRUTION (PTY) LTD AUTHORISED SIGHAT0RY

Dated and signed at PRETORIA on the 22nd day of JULY 2013.