This presentation by Competition Commission South Africa was made during Break-out Session 3: Creating Legitimacy in the framework of the discussion on “Overcoming adversity and attaining success: Small and developing competition agencies” held at the 16th meeting of the OECD Global Forum on Competition on 8 December 2017. More papers and presentations on the topic can be found out at oe.cd/sda.

1. Competition and Public Procurement
Bid rigging in the construction sector in South Africa
Global Forum on Competition
OECD, 7 – 8 December 2017
Hardin Ratshisusu, Deputy Commissioner
Competition Commission South Africa
competition regulation for a growing and inclusive economy

2. Outline
• Background
• Importance of public procurement
• Institutions: competition regulation
• Some key attributes for agency effectiveness
• Competition regulation and public procurement: stakeholder management
• Enforcement experience in bid rigging
• Evolution of Commission’s strategy
• Increased focus on enforcement
• The Construction case in brief
• Value of projects rigged and outcomes
• Advocacy
competition regulation for a growing and inclusive economy

3. Importance of public procurement
• The role of government is to, inter alia, provide public goods and
services and purchase goods, services and capital assets.
• Public procurement is a critical component of delivering broader
government / public policy objectives.
• Public procurement accounted for 12% of GDP and 29% of general
government expenditure in OECD countries, amounting to EUR 4.2
trillion in 2013 (OECD, 2016).
• In South Africa, public procurement over the next three years will
amount to R1.5 trillion across all spheres of government (National
Treasury, 2016).
competition regulation for a growing and inclusive economy

4. Institutions: competition
regulation
competition regulation for a growing and inclusive economy

5. Some key attributes for agency
effectiveness
• Focus on an evidence-based enforcement and advocacy regime.
• Strategic case selection and prioritization.
• Prioritization framework that responds to socio-economic challenges
and public policy objectives:
– Focus on markets susceptible to anticompetitive conduct such those in public
procurement;
– Focus on advocacy, not as an adjunct but a central feature to the authority’s
enforcement instruments; and
– Focus on cases with the greatest impact.
• Credible enforcement and advocacy is critical for agency
effectiveness.
competition regulation for a growing and inclusive economy

6. Competition regulation and public
procurement: stakeholder management
competition regulation for a growing and inclusive economy
Competition
Authority
Government
Sector
Regulators
Consumers
Non-
governmental
agencies
Business
and Trade
associations
Parliament

7. Evolution of Commission’s strategy
competition regulation for a growing and inclusive economy
1998 – 2005 2006 – 2009 2010 – 2014 2015 – 2020
 Competition Act passed
in 1998
 Institutions established
in September 1999
 Focus was on building
the institutions therefore
no specific strategic
goals
 Enforcement on merger
control (by design, a
significant number of
notifications received as
filling was mandatory)
 Align structure and
work processes to
strategic priorities
 Commission as a
centre of information,
knowledge and
expertise
 Enactment of leniency
policy
 Developed approach
and methodology to
prioritization of
sectors and case
selection
 Initiation of first bid
rigging cases in
construction,
infrastructure and
intermediate
industrial input
product markets
 Advocacy and
communication
 Achieve demonstrable
competitive outcomes in the
economy through
prioritisation of sectors and
selection of cases
 Increase competitive
environment for economic
activity through strategic
partnerships, engagement,
dialogue and advocacy
 High performance agency
 Heightened enforcement,
mostly against cartels and
abuse of dominance
 Increased settlement of
cases
 Effective enforcement &
merger regulation
 Strategic collaboration &
advocacy
 High performance
agency
 Heightened
enforcement, mostly
against cartels and
abuse of dominance
 Increased litigation

8. Increased focus on enforcement
• Since 2006, the Commission has stepped up its enforcement
activities, with a specific focus on detecting and prosecuting cartels.
• The Commission embarked on strategic planning and implementation
in 2006.
• A consistent feature of the strategic planning was the adoption and
implementation of a sector prioritisation and case selection strategy.
• This was key in enabling the Commission to strategically select cases
and appropriately channel its resources.
• An important aspect of the prioritization framework has been the
broader government agenda, particularly on infrastructure
development and product markets with a greater social impact.
competition regulation for a growing and inclusive economy

9. Increased focus on enforcement
competition regulation for a growing and inclusive economy

10. The Construction case in brief
competition regulation for a growing and inclusive economy
2009
• 2009: Commission initiated complaints into alleged prohibited practices of bid-rigging and general
collusion in the construction sector.
• Commission received multiple applications for leniency in terms of its CLP and concluded bid
rigging and collusion was widespread.
• +/-150 marker applications and 65 CLP applications.
2011
• Commission launched Fast Track Settlement Process inviting construction firms to voluntarily
disclose rigged projects.
• Bid-rigging of 298 contracts to the value of R111.9 billion uncovered.
• Administrative penalties to the tune of R1.46 billion imposed.
• 15 firms reached settlements with the Commission.
2014
• Several of the implicated firms were not willing to settle under Phase I of the Fast Track Settlement
programme.
• As of August 2016: 10 additional firms settled (13 or 23) projects; 11 firms (19 projects) referred to
the Competition Tribunal, remaining cases in litigation.
• 2016: Major construction firms settled with government to pay R1.5 billion in lieu of damages.
• Other damages claims still ongoing.

11. Value of projects rigged and
outcomes
• Tenders rigged worth circa USD 3.7 billion:
• Public sector projects worth circa USD 2.2 billion; and
• The private sector projects worth circa USD 1.5 billion.
• Construction firms collectively paid over USD 127 Million in fines.
• The Competition Tribunal issued over 250 section 65 certificates for civil
damages:
• 179 to the public sector; and
• 82 to the private sector.
competition regulation for a growing and inclusive economy

12. The cover pricing scheme
“I will give you a snapshot of how I understand this all to have worked between the companies from
my experience through the process. The main practice appears to have been what is called “cover-
pricing”. A strong management system was clearly in place, including succession planning because
when one person was promoted or left the company he would bring his successor to a meeting
(according to evidence submitted, these meetings usually occurred at 5 star hotels), introduce the
new person and do a formal hand-over. Some of the younger people knew that if they wanted to get
ahead in their companies this was “the way it is done”. The tenders were then allocated as follows:
the firm not wanting the business gives a “cover price” to a competitor who then wins the award on
submitting a lower price than the “cover price”. In some cases, the firm submitting the “cover price”
will be compensated through a ‘losers’ fee.”
Roger Jardine, ex-CEO: Aveng Grinaker-LTA
competition regulation for a growing and inclusive economy

13. Advocacy programme
• Following the 2nd phase of the Fast Track Settlement Programme, the
Commission engaged in a targeted advocacy programme including:
competition regulation for a growing and inclusive economy
Government (National
and Local)
Agencies of
government
Sector Regulator

14. Main focus and outcomes
• Impact of bid rigging on the State's financial resources.
• Required advocacy interventions:
– training of procurement officials; and
– drafting and introduction of the Certificate of Independent Bid Determination in public
procurement.
competition regulation for a growing and inclusive economy

15. Certificate of Independent Bid Determination
competition regulation for a growing and inclusive economy

16. Final Remarks
• Uncovering of bid rigging cases in 2009 further raised the profile of the
Commission.
• Government adopted the Certificate of Independent Bid Determination for all
public procurement in July 2010.
• Leniency policy contributed to the uncovering of bid rigging cases.
• More cases, particularly involving small firms, continue to be uncovered,
mainly lodged by government and municipalities.
• Collaboration with other stakeholders, more importantly government and
sector regulators, has been crucial.
competition regulation for a growing and inclusive economy

17. Thank you
Tel: +27 (0)12 394 3200
Fax: +27 (0)12 394 0166
Email: hardinr@compcom.co.za
Follow us on Twitter @CompComSA or me
@hardinratshi