Collusive tendering - Director, Petra Krusche

1. CONSTRUCTION 2015
PETRA KRUSCHE
COMPETITION LAW

2. COLLUSIVE TENDERING
> Section 4(1)(b) of Competition Act prohibits collusive tenders
> Includes various conduct
> Bid suppression and or boycotts
> Complementary bidding
> Bid rotation
> Agreed profit margins
> Losers’ fees
> Cover pricing
> Sub-contracting
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3. COMMISSION’S INVESTIGATION OF
CONSTRUCTION SECTOR
> Investigation of construction firms following CLP applications
and investigation in 2009
> Investigations of cases in related sectors e.g. concrete
culverts, roof bolts, bitumen, concrete
> Fast track settlement process 2010
> Interrogations for CLP
> Terms of settlement offer apply including prescription and
complete confession
> Formulaic approach to penalties e.g. 1% for one conduct
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4. ADMINISTRATIVE PENALTY
> Southern Pipeline as applied in Vulcania
> Cartel conduct deserves hefty fine, but balance between
proportionality and deterrence
> Section 59(3) analysis precedes the section 59(2) 10% cap
> Evidence on geographical reach of collusion, duration, magnitude of
collusive businesses compared to other cartels, consumer loss, fines
imposed on other cartel members
> No limit as to the % of affected turnover that can be used to
determine the penalty
> The year preceding the year in which the penalties are imposed
is the base year for the 10% cap
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5. CONSENT AGREEMENTS 2013
> Settlement agreements made orders of Tribunal (50 events)
> Disclosure of all projects affected by collusion including those
for which CLP was given (280 projects)
> Certificates under section 65 issued to all and any applicants
> SANRAL
> City of Cape Town
> Coega Development Corporation
> Bayer
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6. CIDB INVESTIGATION 2014
> Preliminary investigation into breaches of the Code of
Conduct in 2014
> Collusion re tenders
> Do not collude with other tenderers
> Do not exchange information with other tenders
> Do not influence the tender process
> Code of Conduct provides for its enforcement
> Fine or warning, referring to SAP, deregistration
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7. REVIEW OF CIDB’S DECISION TO
INVESTIGATE 2015
> The CIDB Regulations are ultra vires the CIDB Act
> Retrospectivity not permitted
> No power under relevant statutory and regulatory framework
applicable at time of transgression
> To sanction a transgression of Code of Conduct
> To investigate such transgression
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8. CHRONOLOGY
 1998 Competition Act
 2000 Constitute Development Board Act
 2003 CIDB Code of Conduct
 2004 CIDB Regulations
 2006 – 2007 Collusive tendering in the Construction Sector
 2008 Amendment to CIDB Regulations
 2010 Commission’s invitation to settle construction collusion
 2013 Consent orders and Certificates under section 65 of the Competition
Act
 2014 Preliminary Investigation into a breach of Code of Conduct by
CIBD :City of Cape Town sues for damages on the Cape Town stadium
tender
 2015 CIBD launches formal inquiry : High Court review of decision
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9. THE FUTURE?
> Fraud
> Common law
> Corruption Act
> Companies Act
> Consequences under CIDB Act if review fails
> Further cases following actions taken in respect of
construction firms that did not come forward and or
implicated in CLP processes
> Competition damages
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10. COMPETITION DAMAGES: SECTION 65
> Damages can only be awarded by High Court
> Perpetrator may agree to damages in consent order agreement
> Right to claim damages arises on issue of certificates after
> Determination by Tribunal/CAC
> Premier
> CLP applicant bound by determination even if not prosecuted
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11. SECTION 65 CERTIFICATE
> Certificate is conclusive proof of prohibited practice
> Court need not enquire into competition aspects again
> Inaccurate findings / formulations
> Children’s Resource Centre
> In order to define a class of plaintiffs
> Premier
> Findings of Tribunal do not correspond with CLP applicant’s confession
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12. WHO MAY CLAIM?
> Any person who suffered damages from the prohibited practice
> Customers, downstream customers, suppliers, consumers
> Class action always possible if requirements of class are met
> Common law requirements for class action (opt-in and opt out)
> Prior certification by Court on draft particulars of claim on triable
case
> Class most appropriate to determine issues or identifiable members
only
> Appropriate representation and means
> Common issues of fact and law
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13. WHAT MAY BE CLAIMED?
> Cartel activities typically cause monopolistic effects (higher
prices, reduced choice, limited output, inefficiencies and lack
of innovation)
> Typical damages economically
> Unquantifiable harm to society such as altered market structure,
limited innovation and inefficiencies
> Dead weight loss
> Difference between cartel overcharge and competitive price
> Lost sales/profits as higher price causes drop-off in demand
> Interest on extra cost of sales
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14. HOW TO CALCULATE?
> But-for comparison
> Counterfactual of market not subject to infringement, e.g. time,
geography, product or any combination of these
> Product costs and/or profitability of claimant
> Statistical regression analysis and economic modelling
> Other industry factors market structure and assumptions
> Lucrum cessans, damnum emergens and interest from date
of certificate
> City of Cape Town v Stefanutti, Aveng and WBHO
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15. THANK
YOU
Jason Smit and Petra Krusche
October 2015
Legal notice: Nothing in this presentation should be construed as
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