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Wednesday, April 1, 2009
Plastic evidence

The Competition Commission indicated last year that it would actively address anticompetitive conduct – particularly by cartels – in sectors of the South African economy which impact most keenly on poor consumers and the Government’s accelerated and shared growth programme. The construction sector was named as one of these priority sectors, in view of the focus on low cost housing and large infrastructural programmes, particularly ahead of the 2010 World Cup.

“The Competition Commission honoured this promise this year,” observes Heather Irvine of Deneys Reitz, “when it referred a complaint to the Tribunal about a cartel involved in Polyvinylchloride (PVC) and High Density Polyethylene (HDPE) pipe products used in the civil, mining and agricultural sectors.
“It is alleged that the companies involved fixed prices, divided markets and engaged in collusive tendering. Late February the Commission alleged that a number of companies had engaged in collusive tendering in Gauteng, KwaZulu-Natal and the Western Cape for the supply of precast concrete sleepers to certain projects, engaged in market division and had fixed the selling price of pipes, culverts and manholes sold to government departments and municipalities, as well as to contractors constructing pipelines and sewerage systems.
“Infraset (a division of a subsidiary of listed construction company Aveng (Africa) Limited) concluded a consent order in which it agreed to pay 8% of its annual turnover, amounting to about R46.2 million, in order to settle this complaint. Valuable information about the inner workings of these cartels was supplied by one of the cartel members - in the concrete pipe investigation, by Rocla, and in the PVC/HDPE investigation, by DPI Plastics. As a result, both of these firms received conditional immunity from prosecution.”
Cartels operating in the construction industry have come under fire from other international competition authorities. In November last year, for example, the Canadian Competition Bureau charged three Canadian construction firms (and their executives) with rigging bids for the construction of a hospital and a smelter. After a three-year investigation, raids on almost 60 companies and 77 applications for leniency, the United Kingdom’s Office of Fair Trading accused 112 construction companies of colluding on bids for schools, hospitals and other projects.
“These cases emphasise the need for companies involved at all levels of the construction sector to enforce competition law compliance, and in particular, to remind employees continually at all levels to exercise caution in their dealings with competitors,” she says. “Employees should not communicate with competitors about the company’s pricing structure, discount or rebate levels, the timing or level of price increases, margins or trading terms (including credit criteria). Nor should they discuss their production plans or capacity, input costs or raw material price increases, the identity of their customers, information about customer’s purchase volumes or patterns, or the geographic areas in which they do business.”
Where a company participates in tenders, its staff should not discuss with outsiders the projects for which it bid in the past, or intends to bid in future, the timing of bids or the companies’ approach to pricing and discounts. Particular care needs to be taken by industry associations to ensure that otherwise legitimate discussions (for example about safety standards) do not become a platform for collusion or a vehicle for discussions about pricing, market allocation or collusive tendering.
Discussions of this nature potentially put the company at risk of being found guilty of direct or indirect price fixing, division of markets and/or collusive tendering. These practices are prohibited outright by the Competition Act and companies cannot justify them on the basis that they are efficient, or promote technological or other gains. Companies who engage in these practices can be fined up to 10% of their turnover - even for a first offence - and may also face claims from customers or competitors for civil damages, in addition to a consumer backlash and the ire of their shareholders. If the Competition Amendment Bill is signed into law by the President as expected this year, executives involved may also face heavy fines and prison sentences.
 

Copyright © Insurance Times and Investments® Vol:22.4 1st April, 2009
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