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Small and developing competition agencies – Competition Commission South Africa – December 2017 OECD discussion

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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.

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Small and developing competition agencies – Competition Commission South Africa – December 2017 OECD discussion

  1. 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. 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. 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. 4. Institutions: competition regulation competition regulation for a growing and inclusive economy
  5. 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. 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. 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. 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. 9. Increased focus on enforcement competition regulation for a growing and inclusive economy
  10. 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. 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. 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. 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. 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. 15. Certificate of Independent Bid Determination competition regulation for a growing and inclusive economy
  16. 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. 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

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