This document summarizes competition law issues in South Africa's construction sector. It discusses how section 4(1)(b) of the Competition Act prohibits various forms of collusive tendering, and describes the Competition Commission's investigation of the construction sector following applications in 2009 that uncovered collusion in related sectors. It outlines the Commission's fast-track settlement process in 2010 and subsequent consent agreements in 2013. It also discusses the Construction Industry Development Board's (CIDB) preliminary investigation into code of conduct breaches in 2014 and a review challenging the CIDB's authority to investigate. The document concludes by examining issues around private damages claims and actions under section 65 of the Competition Act.

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
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