1. Actionable intelligence on the
construction industry
Tracking and analysing collusion to determine the
impact on South Africa’s infrastructure development
1st Annual South African Conference on Strategic and
Competitive Intelligence
November 11 -13, 2013
Pretoria
Louise Mitchell
Business Intelligence
Eskom
Group Technology & Commercial
South Africa Chapter

2. Agenda
• Collusion in the South African construction industry
• Tracking
• Sense making
• Selection and application of analytical tools and techniques
• Sentiment analysis
• Relationship analysis
• Analysis of Competing Hypotheses (ACH)
• Informing the client
• Impact of collusion on South Africa’s infrastructure development
• Actionable Intelligence on Procurement for Strategic Infrastructure Projects (SIPs)
2

3. Collusion in the South African construction industry
Timeline – February 2009 to May 2013
3
10 February 2009
The Competition
Commission initiated a
complaint in terms of the
Competition Act, 1998,
as amended into alleged
prohibited practices
relating to bid-rigging
and collusion in the
construction of the 2010
FIFA Soccer stadiums.
1 September 2009
The Commission
published a statement
alleging wide-spread and
prevalent collusion in the
construction industry;
categorised JVs as
collusive arrangements;
implied price
manipulation on a
national scale.
February 2011
The Commission initiated a fast-track
settlement process, giving companies
until 15 April 2011 to come forward. In
terms of the fast-tracked settlement,
companies would face a reduced
administrative penalty compared to the
penalties that they would have faced if
each transgression were prosecuted
separately. Companies applying for a
fast-tracked settlement were also
permitted to apply for corporate
leniency, under the Commission’s
Corporate Leniency Policy.
February 2011
The Commission had
received 150 marker
applications, which
indicated an intention
to apply for corporate
leniency.
Group Five
submitted most of
these.
February 2013
The Hawks were probing
allegations that the City
of Cape Town was
overcharged for the
Cape Town stadium
through collusion by
construction companies.
The Competition
Commission had also
advised the City it would
hold a public tribunal to
hear the allegations. The
Hawks investigation will
be a separate process to
that of the Commission.
February 2013
City Press and Rapport
reported claims of
“criminal conduct” and
fraudulent behaviour,
besides tender rigging,
and named several
former and current
management and
directors of major
construction groups,
including WBHO, Concor,
Basil Read, Group Five
and Aveng, as being
involved.
May 2013
Stefanutti Stocks,
Basil Read and
Esorfranki were the
first companies to
reveal their
penalties.

4. Collusion in the South African construction
industry
4

5. Collusion in the South African construction industry
Company Projects
corporate
leniency granted
(declared)
Declared
projects
liable for
settlement
Implicated
projects
being
settled
Settlement
Amount
(R)
2011
Revenue
(R)
%
of 2011
Revenue
Aveng 12 9 8 306,576,143 34,324m 1
Murray & Roberts
(M&R)
5 7 10 309,046,455 30,535m 1
WBHO 10 11 0 311,288,311 14,766m 2.1
Stefanutti Stocks 3 6 9 362,757,200 8,068m 4.5
Basil Read 2 0 1 94,936,248 5,320m 1.8
Esorfranki 0 12 0 155,850 1,772m 0.01
Group Five 25 0 0 No settlement yet 9,207m
Raubex 0 9 0 58,826,626 5,033m 1.2
Total: 57 54 28 R1,443,586,833 Avg. 1.66%
Sources: Competition Commission appendix 2 & 5, 25th June 2013;
Company financial statements
JSE-listed companies penalised in June/July 2013 by the Competition
Commission for collusion in the South African construction industry
5

6. Collusion in the South African construction industry
6
Company Projects corporate
leniency granted
(declared)
Declared
projects liable
for settlement
Implicated
projects being
settled
Settlement
Amount (R)
Estimated *
annual
Revenue (R)
Tubular Construction 0 1 0 2,634,667 170m
G Liviero 3 1 1 2,011,078 130m
Haw & Inglis 2 6 0 45,314,041 3bn
Rumdel Construction Cape 0 3 0 17,127,465 1.1bn
Hochtief 0 1 0 1,315,719 85m
Giuricich Bros Construction 8 0 1 3,552,568 230m
Norvo Construction 0 1 0 714,897 45m
Vlaming 3 2 1 3,421,662 220m
Construction ID 2 1 0 Settlement offer
not yet accepted
-
Power Construction 0 1 0 Settlement offer
not yet accepted
-
Total: 18 17 3 R76,092,097
Sources: Competition Commission app. 2, 25th June 2013;
Company financial statements; BI team analysis
* Financial statements of privately held companies are not published in the public domain.
Estimated revenue was calculated as follows:
• The average % of penalties of 2011 revenues of listed companies was 1.56 (before Stefanutti’s additional R56m fine).
• No correlation was noted between settlement amounts and number of contracts settled (value of each penalised contract not (known).
• The settlement amount of each privately held company was calculated as 1.56% to estimate annual revenues.
Privately held companies penalised in June 2013 by the Competition Commission for
collusion in the South African construction industry

7. Agenda
• Collusion in the South African construction industry
• Tracking
• Sense making
• Selection and application of analytical tools and techniques
• Sentiment analysis
• Relationship analysis
• Analysis of Competing Hypotheses (ACH)
• Informing the client
• Impact of collusion on South Africa’s infrastructure development
• Actionable Intelligence on Procurement for SIPs
7

8. Selection and application of analytical tools
and techniques
• Public sentiment influences investor
decisions
• Impacts on company balance sheets
• Impacts on project delivery
Sentiment analysis
• Multiple players from the same
industry
• Assists with sense making
• Indicates nodes amongst players
• Provides awareness in future
engagements with your company
Relationship analysis
• Provides a snapshot of the current
situation
• As well as forward looking views
• Assists with planning
Analysis of
Competing
Hypotheses
(ACH)
Tool used:
Recorded Future
(partially free)
Tool used:
Cmaps
(free)
Tool used:
PARC software
(free)
8

9. Sentiment analysis
9
Source: Recorded Future www.recordedfuture.com
On the 25th of June 2013 (the day after the penalties were announced),
the news was reported in 10 sources in 5 different countries

10. Negative sentiment towards the guilty parties
prevailed in the press
10
Retirement funds and collective investment schemes
innocent victims of price-fixing –
Star Business Report, 11 July 2013
These investors were called upon to seek recourse for their
funds' best interests. The fines imposed on listed Companies
mean that each of these companies has less money to pay
dividends, pursue acquisitions, reduce debt or do anything else
that can enhance shareholder value.
SA Local Government Association (Salga) is
seeking reimbursement of up to R3.9 billion from
construction companies for overcharging on
stadium and road contracts for the 2010 soccer
World Cup – Bloomberg, 9 July 2013
Salga planned to hold meetings with the companies to reach
an out-of-court agreement. Salga has filed with the
Competition Tribunal to be listed as an "aggrieved party"
when the court rules on the final fine set by the Commission.
'Name, blame' contract riggers –
Star Business Report, 1 July 2013
Demands were intensifying for the construction firms involved in
collusive tendering and bid-rigging to identify and act against
executives and senior managers responsible for anticompetitive
behaviour. They must tell shareholders who left the company and
were fired.
Construction cartel not off the hook yet –
City Press, 30 June 2013
The City of Cape Town is going to pursue the matter
legally. The City of Johannesburg said it will take
necessary action against those found guilty of wrongdoing.
Ethekwini municipal will be liaising with the commission
with a view of determining if there is a need to take any
further action.
The Black Business Council in the Built Environment
(BBCBE) announced that it is "seeking advice on the
institution of a class action lawsuit".
Penalties are fair, says Commission –
Business Day, 18 July 2013
Corruption Watch requested the tribunal to confirm the
settlements, but submitted that additional sanctions against the
firms and individuals involved in the anticompetitive conduct
should be instituted. The corruption watchdog called for criminal
prosecutions as cartel conduct and collusive tendering falls
within the Prevention and Combating of Corrupt Activities Act.
Call made to charge colluding individuals –
Star Business Report, 18 July 2013
Sanral said in a letter submitted to the tribunal that Sanral was
"disturbed and outraged" by the collusive conduct of the
companies. Sanral reserved the right to institute proceedings for
civil damages and/or other proceedings and complaints.

11. Sentiment analysis
11Sources: Company financial statements;
BI team analysis
With the news spreading across the world it will reach potential investors.
It might impact on future investment in companies like Aveng and Murray &
Roberts that currently have exposure above 35% to international investors.
0% 20% 40% 60% 80% 100%
Aveng
M&R
WBHO
Group Five
Basil Read
Esorfranki
Stefanutti
FY2012
International
shareholding in major
listed S.A. construction
companies
FY2012
South African held
shareholding
If these companies were major suppliers to construction projects reduced
investment will impact negatively on the companies’ financial health and
they might have difficulties to complete projects.

12. Relationship analysis
Eight relationship maps were created
Numbers
indicate the
number of
contracts on
which parties
colluded.
Details of contracts
can be viewed in
the Competition
Commission’s
Appendix 5:
Summary of
consent agreements
Relationships between Murray & Roberts Ltd (and subsidiaries Wade Walker and Concor)
and other colluding companies

13. Analysis of competing hypotheses (ACH)
• ACH is a scientific method that breaks a complex problem down into its component parts.
• It assists the intelligence analyst to avoid blindspots.
Advantages
• ACH reduces cognitive biases
• It is logical
• Defensible
• Great for collaboration
• Auditable
• Richards Heuer’s ACH
https://www.cia.gov/library/cente
r-for-the-study-of-
intelligence/csi-
publications/books-and-
monographs/psychology-of-
intelligence-analysis/
13

14. Analysis of competing hypotheses (ACH)
Hypothesis 1: Criminal prosecution of management, leading to changes in top management
Hypothesis 2: Public/civil action leading to non-awarding/cancellation of government contracts
Hypothesis 3: Blacklisting by CIDB (Construction Industry Development Board) which will mean that
companies cannot get awarded government contracts
Hypothesis 4: Prosecution by affected clients leading to lengthy expensive court cases
14
• It would be good news for
government’s infrastructure
development plans if
companies are not
blacklisted.
o There is not much other
capacity in the country to
handle large
infrastructure projects.
o If companies are struck
from the CIDB
contractors’ register
state-owned companies
are not allowed to
give them work.
Source: BI Team Analysis

15. Agenda
• Collusion in the South African construction industry
• Tracking
• Sense making
• Selection and application of analytical tools and techniques
• Sentiment analysis
• Relationship analysis
• Analysis of Competing Hypotheses (ACH)
• Informing the client
• Impact of collusion on South Africa’s infrastructure development
• Actionable Intelligence on Procurement for SIPs
15

16. Informing the client
16
The formation of JVs was the modus
operandi of the seven major JSE-listed
construction companies.
Amongst the seven companies 12 JVs were
formed for 54 projects liable for settlement
and 28 implicated projects that were settled.
Municipal projects that were affected were
mainly for the FIFA World Cup stadiums.
The majority of affected government projects
were roads projects for SANRAL.
Sectors in which affected clients operated and
number of clients in each sector
Total no. of clients: 35
Amongst the private companies
were clients from Zimbabwe,
Malawi and Botswana
Behaviour is important to
understand for future
procurement in order to put
measures in place that will
prevent collusion.

17. Informing the client
Financial
implications
Impact:
Low Leadership
Probability:
Likely
Impact:
High
Blacklisted /
Barred by
CIDB
Probability:
Unlikely
Impact:
Significant
Public opinion /
action
Probability:
Highly likely
Impact:
Significant
Source: BI Team Analysis
• Cosatu and Numsa calling for prosecution and dismissal of
management that were involved
• Black Business Council claiming black businesses were robbed
• Municipalities will have the opportunity to pursue claims in the
high court once the tribunal has concluded its findings and made
its order
• E-toll opposition outraged by road tender overcharge
• Criminal prosecution of board and/or top management
will damage reputation
• May lead to changes in leadership affecting
operational capacity and execution of strategy
• Executives that are hiding involvement of individuals
are tainting credibility and integrity
• Impact on reputation – locally and across borders
• No new government contracts
• Impact on performance will be significant
• Listed companies have made provision for penalties
• Companies are allowed to repay fines in instalments as agreed, over a period
• Will impact on cash flows of smaller companies
17

18. Informing the client
L
i
k
e
l
y
U
n
l
i
k
e
l
y
• South African company law does not
make provision for prosecution of
individuals.
• Internal investigations within
companies will try to find
scapegoats.
• Cosatu and Numsa have been
calling for criminal prosecution.
• E-tolling opposition has been
effective in stalling implementation.
• E-toll opposition was outraged by
road tender overcharge.
Public/civil action leading to
non-awarding / cancellation
of government contracts
Source: BI Team Analysis
Blacklisting by CIDB which will
mean that companies cannot get
government contracts
Prosecution by affected
clients
• The S.A. government will want to
preserve capacity for its infrastructure
development plan.
• The Minister for Economic development
has said government want to “reform the
industry, not destroy it”.
• Nine companies amongst private sector
clients were JSE-listed companies.
• Financially, they would be in a position to
initiate criminal prosecution of the guilty
colluders.
18
Criminal prosecution of
management, leading
to changes in top management

19. Agenda
• Collusion in the South African construction industry
• Tracking
• Sense making
• Selection and application of analytical tools and techniques
• Sentiment analysis
• Relationship analysis
• Analysis of Competing Hypotheses (ACH)
• Informing the client
• Impact of collusion on South Africa’s infrastructure development
• Actionable Intelligence on Procurement for SIPs
19

20. Impact of collusion on South Africa’s
infrastructure development
20
• In November 2011, the government published the National Development Plan, outlining
its vision to make meaningful, rapid and sustained progress in reducing poverty and
inequality over the next two decades.
• Infrastructure development is a cornerstone of these plans, with the goal of increasing
Gross Fixed Capital Formation to about 30% of GDP by 2030 (from 17%).
• As part of this plan, government has budgeted to spend R827bn on infrastructure
development over the next three years, by building roads, hospitals, dams, schools,
electricity plants and ports and rail systems.
• The value of major infrastructure projects in progress or under consideration in the
public sector totals R3.6 trillion, with R2.0 trillion being in the electricity sector and
R820bn in the transport sector.
• Several private sector projects have also been identified in the 18 Strategic Integrated
Projects (SIPs) of the Presidential Infrastructure Coordination Commission (PICC),
bringing the total value of projects being considered to over R4 trillion.
Source: PICC, 13 April 2012
The South African government’s infrastructure development plans

21. Presidential Infrastructure Coordinating
Commission’s (PICC)
Strategic Integrated Projects (SIP)
21
Source: PICC, 13 April 2012
(18 projects)

22. Impact of collusion on South Africa’s
infrastructure development
22
17 798
12 453
11 422
10 757
5 002
4 183
1 941
1 704
1 504
1 146
777
624
213
207
198
189
PPC Ltd
M&R
Aveng
WBHO
Group Five
Raubex Group
Distribution & Warehousing Network
Stefanutti
Afrimat
Basil Read
Calgro M3 Hlds
Esorfranki
Mazor Group
KayDav Group
Masonite Africa
Protech Khuthele
Rand million
Market cap of JSE-listed construction companies in the Construction & Materials
sector as at 5th September 2013
Companies found guilty of
collusion in June 2013
South African construction industry - major players

23. How did the companies benefit from colluding?
Sources: Competition Commission appendix. 2 & 5, 25th June 2013;
Company financial statements;
BI team analysis
According to the “2010 FIFA World Cup Stadia Agreement” during which Grinaker-
LTA, WBHO, Murray & Roberts, Group Five, Concor and Basil Read met twice in
or around 2006, the companies agreed that they should all aim to obtain 17.5%
profit margin in all the 2010 FIFA World Cup stadium projects.
Revenues and operating profit margins of JSE-listed construction companies
2010 to 2011
23

24. Impact of collusion on South Africa’s
infrastructure development
24
• These large contractors provide a necessary element of stability to the industry
through their ability to use their balance sheets to temporarily fund projects and
withstand losses on projects that incur cost overruns.
• Smaller contractors do not have this ability to withstand occasional shocks, as was
the case with the bankruptcy of Sanyati, which went bankrupt due to outstanding
payments for completed projects.
• Large contractors also provide invaluable opportunities for skills development to
young engineers due to their diversity of projects, geographic diversity and highly
skilled staff.
The importance of large construction companies with strong balance sheets to the
sustainability of the industry

25. Agenda
• Collusion in the South African construction industry
• Tracking
• Sense making
• Selection and application of analytical tools and techniques
• Sentiment analysis
• Relationship analysis
• Analysis of Competing Hypotheses (ACH)
• Informing the client
• Impact of collusion on South Africa’s infrastructure development
• Actionable Intelligence on Procurement for SIPs
25

26. Actionable Intelligence on Procurement for SIPs
26
• Business Intelligence must be involved in the commercial process prior to contract
award.
• To ensure that the Project Team is provided with intelligence which potentially has
value-add to the execution of initial project planning where appropriate.
“I wonder if we would be discussing collusion involving World Cup stadia in 2010 if
all parties had a transparent discussion at the time about capacity, skills and
finance.
I know that even if one firm successfully bid and won all the construction jobs they
would not have been able to do it off their own balance sheet or skills base. We are
now talking of R4 trillion infrastructure spend.”
Roger Jardine, former CEO of Aveng Africa. during a public lecture at Wits Business
School, 8th October 2013

27. Thank you
Louise Mitchell
Senior Advisor: Business Intelligence
Competitive Intelligence Professional (SCIP-CIP™)
Group Technology and Commercial Division
Eskom SOC Holdings Ltd
W: +27 11 800 6922
louise.mitchell@eskom.co.za