Rebuilding the image of the construction industry

Posted On Monday, 29 April 2013 07:26 Published by Commercial Property News
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The suggestion that CEs of construction companies should sign a contract to make them personally liable in cases of collusion has been slated by the industry as a step too far.

Roger JardineEarlier this month, economic development minister Ebrahim Patel said CEs should take personal responsibility for transparency at their organisations. To achieve this, he said, they would be made to sign "a kind of contract".

Anticompetitive behaviour has been endemic in the construction industry for decades. Companies have carved up contracts between them through a cartel dubbed "the party". They have colluded, fixed prices, exchanged commercially sensitive information and rigged tenders.

Offending firms say they have put in place their own measures to root out and prevent further collusive behaviour. Murray & Roberts CE Henry Laas says he has implemented processes to educate employees on the provisions of the Competition Act. But this is no guarantee that individuals will never transgress laws, including competition laws.

"CEs are responsible for putting good systems and processes in place to prevent collusive behaviour in their organisations, but cannot personally guarantee that collusion will never occur. Individuals who have transgressed must be held liable, and if it is the CE [who is at fault], the CE must held liable," says Laas. M&R has drafted its own declaration that employees who compile and finalise tenders are required to sign, stating that they have not contravened competition laws.

Every year, its executives also have to sign a declaration that they have not, during the past year, contravened the act. If they have any knowledge of potential transgression, they are asked to disclose it.The group has also introduced its own penalties for violations. Laas believes M&R has set up enough processes to hold its employees liable. "Signing a contract is perhaps taking it a step too far. Will CEs in time also be expected to sign contracts to take personal liability for the transgressions of any other legislation by executives or employees?"

Aveng CE Roger Jardine agrees. "I don't believe it is either legally correct or practically feasible to ask a CE without fault to assume personal liability for the unlawful behaviour of others." However, the company and its CE must remain accountable as provided for under company law, the Competition Act and other legislation.

The boards of companies, CEs and other executives must take responsibility for fostering a culture of corporate governance and ethics across the business, including the eradication of anticompetitive behaviour, says Jardine. Where rogue employees stray outside company policies and break the law, they should be made to take personal responsibility for their behaviour, he says.

Basil Read supports the idea of cleaning up the industry, says deputy CE Donny Gouveia. But why single out CEs?, he asks. Instead, legislation should be passed that makes all transgressors liable. Patel's anger is understandable. Many of the offending contracts uncovered during the competition commission's probe into collusion in the industry are large government infrastructure projects, including stadiums that were put out to tender in the lead-up to the 2010 soccer World Cup. These projects were priced at high margins, and firms enjoyed record profits, which fuels government's anger and disappointment.

The commission will wrap up its three-year investigation within the next few months by slapping offending firms with penalties. It is investigating projects worth a total of about R30bn. But it is also expected to be lenient towards firms that were first to come forward with information.

More recently, the Directorate for Priority Crime Investigation (the Hawks) launched its own investigation into the industry. And there is the possibility of litigation by disgruntled clients.

But a contract may not necessarily enhance accountability. SA already has successful competition legislation, says Norton Rose competition law head Heather Irvine. The competition commission has acted in the spirit of the act. It is a very effective government institution, she says.

Instead of enacting new legislation that would make executives liable, Irvine says, government should finalise the Competition Amendment Act, which contains proposals for personal criminal liability. The act was passed by parliament but is awaiting President Jacob Zuma's signature.

Personal criminal liability is international best practice, and has already been enacted into law in some countries. Irvine says it is unclear how other forms of liability, as suggested by Patel, may be enforced. If it is merely a moral pledge, there are questions about enforcement.

Irvine says Patel's comments echo what is already taking place at some levels of government. Local government authorities, for example, ask firms to sign a declaration before they qualify to tender for a project. If they are found to be in breach of this, the local authority has the power to cancel a contract.

But to make the same principle applicable to CEs, rather than the entire company, won't necessarily achieve government's objective, Irvine says. What government can do instead is to enhance the capacity of the Hawks to investigate complicated economic crimes, Irvine believes. More resources, improved investigation skills and a system to prioritise crimes will have a real impact on the policing of offences like collusion.

Last modified on Friday, 21 June 2013 20:27

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