Tuesday, 11 November 2014 12:17

Group Five refusing to pay their share of the R1,46bn fine

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It might have been the biggest corporate scandal in recent years, but there is still one maverick construction firm holding out against the Competition Commission's collusion cops.

 Mike Upton

Group 5, one of South Africa's "big four" construction giants alongside Murray & Roberts, Aveng and WBHO, has dug in its heels and is now refusing to pay the "fine" levied on it in reparation for years of fixing the prices of mega projects.

In its new annual report, Group 5 CEO Mike Upton says that a settlement has "not been concluded due to a lack of evidence and remaining factual discrepancies". Which is quite a brave stance, considering that Group 5 was as guilty as any of the others.

The projects on which it either fiddled prices, colluded, or provided "cover prices" to manipulate tenders included the Gauteng Freeway Improvement Project, the Durban International Convention Centre, the Greenpoint Stadium built for the 2010 World Cup and projects for Sappi and the University of Cape Town.

It's also brave because every other firm has settled, agreeing to pay their share of the whopping R1.46-billion fine levied on the construction firms to bury the entire sordid episode. Still, in a few weeks, these competition issues will become someone else's problem as Upton is leaving Group 5 next month.

Upton remains, however, unrepentant about defying the commission. Of course, this may seem a bit rich, considering that Group 5 was a pivotal player in the collusion, yet it hasn't paid the massive reparations its competitors have because it got "leniency" from the commission on most projects for being the first to come clean.

The dispute revolves around the fact that while Group 5 got "leniency" for its disclosures, the commission itself discovered four other matters and wanted to fine the company for those. "Those four matters . we don't agree with the interpretation the commission has," says Upton. "The implications of acknowledging something we don't agree we did are potentially onerous, and to do that would not be responsible to our shareholders," he says.

This is probably true. The threat of clients who have been ripped off Sanral or Sappi, say coming back and claiming money they overspent on projects isn't just an idle threat. Throw in threats from the industry body, the Construction Industry Development Board, to "deregister" bid riggers, and you can see why Group 5 is panicking. This is why, as Upton says, "we must be very sure that we really did do it. If we didn't believe so, we need to see proper evidence".

What doesn't help is that Group 5 has set aside a "contingent liability" to cover this fine, but won't reveal how much that is not exactly irrefutable proof that it has turned the corner for transparency. Upton says this is because this case is "fairly sensitive". So have any of those clients issued summonses so Group 5 can, in the words of an unruly parliamentarian, "pay back the money"? No, says Upton. "We've had a couple of conversations, and managed to clear up concerns, but nothing formal," he says.

This one fact illustrates exactly why the construction collusion issue has infuriated the public just as much as Tiger Brands's involvement in fixing bread prices back in 2008. Despite the fact that your taxes were used to pay above the bar to build World Cup stadiums that, in many cases, now lie empty, and despite the fact that executives sat in smoky rooms and did crooked deals to fiddle prices knowing it was illegal, nothing much has happened.

No one has gone to prison for this, or even been arrested. No one has even been publicly shamed, and in some cases those bent executives still work for those same companies. In general, the private sector likes to think of itself as far more ethical than government, more rigorous and answerable for its decisions. And in most cases, it's probably true. But if the main cancer seeping into South Africa's body politic is a lack of accountability, the construction bosses are in some cases just as culpable as any politician with a holiday home in KwaZulu-Natal.

Source: Business Times

Last modified on Tuesday, 11 November 2014 19:06

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