South African Government

Let's grow South Africa together

Corruption is big business

03 July 2013

Phumla WilliamsAt the beginning of this year President Jacob Zuma fired the first salvo against construction firms engaged in collusive and anti-competitive behaviour in order to line their bank accounts at the expense of taxpayers and the economy.

The President, in his 2013 State of the Nation Address, warned: “We are cracking down on corruption, tender fraud and price fixing in the infrastructure programme.”

He said that the Competition Commission, which had collected a substantial dossier on improper conduct by large construction firms, was finalising its investigations into bid rigging in this industry.

Last week that process came to a head with 15 construction firms involved in collusion and anti-competitive behaviour coming clean through a settlement agreement reached with the Competition Commission.

In terms of a “Construction Fast Track Settlement Process” firms that made a full and truthful disclosure of tender rigging would receive lower penalties than those the Commission would seek if it had to prosecute their case.

The settlement process led to the dismantling of the construction cartels in relation to government tenders and identified the techniques used to steal taxpayer funds. It was found that construction firms colluded to create the false impression of competition by submitting ‘sham tenders’ in order for a particular firm to win.

In other instances, firms agreed that whoever won a tender would pay the losing bidders a “loser’s fee” to cover their costs of bidding. Sub-contracting a portion of the work was also used to compensate losing bidders.

The Commission’s investigation also revealed meetings among construction firms to divide markets and agree on profit margins. These revelations turn the perception that it is only within Government that such fraudulent and corrupt activities can be found on its head.

The Commission’s investigation makes clear that corruption is a broad societal problem to which the private sector is not immune. In cases within the public sector, we must remember it takes two to commit an act of corruption.

A total of 300 projects in both the public and private sector, valued at R47 billion were identified by the Competition Commission with settlements reached on collusion in 140 projects concluded after September 2006.

Twenty one companies took part in the fast-track settlement process, where negotiated settlements were reached with 15 companies who agreed to penalties collectively totalling R1.46 billion.

Those companies that find themselves outside of the process will now face the Commission’s full investigation and prosecution in the normal course. While we can take some comfort in the outing of those responsible, the damage inflicted on the economy is substantial.

Construction projects affected by the collusion and anti-competitive behaviour included the building of stadiums, the upgrading of airports, highway improvements (including the Gauteng toll roads), and the building of hospitals, dams and bridges.

Government’s investment in these infrastructure projects was part of its counter cyclical approach to deal with the global economic recession and help drive economic growth as well as support job creation.

The deliberate inflating of construction costs, particularly around the stadium projects, had stifled attempts to create much needed jobs and advance our economy when the country needed it the most.

Economic Development Minister Ebrahim Patel said: “When the state over-pays for construction projects, it means there can be fewer projects. Laying the longer term basis for growth is then restricted, the jobs that can be created are fewer and the costs the economy has to bear in increased taxes on individuals and businesses to pay for this is not good for the economy.”

The Minister said that it is for this reason that Government is strongly pushing the creation of an enabling, fair and competitive economy.

The conclusion of this case by the Competition Tribunal this month in July 2013, will also open doors for possible criminal investigations and for various state and private sector customers to pursue damages claims. The action of these players is crucial but should not divert our focus from creating the business environment we desire across all industries.

For the country it will help lower the cost of the public sector infrastructure building programme and lay the basis for longer-term growth. The private sector wins because it leads to the reduction in the cost of doing business.

It is the responsibility of business to actively root out those elements that deliberately practise collusion and anti-competitive behaviour. We urge the private sector to take this fight against corruption seriously so that it can be tackled from all sides.

When corruption is exposed in business, it is often investigated quietly and kept out of the public domain. Investigations often lead to dismissal but rarely result in or include criminal prosecution.

An obligation must be placed on the private sector to use the criminal justice system, not merely administrative sanctions to deal with corrupt activities.

Last month criminals who defrauded the state were made known and held accountable for their actions publicly by the Justice, Crime, Prevention and Security Cluster’s Anti-Corruption Task Team.

The naming of these criminals is proof of the intolerance of Government towards corruption. This aggressive stance aims to deter others from engaging in corrupt and criminal activities.

Moreover, since 2009 President Zuma has signed 34 proclamations directing the Special Investigating Unit (SIU) to investigate allegations of corruption, fraud or maladministration in state entities.

Our zero tolerance to corruption will take us closer to our vision for 2030 as articulated in the National Development Plan (NDP) where South African society is characterised by high ethical standards and integrity.

Let us not confine efforts to root out corruption through plea bargains or settlements. We must act today and blow the whistle on corrupt activities in both the public and private sector.

Phumla Williams is acting CEO of the Government Communication and Information System (GCIS)