CONSTRUCTION 2015PETRA KRUSCHECOMPETITION LAW

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-contracting2

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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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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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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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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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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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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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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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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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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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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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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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

THANK YOUJason Smit and Petra Krusche October 2015

Legal notice: Nothing in this presentation should be construed as formal legal advice from any lawyer or this firm. Readers are advised to consult professional legal advisors for guidance on legislation which may affect their businesses.

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