A lesson from the builders

The Competition Commission is investigating the infrastructure construction industry.

It this week said it is concerned about the apparent lack of competitive pricing in bids for tenders worth several billion rand to build soccer stadiums for next year`s World Cup.

According to the Business Report newspaper the commission is also concerned at cost escalation since the 2004 and a discrepancy in the escalation between stadiums being built for the World Cup versus “others”?

Labour Research Service, the Cape Town-based trade union think-tank, has researched the cost of the Cup bid and says in 2004 the estimated cost of the infrastructure was about R2.3 billion.
“By October 2006 this had jumped to R8.35 billion. The estimated cost to the taxpayer of the stadiums and related infrastructure is a whopping R17.4bn,” says the think tank.

Business Report says competition authorities around the world have found evidence that anticompetitive activity is widespread in the construction industry.

“In the UK a cartel investigation uncovered evidence of bid-rigging in public sector tenders and private contracts.
“Similar conduct was found in Japan, the Netherlands, France and Hungary. These anti-competitive tendencies are attributed to the high degree of co-operation among firms,” the paper said.

Business Report separately notes three of the eight construction companies named have denied wrongdoing. Mike Upton, the chief executive of Group Five, said he did not have any concerns about his group’s behaviour and the process involved for the contracts it was awarded.

Millard Arnold, the group legal counsel for Murray & Roberts (M&R), said it encouraged and supported what the commission was doing. Arnold said it was in the best interests of the country, industry and all concerned that queries about collusion or behaviour that tainted the award of the deals be dealt with.
“The bids we won were won fair and square. Since we won, prices have gone through the roof for many reasons,” he said.

M&R, in a joint venture with Wilson Bayly Holmes-Ovcon (WBHO), won the deal for the Green Point stadium.

Louwtjie Nel of WBHO said the contracts were fiercely contested and included bids from global contractors. Nel said: “We’ve got zero to hide on this.”

Three points come to mind.

Defence industry opponents like to portray the sector as uniquely corrupt. As the results of similar Competition Commission probes into the bread, pharmaceutical and chemical industries – just here in South Africa – we know this is untrue.

Not that this justifies corruption, whether it is bribing or receiving favours.

Arnold`s comments are welcome and should be a benchmark for other industries. When the detractors come welcome and support a fair investigation. It can only do a sector credit. Let`s hope the Competition authority will thoroughly investigate and that Arnold and Upton will be found correct.

The cost escalations raise a further issue. Again, opponents like to accuse defence manufacturers of cost and time overruns. While these are indeed far too common – especially in the United Kingdom these days – the Competition Commission probe under discussion here shows the problem is not unique to defence.

And many contrary examples can be found – one being Denel Dynamics`s A-Darter programme. CEO Jan Wessels says the development programme, now halfway through its five year lifespan, is on time, on target and on budget. Beat that builders!