Competition Commission v Rumdel Construction Cape (Pty) Ltd (017020) [2013] ZACT 71 (22 July 2013)

75 Reportability

Competition Law

Brief Summary

Competition Law — Consent Agreement — Collusive tendering — Competition Commission initiating complaint against Rumdel Construction for contraventions of section 4(1)(b)(iii) of the Competition Act — Rumdel admitting to collusive practices involving cover pricing in tender processes — Tribunal confirming consent agreement as an order, promoting transparency and competition in the construction industry.

Comprehensive Summary

Summary of Judgment

1. Introduction

This matter was an application before the Competition Tribunal for the confirmation of a consent agreement concluded between the Competition Commission (as applicant) and Rumdel Construction (Cape) (Pty) Ltd (as respondent) in terms of section 49D of the Competition Act 89 of 1998, read with the Tribunal’s powers to confirm such agreements as orders of the Tribunal.

The proceedings arose from the Commission’s broader construction-industry investigations into alleged collusive conduct, including collusive tendering, and from Rumdel’s decision to engage the Commission’s Invitation to Firms in the Construction Industry to Engage in Settlement of Contraventions of the Competition Act published on 1 February 2011.

The Tribunal heard the matter on 18 July 2013 and delivered its decision on 22 July 2013, issuing a short order confirming the parties’ agreed consent agreement (annexed to the Tribunal order as “A”).

The general subject-matter of the dispute concerned restrictive horizontal practices, specifically collusive tendering (bid-rigging) through “cover pricing” in the civil engineering subsector of the construction industry, and the appropriate administrative penalty and related compliance undertakings to resolve the matter by settlement.

2. Material Facts

The material facts relied upon by the Tribunal were those recorded in the consent agreement and were not treated as contested, since the matter proceeded on the basis of a negotiated settlement.

The Commission had initiated two complaints in terms of section 49B(1) of the Act. The first complaint was initiated on 10 February 2009 and related to alleged prohibited practices connected to collusive conduct in the construction of stadiums for the 2010 FIFA Soccer World Cup. The second complaint was initiated on 1 September 2009, following receipt of applications for immunity under the Commission’s Corporate Leniency Policy, and concerned alleged contraventions of section 4(1)(b) (price fixing, market allocation, and collusive tendering) in various construction projects and against multiple firms.

Following the Commission’s view that there was widespread collusion in the construction industry, the Commission issued an Invitation on 1 February 2011 to encourage settlement of alleged contraventions. Rumdel, described in the consent agreement as a privately owned engineering company operating in multi-disciplinary civil engineering construction, applied under the Invitation on 14 April 2011 and disclosed three non-prescribed prohibited practices. The consent agreement recorded that Rumdel was not the first applicant for leniency/settlement in respect of those particular prohibited practices, and that Rumdel was not implicated in any project which it did not disclose.

The three disclosed projects all concerned collusive tendering arrangements with Haw & Inglis (Pty) Ltd around August 2006, involving cover prices, and were identified as contraventions of section 4(1)(b)(iii) of the Act.

The first project was Phase III – Langeni Sawmill to R61 (Tender no. SCMU10-06/07-0055), for the upgrading of an existing gravel road to a black-top surfaced road, with the client being the Department of Roads and Transport of the Eastern Cape Province. Rumdel requested Haw & Inglis to provide it with a cover price to enable Rumdel to win the tender. The tender was awarded to Rumdel in accordance with the cover price arrangement, and the project was completed in July 2009.

The second project was the Upgrading of Trunk Road 57/3 from Alice to Middledrift (Tender no. NRA P.002-J030-2008M), where Rumdel received a cover price from Haw & Inglis to enable Haw & Inglis to win the tender. The client was SANRAL, the tender was awarded to Haw & Inglis in accordance with the cover price arrangement, and the project was completed on 16 November 2008.

The third project was Upgrading of T15 Mount Frere (Tender no. SCMU10-06/07-0043), for the upgrading of district road DR0815 Mount Frere to an R56 T-junction section, with SANRAL recorded as the client. Rumdel provided a cover price to Haw & Inglis “to ensure that both of them do not win the tender”. The tender was awarded to WBHO and the project was completed on 14 July 2010.

Rumdel expressly admitted that it entered into the agreements detailed for these projects with competitors in contravention of section 4(1)(b)(iii). The consent agreement further recorded undertakings regarding cooperation with the Commission, cessation of the conduct, preservation of information, and truthfulness of disclosure.

On penalty, the consent agreement recorded that the relevant projects fell within the civil engineering subsector, and that Rumdel agreed to pay an administrative penalty of R17 127 465, calculated in accordance with the Commission’s Invitation methodology as a percentage of annual turnover in the relevant subsector for the financial year preceding the Invitation.

3. Legal Issues

The central legal question for determination was whether the Tribunal should confirm the consent agreement between the Commission and Rumdel as an order of the Tribunal under section 49D, read with the Tribunal’s confirmation powers under section 58(1)(b) (as cited in the consent agreement).

A further issue inherent in the confirmation application was whether the agreed terms—particularly the administrative penalty and the forward-looking compliance and cooperation obligations—fell within the statutory framework governing prohibited practices and administrative penalties, as referenced in the consent agreement (including sections 58 and 59 of the Act).

The dispute did not require the Tribunal to resolve contested factual disputes or make credibility findings. It was primarily an application involving the application of statutory provisions to agreed facts and an institutional decision to confirm an agreed settlement, rather than adjudication of liability after a contested hearing. To the extent that confirmation involves an evaluative component, it concerned the Tribunal’s acceptance of the parties’ agreed resolution within the statutory scheme.

4. Court’s Reasoning

The Tribunal’s reasons, as reflected in the judgment text, were concise. The Tribunal recorded that it was presented with an order as agreed to and proposed by the Competition Commission and the respondent, and it proceeded to confirm that order, annexed as “A”.

The consent agreement itself set out the underlying statutory context relied upon by the parties. It located the admitted conduct within section 4(1)(b)(iii) of the Act, describing collusive tendering (bid-rigging) and explaining cover pricing as a mechanism by which tender processes are distorted such that bids and outcomes are not the result of competition on the merits.

The agreement also recorded the Commission’s settlement framework for the construction industry, the basis on which penalties would be calculated (turnover in the relevant subsector for the relevant year), and the undertakings required from settling firms, including ongoing cooperation and a competition law compliance programme.

On the face of the Tribunal order, the Tribunal’s reasoning was directed to the procedural function of confirming the settlement agreement presented by the parties, rather than re-litigating the merits or recalculating the penalty. The confirmation had the effect of making the agreed administrative penalty and compliance undertakings enforceable as an order of the Tribunal.

5. Outcome and Relief

The Tribunal confirmed the consent agreement as an order of the Tribunal in the terms proposed by the parties.

As confirmed, Rumdel became liable to pay an administrative penalty of R17 127 465 to the Commission within 30 days of confirmation, for payment into the Commission’s designated bank account, with the consent agreement recording that the penalty would be paid over to the National Revenue Fund in accordance with section 59(4) of the Act.

The confirmed consent agreement also imposed forward-looking obligations on Rumdel, including the development, implementation, and monitoring of a competition law compliance programme (to be submitted to the Commission within 60 days of confirmation), the circulation of a statement summarising the consent agreement to management and operational staff within 60 days, and cooperation obligations extending through subsequent proceedings in the Tribunal or Competition Appeal Court as contemplated.

No separate costs order was recorded in the Tribunal’s order as reproduced in the judgment text.

Cases Cited

No cases were cited in the judgment text provided.

Legislation Cited

Competition Act 89 of 1998 (as amended), sections 4(1)(b), 4(1)(b)(iii), 19, 21(1), 22, 26, 49B(1), 49D, 58(1)(a)(iii), 58(1)(b), 59(1)(a), 59(2), 59(3), 59(4), 67.

Constitution of the Republic of South Africa, 1996, section 217.

Construction Industry Development Regulations, 2004 (Government Notice No. 692 of 9 June 2004, published in Government Gazette No. 26427 of 9 June 2004), as amended, including the substituted Schedule 3 classes of construction work (Government Notice No. 898 of 14 November 2008, published in Government Gazette No. 31603 of 14 November 2008).

Corporate Leniency Policy (Government Notice No. 628 of 23 May 2008, published in Government Gazette No. 31064 of 23 May 2008).

Rules of Court Cited

No rules of court were cited in the judgment text provided.

Held

The Competition Tribunal confirmed, as an order of the Tribunal, the consent agreement concluded between the Competition Commission and Rumdel Construction (Cape) (Pty) Ltd in relation to Rumdel’s admitted contraventions of section 4(1)(b)(iii) of the Competition Act 89 of 1998 through collusive tendering arrangements involving cover pricing on three civil engineering projects. The confirmation rendered enforceable the agreed administrative penalty of R17 127 465 and the associated cooperation and compliance commitments set out in the consent agreement.

LEGAL PRINCIPLES

The judgment applied the principle that collusive tendering between firms in a horizontal relationship constitutes a prohibited restrictive horizontal practice under section 4(1)(b)(iii) of the Competition Act 89 of 1998, and that “cover pricing” is a form of conduct through which tender outcomes are distorted away from competition on the merits, consistent with the consent agreement’s description of bid-rigging.

The judgment further reflected the statutory mechanism by which the Competition Commission may negotiate and conclude consent agreements under section 49D, and the Tribunal may confirm such agreements as orders of the Tribunal under the Act. Upon confirmation, agreed terms such as an administrative penalty (as contemplated in sections 58 and 59) and compliance-related undertakings become binding and enforceable in the form of a Tribunal order.

Within the settlement framework described in the consent agreement, an administrative penalty may be determined by reference to the settling firm’s turnover in the relevant subsector for the specified period, and settlement may be coupled with forward-looking measures, including cooperation obligations and the implementation of a competition law compliance programme designed to prevent recurrence of prohibited practices.