Constructing a fortress when the wolf is amidst!
16/05/2011

Introduction
Constructing a fortress when the wolf is amidst is not only futile but also denies one the opportunity to engage in meaningful damage control. This article invites firms and participants in collusive and anti-competitive conduct to stop walking with their eyes wide shut and carefully consider the unforeseen consequences of that “informal gathering” with old friends and colleagues in the industry last summer at which a specific project or tender was discussed.
Invitation to Construction Firms
Section 4(1)(b) of the Competition Act, 1998 (“the Act”) provides that an agreement between firms, or concerted practice by firms, or a decision by an association of firms, is prohibited if it is between parties in a horizontal relationship (competitors) and if it involves directly or indirectly fixing a purchase or selling price or any other trading condition; dividing markets by allocating customers, suppliers, territories, or specific types of goods or services; or collusive tendering.

On February 11, 2011 the Competition Commission (“the Commission”) applied the last train, last coach, last handle approach by inviting construction firms that have been party to collusive practices in bidding for projects in the public and private sector, such as the alleged bid-rigging in the construction of stadia for the 2010 FIFA Soccer World Cup, to come clean and apply for fast-tracked settlement based on truthful disclosure of information regarding collusion and anti-competitive conduct.

The Commission has indicated that it will apply the first in through the door policy, with the result that the first firm to approach the Commission to apply for settlement in relation to a specific transaction, prohibited practice or series thereof will reap the benefits of the settlement process. As it stands, the last train is due to depart on April 15, 2011 at midday, with the Commission having the sole discretion to extend the period should it deem it necessary.
What’s on the Table?
Construction firms that have engaged in prohibited horizontal practices in terms of section 4(1)(b) of the Act may apply to enter into a settlement process with the Commission. An applicant would have to, amongst others, complete an application form FTP1 available on the Commission’s website, agree to pay a reduced administrative penalty determined by the Commission and comply with the requirements of the settlement process.

On submission of the application, the Commission will evaluate the application together with the supporting information and documents provided by the applicant. Thereafter, the Commission shall prepare a consent agreement to be presented to the applicant for acceptance or rejection whether in full or in part.

If the applicant accepts the terms of the consent agreement, the Commission will have the consent agreement made an order of the Competition Tribunal (“the Tribunal”). However, if the applicant rejects the Commission’s offer and an agreement cannot be reached, the Commission may refer the matter to the Tribunal on the basis of the alleged contravention of the relevant provisions of the Act, whereupon the Tribunal may impose hefty administrative penalties.
Evaluation
When evaluating the application, the Commission will review it for compliance with the requirements for the settlement process. An application that does not substantially comply with the requirements may be rejected outright, or the Commission may direct the applicant whose application is not substantially deficient, to rectify such deficiency within a specified period, failing which the application will be rejected. The Commission may also require the applicant to provide additional information and documents that it deems relevant and necessary. Any omission of material information may result in the application being rejected. Applicants are also allowed to classify certain information as confidential.
Disclosure Requirements
The information that applicants are expected to disclose includes the following:
• project or tender names and reference numbers;
• tender proposals and amounts quoted;
• the names of other firms and individuals involved;
• the date on which the prohibited conduct started or ceased (i.e. when and where the meetings to allocate tenders were held);
• whether such conduct is still continuing;
• description of the nature of involvement;
• the contact details and job descriptions of the participants; and
• the amount and benefit received as a result of their participation.
Sanctions
Administrative Penalties
Applicants that enter into consent/settlement agreements with the Commission will pay reduced administrative penalties compared to penalties that may have been applied if the matter were prosecuted separately, with firms that have received conditional immunity for certain conduct being exempt from paying any administrative penalties in terms of the settlement process.

Construction firms that fail to apply in terms of the settlement process but are implicated in the documents of other applicants that take advantage of the settlement process will face the full brunt of the law. It is expected that the settlement process will provide the Commission with the evidence it requires to prosecute firms that fail to apply within the prescribed time.

Section 59(1)(a) entitles the Tribunal to impose administrative penalties for prohibited practices in terms of section 4(1)(b) of the Act. Section 59(2) limits the administrative penalties that the Tribunal can impose to 10% (ten percent) of the firm's annual turnover in South Africa and its exports from South Africa during the firm's preceding financial year.

Criminal Sanctions
Section 73A of the Competition Amendment Act, 2009 (“the Amendment”) imposes criminal sanctions against persons found to have caused or permitted a firm to engage in prohibited practices in terms of section 4(1)(b) of the Act. At this stage, the Amendment is not yet in force and as such directors, officials and managers involved in such activities can let out a sigh of relief, dust themselves off and move on with life, or so we all hope.

Although the Amendment is still on ice, it is important for all participants in prohibited horizontal practices in terms of the Act, be they directors, officers and/or employees of such firms, to bear in mind that nothing contained in the Act or the Amendment thereto prevents the Commercial Crimes Unit of the South African Police Services (“the CCU”) from investigating the same conduct under the provisions of section 12 and/or 13 of the Prevention and Combating of Corrupt Activities Act, 2004 (“the PCCA”).

Use of Confidential Information in Criminal Proceedings

Section 69(2)(b) of the Act provides that it is not an offence to disclose confidential information concerning the affairs of any person or firm obtained in the carrying out of a function in terms of the Act or as a result of participating in any proceedings in terms of the Act, if it relates to information disclosed for the purpose of the administration of justice.

Nothing in section 44, 45 and 45A of the Act suggests that the confidentiality of information provided to the Commission in terms of the Act is airtight. In fact, the general indication in the said provisions is that a participant will have to jump through enough hoops to ensure that the confidential information disclosed to the Commission is kept as such, only for the Commission and the Tribunal to deem it necessary to provide such information to the CCU and the National Director of Public Prosecutions (“the NDPP”) for purposes of the administration of justice under section 69(2)(b) of the Act.

Based on the above analysis, it is clear that nothing prevents the Commission from providing the confidential information disclosed in any application for settlement to the CCU or the NDPP for purposes of instituting criminal proceedings against the participants in terms of the PCCA for corrupt activities relating to contracts as well as corrupt activities relating to the procurement and withdrawal of tenders.

The crime of corruption in relation to contracts and/or tenders under the PCCA is wide enough to include aiding and abetting, attempt, incitement, conspiracy to commit the offence and being an accessory to or after the fact, to name but a few. Conviction in terms of the PCCA brings with it heavy sanctions ranging from between five years to life imprisonment depending on the court of sentencing so participants have to carefully consider their positions and weigh up the cost.

The Rights of an Accused
In order to do further justice to the exercise, it is important to consider whether a participant may rely on any of the provisions of the Constitution of the Republic of South Africa, 1996 (“the Constitution”) in order to avert conviction under the PCCA based on information that the applicant provided to the Commission as part of the fast track settlement process.

Section 35(3)(j) of the Constitution provides that every accused person has a right to a fair trial, which includes the right not to be compelled to give self-incriminating evidence.

The question arises as to whether a participant may rely on this provision as a defence and the answer is not so clear since the applicant will in most instances be the firm and not the participant, on a voluntary basis. Therefore, it is not likely that section 35(3)(j) will hold.

Section 35(3)(m) of the Constitution provides that every accused person has a right to a fair trial, which includes the right not to be tried for an offence in respect of an act or omission for which that person has previously been either acquitted or convicted.

On closer scrutiny, this provision does not grant a participant meaningful protection as the Commission is likely to penalise the firm or the applicant and not the participant per se for engaging in prohibited practices in terms of the Act. Accordingly, it may be possible for a participant to be convicted under the provisions of the PCCA for engaging in conduct for which the firm has already been granted a settlement in terms of the fast-track settlement process under the Act.
Conclusion
Although the invitation to construction firms to apply to the Commission in terms of the fast-track settlement process provides construction firms with an opportunity to salvage the situation from a financial perspective by paying reduced administrative penalties, it provides little or no protection for all participants in their personal capacity against possible prosecution for corrupt activities in terms of the PCCA.

In terms of the settlement process, the Commission requires disclosure of sensitive information. Such disclosure has the potential to place participants whose names are disclosed therein in hot water. In my view, a parallel process should be in place prior to the submission of applications, in terms of which participants may obtain immunity from prosecution under the PCCA.

At this stage, the submission of an application in terms of the fast-track settlement process without brokering a corresponding deal with the NDPP to prevent prosecution for offences in terms of the PCCA would be like jumping out of a plane at thirty thousand feet and scrambling for a missing parachute on the way down or better still, constructing a fortress when the wolf is amidst.
Mamarame Matsela
Professional Assistant