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New twist in R429m civil damages claim against construction companies

Claim against WBHO, Aveng and Stefanutti Stocks relates to collusion and bid-rigging ahead of 2010 Fifa World Cup.
The beautiful game was marred by some not-so-beautiful game-playing around the fast-tracked construction of what is now called Cape Town Stadium. Image: Supplied

The City of Cape Town’s R429.47  million civil damages claim against listed construction groups WBHO, Aveng and Stefanutti Stocks – related to collusion and bid-rigging on the Greenpoint Stadium, now called the Cape Town Stadium – has taken a new twist.

The claim was set down to be heard in the Gauteng North High Court earlier this year.

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However, City of Cape Town mayoral committee member for finance Ian Neilson confirmed to Moneyweb last week that the parties have jointly agreed to refer the matter to arbitration, with the arbitration set to take place early next year.

“The arbitration award, once made, will be made an order of court,” he said.

“Arbitration should lead to a more expeditious outcome of this long-running dispute.”

Stefanutti Stocks stated recently that the trial date for the civil damages claim had been set for the first quarter of 2020, but had been postponed and the matter would be dealt with in an arbitration. “The group remains confident it can defend this claim,” it said.

Attempts to obtain comment from Aveng were unsuccessful.

WBHO previously said it did not believe the City of Cape Town had suffered any damage and would be defending the claim.

Construction fast-track settlements

The claim was lodged in 2015 following admissions made by the construction companies in the Competition Commission’s construction fast-track settlement process – through which companies were promised leniency in exchange for coming forward to divulge details on deals in which anti-competitive practices had taken place in the tendering process to build World Cup stadia.

At the time, it was the first claim lodged following the conclusion of the commission’s construction fast-track process.

Read:

This process resulted in the Competition Tribunal in 2013 confirming that settlement agreements had been reached between the commission and 15 construction companies, including seven listed firms, in terms of which they collectively agreed to pay fines totalling R1.46 billion for bid rigging and collusive tendering.

The Green Point Stadium was among the projects listed by WBHO and Stefanutti in a settlement that was confirmed by the tribunal.

Both companies admitted that they had reached agreement with Group Five in December 2006 to provide a cover price for this project to ensure that Group Five did not win the tender.

Stefanutti Stocks admitted receiving a cover price from WBHO to ensure that it could submit a non-competitive bid and ensure that WBHO was awarded the tender.

The tender was awarded to the Murray & Roberts (M&R)/WBHO joint venture, and the project was completed in December 2009.

M&R previously said the group had not been cited in the civil damages claim because it did not collude on the project.

The group said it had an open book negotiation with the City of Cape Town and its proposed margin and revenue for the project was shared with the client.

The SA National Roads Agency (Sanral) subsequently in May 2016 became the second state entity to pursue civil damages claims related to the construction fast-track process, when it lodged claims with a total value of between R600 million and R700  million against WBHO, M&R, Concor (which merged with M&R in 2006), Group Five, Basil Read, Stefanutti Stocks and Raubex.

Voluntary rebuilding agreement

However, these six listed companies and Raubex agreed in October 2016 to collectively contribute R1.5 billion towards development projects and committed to promote transformation and black participation and ownership in the sector in terms of the Voluntary Rebuilding Programme (VRP) agreement reached with the government.

The VRP settled the exposure of these companies to claims by Sanral plus any other potential claims from public entities arising primarily from the construction fast-track process.

However, the VRP did not settle the City of Cape Town’s civil damages claim related to the Cape Town Stadium.

Neilson confirmed last week that the City of Cape Town is pursuing the claim against WBHO, Stefanutti and Aveng and that “no party has joined Group Five to the proceedings”.

City of Cape Town media manager Luthando Tyhalibongo said in 2018 the city was then “considering its position” in regard to Group Five.

Group Five is in business rescue and the company’s listing on the JSE was removed on June 15. In terms of the business rescue plan, all of Group Five’s assets will be sold and the company will cease to exist once the business plan is fully implemented.

Read: The World Cup: Competition and corruption

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COMMENTS   8

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Kudos to CT for pursuing this through to the end. What happened to the other cities?

Ten years later…. WTF???

Only one entity will actually benefit; the lawyers.

They probably dragged it out for 10 years and are hoping for even longer.

Pathetic. Pocket change compared to ANC looting. #voetsekANC

The practice of issuing cover prices in construction has been ongoing for a long time and is a reflection on the spare capacity of the tenderers. The margins on which construction companies operate are ridiculously thin given the risks and are farcical as compared to what is going on today in the procupement of goods and sercices by agencies of government and local. aurhorities as reported in the media.
The net result is that large generators of employment like M&R, Basil Read, Group 5 and Stephanutti Stocks have imploded to the detriment of our economy.
WTF.

Wiseguy:

I have full sympathy for saying we need a strong engineering sector

But, what these people were doing is blatant fraud. I feel sorry for ordinary workers and site managers and young professionals that lost their jobs because the (typically non-engineer) suits in head office were pulling scams to boost their absurd pay packages and bonuses

The soccer stadium period coincided with many other large projects, including the coal stations and pumped hydro storage project that ran multiples over budget. That whole period is a very sad reflection on what was a very good sector on international ratings. In 2008 we were considering a significant project. Our independent consulting engineers (does this still exist?) kept saying their QS are coming up 30% short of the bids. Maybe we just had too much work 2007-2010, so a constraint based sector milks to get the most bang for resources.

And at end of day the workers and shareholders end up footing the bill long after the hired help C-types have left the building site with their executive pay packages.

This subject is like an old pot plant with roots growing out the bottom drainage holes.
There are various counter arguments for both sides of the coin, most ignore the 3rd rim side of all coins, if you flip it long enough the odds exist for landing on neither heads of tails but it can land on the 3rd side straight up.
Here is a simple list of queries and possible spin-off questions.
How much did FIFA walk away with the closure of their affair with the 2010 from South Africa ?
How many foreign civil or construction contractors in particular Chinese were even allowed to bid for these projects ?
Had they been involved how many more Billions would have filtered out of SA ?
How much of the petty-cash returns from the SA contractors in the “arranged tenders” made it out of SA ? Probably zero, ok maybe some of what local officials and political parties also scored from the deals did filter out.
What makes Cape Town and SANRAIL so special, what about ESKOM and the latest two disaster power station projects ?
Or better what about the smaller contractors who were pushed out of the coffee meetings where the “arrangements” were made ? what do they now score from being good boys ? oh yes, most have gone belly-up.
What about what a particular political party scored from the Durban stadium ?
The day will come where all of these Contractors will disappear of the map and then the foreigners will move in and the tide will swing round all over again.
Again, construction sector quality/wellbeing = political status.

End of comments.

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