Esor companies fined R15.7m for price-fixing and bid-rigging

Three companies that formed part of the former JSE-listed civil engineering and geotechnical construction group Esorfranki, later renamed Esor, have been collectively fined R15.7 million by the Competition Tribunal.

The tribunal found that Esor Ltd, Esor Africa (Pty) Ltd and Esor Construction (Pty) Ltd contravened sections of the Competition Act in that from at least 1999 to 2008 the companies were part of a construction cartel that concluded agreements among themselves, fixed tender prices and allocated tenders/customers and projects among themselves, and engaged in bid-rigging through cover pricing.

Cover pricing involves creating the illusion of competition by some firms submitting non-competitive bids to enable a fellow conspirator to win a tender, with the winning bidder paying a “loser’s fee” to the firm that provided the cover price.

Esor, which filed for business rescue in August 2018, had its listing on the JSE terminated in June 2020.

Read: Esor submits construction subsidiary to business rescue

Esor Construction CEO Wessel van Zyl said on Friday that none of three entities have funds available for any lengthy legal action.

“Although our erstwhile legal team believe[s] that there is no evidence linking Esor to the list of contracts, we do not have the financial means to appeal,” he said.

Van Zyl said Esor Limited and Esor Africa are still in business rescue while Esor Construction successfully exited the business rescue process in March 2019.

“Following the ruling and the quantification of a penalty, the final creditor liability can now be finalised and a dividend will be paid to creditors to close off the Esor Construction business rescue process,” he said.

The case is linked to a fast-track settlement process initiated by the Competition Commission that resulted in 15 construction companies concluding consent agreements in 2013, in which they agreed to pay penalties totalling R1.46 billion for collusion and bid-rigging.

Read:
Construction sector collusion and bid-rigging settlement agreement in trouble
Competition settlement: Only two construction firms up to date on payments

The commission initiated the case against Esor and the other respondents in March 2009 and referred it to the tribunal on March 2 2011.

Van Zyl said Esor has always maintained, through then CEO Bernie Krone, who passed away in 2021, that Esor withdrew from the so-called book club in 2005 and did not participate in any further practices.

The tribunal found the construction cartel formalised what was known as the Piling Group or the Book Club, which was an arrangement to fix prices and collusively tender for geotechnical projects, including piling, lateral support, drilling, and grouting.

Some of the projects included the Lusip Dam in Swaziland, the Sappi/Saiccor piling project, the Moses Mabhida Stadium piling project, the Braamhoek Dam Grouting project, the Coega Harbour diaphragm wall project, the Gautrain Rapid Rail Link project, the Olifantsfontein Treatment plant and the Lesotho Highlands Water Project.

The case against Diabor Pty (Ltd), one of the remaining respondents in the matter, was dismissed.

CompCom welcomes decision

The Competition Commission on Friday welcomed the tribunal’s decision to find the Esor group of companies guilty of price-fixing, market allocation and collusive bidding in construction-related markets for geotechnical services.

Four other companies were initially cited as respondents but reached settlement agreements with the commission.

In terms of these settlements:

• Geomechanics CC and Geomech Africa (Pty) Ltd, which are part of the same group, agreed to pay a total fine of about R1.65 million for collusive tendering on certain projects. The tribunal confirmed this settlement agreement in October 2016.
• Rodio Geotechnics (Pty) Ltd agreed to pay a fine of R885 963 for collusive tendering on nine projects in a joint venture with Grinaker-LTA’s ground engineering division. This settlement was confirmed by the tribunal in April 2018.
• Dura Soltanche Bachy agreed to pay a fine of R988 589.08 for collusive tendering on 11 construction projects, with this settlement agreement confirmed by the tribunal in November 2015.

All these firms were initially charged with Grinaker-LTA, the leniency applicant in the case and then the Southern African construction and engineering business of JSE-listed Aveng.

Grinaker-LTA was subsequently sold in 2019 to the black-owned Laula Consortium.

The commission alleged that from the 1970s to at least 2015 the eight respondents colluded on various tenders.

It further alleged that the companies colluded through “formal arrangements” until 2005 and thereafter were engaged in “ad hoc arrangements”.

In its pleadings, Esorfranki admitted to participating in the formal arrangements but claimed these arrangements stopped in 2005, more than three years before the commencement of the commission’s investigation in 2009.

It argued the commission could therefore not bring the case against it in terms of a section of the Competition Act which, before the 2018 amendments, specified that a prohibited practice complaint may not be initiated more than three years after the practice has ceased.

The tribunal dismissed Esorfranki’s argument after finding the conduct pertaining to the projects allocated prior to September 24 2005 continued at least until after June 2008.

Esorfranki admitted participating in collusive conduct on one Sappi/Saiccor project but the commission accused Esorfranki of involvement in several ad hoc arrangements.

The tribunal noted that the case against Esorfranki revolves around the degree of its culpability and not whether it was culpable at all, adding that the ad hoc collusion was part and parcel of the overall agreement and not something new that started after 2005.

“It might have withdrawn from the formal arrangements, but its collusive conduct that was the subject of the overall agreement under the formal arrangements, continued at least until June 2008. Its conduct after 2005 could be characterised as a continuation of the overall agreement albeit in a different form,” he tribunal said.

“But even if the ad hoc arrangements are not characterised as such, we find that Esorfranki’s collusive conduct in the Sappi/Saiccor project had not ceased three years prior to the commission’s initiation in April 2009,” it added.