Antoinette Slabbert
2 minute read
11 Apr 2014
8:30 am

Construction graft ‘exaggerated’ – Laas

Antoinette Slabbert

The slow roll-out of government's infrastructure spend is partly due to mistrust of the construction industry, following earlier disclosures of collusion, Murray& Roberts (M&R) CEO Henry Laas says.

A grader carries PPC Surebuild cement to a construction site in Soweto. PPC expects 40% of its revenues to be earned outside of South Africa by 2017. Picture: Desiree Swart.

But he believes that perceptions in government about the impact of the collusion on the cost of construction projects are exaggerated.

The collusion had more to do with managing limited industry capacity to deliver on a number of major projects, especially before the 2010 Fifa Soccer World Cup, Laas said yesterday.

Laas said M&R traded at very narrow margins the last few years, “in the lower single digits”. “Where did the perceived benefit occur?” he asked.

He said the Local Organising Committee first approached the industry at a meeting about available capacity to build the stadiums.

He said the “fatal flaw” was that the industry did not apply to the Competition Commission for exemption from the Competition Act on the grounds of the need to manage capacity.

He said government believed it was defrauded by “hundreds and thousands of millions and billions of rands”, which was not the case.

He described the impact of collusion on the image of the industry and trust in it as “catastrophic”, but the financial impact was overstated.

Industry leaders had met government twice to try rebuild the relationship. The last meeting was on Tuesday night and it was attended by four government ministers. He would not disclose who they were, but said they were heading departments relevant to infrastructure delivery.

The promotion of new delivery models, advocated by PPC Chief Executive Officer Ketso Gordhan was a further effort to bridge the gap, Laas said.

He said construction companies had entered the Competition Commission’s fast-track settlement process mostly without having proof that it was indeed the case, on the premise that that would be the end of the matter.

That was however not the case and the possibility of criminal prosecution and civil claims still remained. “The shade of this is still hanging over the share price”, he said.

He said if that was the route the Competition Commission and government wanted to go, companies would think twice about disclosures in future.

M&R earlier said it would engage six former directors who were implicated in collusion. Four of them are in South Africa, one in Australia and one in Ireland, Laas said. Their identities were not disclosed.

A confidential financial settlement had been reached with one local director in exchange for an undertaking that M&R wouldn’t pursue a civil claim against him. He would not disclose the amount the director paid to M&R. Meetings with two others had taken place and a meeting with the four local directors was imminent, Laas said.

M&R had reported all six to the police and justice would have to take its course, he said.

While M&R has not taken any decision to disinvest from South Africa, about 80% of its earnings before interest and tax was earned outside the country. “We realise we cannot rely only on South Africa for our long-term future,” Laas said.