1. www.salga.org.za 1 MANAGING MAJOR INFRASTRUCTURE DEVELOPMENT: LESSONS ON COMPETITIVE RIVALRY IMPACT OF THE CONSTRUCTION CARTEL ON MUNICIPALITIES AND MANAGEMENT THEREOF

2. www.salga.org.za BACKGROUND The Competition Commission conducted a number of investigations in the product market of the construction sector. The Commission concluded that bid rigging is widespread. There was evidence of bid rigging in respect of contracts associated with the 2010 World Cup related infrastructure in some of the hosting municipalities. We have been able to ascertain that our member municipalities were impacted as follows:-

3. www.salga.org.za FINANCIAL IMPACT NELSON MANDELA STADIUM- NELSON MANDELA BAY METRO R1,97B SOCCER CITY STADIUM NASREC PEDESTRIAN PROMONADE JOHANNESBURG METRO R2,03B

4. www.salga.org.za FINANCIAL IMPACT contd…… GREEN POINT STADIUM CAPE TOWN MUNICIPALITY R7,3B

5. www.salga.org.za FINANCIAL IMPACT contd.. DURBAN ICC BAYHEAD KHANGELA BRIDGE DURBAN HARBOUR TUNNEL- ETHEKWINI MUNICIPALITY R557M MBOMBELA STADIUM NELSPRUIT R1,2B

6. www.salga.org.za IMPACT ON MUNICIPALITIES The Construction Cartel has fuelled maladministration, public fraudulence and imperilled the capacity of municipalities to fulfil its obligations to respect, protect, promote and fulfil all the rights enshrined in the Bill Of Rights. When cartel behaviour and organised crime flourish, sustainable development and economic growth are stunted and in turn the stability and security of society is put at risk. Anti-competitive behaviour in the construction industry hampers not only the development of the economy as a whole but also government employment initiatives.

7. www.salga.org.za IMPACT ON MUNICIPALITIES 7 MUNICIPALITYPROJECTSIMPLICATED FIRM Nelson Mandela BayNMB Stadium Grinaker LTA/WBHO/Murray&Roberts/ Group 5/ Concor/Basil Read/ Stefanutti City of Joburg Soccer City N17 Road Link Northern Waste Water Grinaker LTA (Stefanutti) Group 5 (WBHO) Group 5 (Grinaker LTA) Ethekwini Durban ICC Bayhead Rd Ext Group 5 /WBHO (Grinaker LTA) Stefanutti-Basil Read /WBHO PolokwanePeter Mokaba StadiumWBHO/Liviero/Concor MbombelaMbombela Stadium Grinaker LTA/WBHO/Murray&Roberts/ Group 5/ Concor/Basil Read/ Stefanutti City of Cape TownGreen Point Stadium WBHO / Murray & Roberts (Group 5)

8. www.salga.org.za POTENTIAL DAMAGES CLAIM The returns on collusion are very, very great. It is nearly impossible to tell how big the problem is. Although cartels and price-fixing distorts markets in what should be recognisable ways, detecting their activity remains a tricky problem – unless somebody breaks the silence. Bid rigging and cartels undermines the democratic ethos, the institutions of democracy, the rule of law and the foundational values of our nascent constitutional project. Under the guidance of SALGA, municipalities are now exploring damage claims related to cartel overcharge. There is a wide range of cartel overcharges that have been estimated, typically around 10-30%.

9. www.salga.org.za CHANGES NEEDED FOR PROPER MANAGEMENT CHANGES NEEDED!! WHO SHOULD PLAY THE ROLE?

10. www.salga.org.za CHANGES NEEDED FOR PROPER MANAGEMENT contd……. SUPPLY CHAIN MANAGEMENT Supply chain management is a challenge for municipalities of any size and is a continual evolution. The supply chain planning process along with inventory and procurement has always been the focus to increase profitability. There is a dire need for integrated analysis across the entire supply chain process from supplier to sub-contractor. A programme has to be developed and designed to address problems relating to planning and management of infrastructure delivery. Developing and institutionalising best practice systems and tools to render and sustain infrastructure. Provide a system for enhancing the know how and capacity of infrastructure delivery managers within municipalities who are responsible for procuring services.

11. www.salga.org.za IMMEDIATE INTERVENTIONS Understanding complexity Managing Risks Early Involvement Planning and Scheduling Coordinating Adapting for different project environments Procurement and contracting approaches

12. www.salga.org.za VISION FOR FUTURE PRACTICE IMPROVED CORDINATION, COSTING AND CONTROL OFFERED BY CONSTRUCTION SUPPLY CHAIN MANAGEMENT IS AN ACHIEVABLE VISION

13. www.salga.org.za THE END