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Statement from Dr Hennie de Clercq about Collusion in the Steel industry

The SAISC is not aware of any form of collusion, price fixing, division of markets or other practices in the steel construction industry. Knowing the industry and the processes and procedures by which companies are appointed to execute projects, we would be amazed if there is even much opportunity for being anti-competitive. In fact, the industry is exceedingly competitive.

It is common practice to ask at least five or six companies, and often many more, to tender for any project for steelwork. This is not an optimal procedure, because it is quite a costly exercise to bid for a project and ultimately clients also pay for the fruitless work of companies, but it does mean that the work usually goes to whoever offers the lowest price. This may also not be optimal, because the least quality-conscious contractor, or the one who did not quite understand the complexities involved, is often appointed.

Underlying the situation is the basic fact that the capacity of the steel construction industry exceeds the workload. That leads to fierce competition and prices that often do not adequately reward the contractor for his work. This is a buyer’s market. Going back to 2007 and 2008, the situation was radically different. There were times when clients had to virtually beg contractors to do their steelwork, at almost any price. But then companies had a different incentive not to collude, namely not to share these attractive projects with others.

On large or complex projects individual companies are sometimes not able to handle the work by themselves. In such a case, one of three different approaches is often followed. Firstly, the client, cognisant of the situation, can take the initiative to get groups of companies together, or encourage companies to form joint ventures. Secondly a company can invite another to form a joint venture or consortium with it. Thirdly, a company can, after it has won a tender, get other companies to serve as subcontractors. In each of these cases the client is fully informed of the fact that companies are working together, and will appreciate that the collaboration is to the benefit of the client.

These arrangements may give the impression that there is collusion, but, in my experience this is a standard and acceptable business practice that occurs all over the world.

In conclusion, I reiterate that as far as this Institute is concerned - and we are intimately connected to every facet of the steel industry and especially the steel construction industry - there is no collusion in this industry in South Africa where collusion means a conscious and underhand attempt to fix prices through negotiation.

Dr Hennie de Clercq.

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