Watchdog to probe price-hike formula

Competition Tribunal suggests Competition Commission embark on advocacy work to determine legality of formula for contract price escalations created by some industry associations.

Johannesburg - The Competition Tribunal has suggested the Competition Commission embark on advocacy work to determine the legality of the formula for contract price escalations created by some industry associations.

Norman Manoim, the chairman of the tribunal, made this suggestion during a hearing this week to consider the confirmation of a consent agreement between the commission and listed construction and engineering group Murray & Roberts (M&R) and Freyssinet Posten for price-fixing, market allocation and collusive tendering on more than 60 projects.

Freyssinet Posten was an equal joint venture between M&R and Soletanche Freyssinet Group of France. M&R sold its entire shareholding in the joint venture in about November 2011.

“If a formula used… is considered to be acceptable to some extent then the commission needs to give an indication to the industry. If its not and a way of price formation of the collusive price, that indication should also be given to the industry,” Manoim said.

Indices

Andrei Wessels, a member of the tribunal panel, added that the indices used for the formula might or might not be good proxies for cost.

“How would a potential claimant in this matter determine if it has a damages claim? Does the commission feel that there would have to be discovery around these indices so that a customer that feels it has a potential claim can determine damages as a result of this practice?” he asked.

Layne Quilliam, appearing for the commission, said the commission would certainly cast an eye over this and identify the risk and do further investigations to assist third parties in their civil claims.

Rudolph Labuschagne, appearing for M&R, said he did not have information about the input figures used for the price adjustment formula.

Quilliam said the commission in its submission referred to the Steel and Engineering Industries Federation of SA (Seifsa) or the indices published by Statistics SA and its understanding was that Seifsa collated these indices.

“I’m equally in the dark on the mechanics behind what was used to build up these indices,” he said.

The tribunal confirmed the consent agreement in terms of which M&R and Freyssinet Posten agreed to pay a fine of about R4.7 million.

BUSINESS REPORT