Aveng’s legal face-off with Tirisano fund over annual payments

JSE-listed construction and engineering group Aveng has thrown down the gauntlet to the government over the group’s failure for three consecutive years to pay its annual contribution to the Tirisano Construction Fund (TCF).

The TCF has consequently instituted litigation against Aveng to enforce compliance.

But Aveng said last week that it is defending the matter.

The TFC board said in response to a Moneyweb query that subsequent to an investigation by the Competition Commission into collusion in the construction industry, several construction companies concluded an agreement with the government – the Voluntary Rebuilding Programme (VRP) settlement agreement – to contribute towards the transformation of the construction industry.

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The board said the fund was created to facilitate and implement this agreement and it has taken a number of steps to achieve this purpose.

“Aveng has not complied with the terms of the agreement and litigation has been instituted against Aveng to enforce compliance. The court papers are a matter of public record,” added the TCF.

“At this stage in the litigation it is inappropriate to comment further on the legal proceedings or the merits of the disputes. We expect the matter to be set down for hearing in due course,” it said.

Aveng said on Thursday the ongoing litigation is being dealt with in the normal course and it would not be appropriate to discuss the intricacies of the dispute and related litigation in the media.

The latest TFC annual report said that as of July 2021, Aveng had paid R63.8 million but defaulted on its July 2019, 2020 and 2021 contributions.

Aveng agreed to pay R21.25 million a year to the TCF for the duration of the agreement.

However, Aveng CEO Sean Flanagan told Moneyweb last month prior to the TCF instituting litigation against the group that there has been correspondence government on this but “I would caution to say that we reneged on payment or failed to make payments”.

“There is a dispute as to whether or not government in fact were fulfilling their side of the contract and that is what ultimately will need to be unravelled whatever dispute mechanism the parties decide to engage.

“We will certainly vigorously resist any claim from government on this,” he said.

Consistent workflow 

Asked to expand on what he meant by the government’s failure to fulfil their obligations in terms of the agreement, Flanagan said that prior to 2010, the government promised that if the construction industry invested in new capacity and delivered the World Cup, it would ensure there was a consistent flow of work.

“You, like any citizen in South Africa, knows that government has failed to make any real and significant investments in any infrastructure in the country since [the World Cup],” said Flanagan.

“I think the last significant investments were Medupi and Kusile [power stations], which was in 2007,” he noted, adding that the government also promised to ensure that contractors got paid.

“These were all things that were part of that agreement, which we [Aveng] were involved in when we still owned Grinaker LTA, and many of our competitors felt particularly aggrieved about this,” he said.

This is a reference to the sale by Aveng in 2019 of its former Southern African construction and engineering business Grinaker-LTA to the black-owned and controlled Laula Consortium.

Aveng said on Thursday this transaction was in alignment with Aveng’s transformation objectives and to give effect to the provisions and objectives of the VRP.

Construction mafia

“At the time, the transaction was lauded as one of the most significant transformation transactions in the building and construction industry in South Africa. Unfortunate policies, practices and market conditions, including features such as the construction mafia, has caused a rapid deterioration of the building and construction sector in South Africa.”

“It is this destruction of a once thriving sector which has drawn matters to a head,” said Aveng.

Seven then JSE-listed construction companies signed the VRP settlement agreement with the government in 2017 as part of an agreement to collectively contribute R1.25 billion over 12 years to support the TCF for socio-economic development and to undertake further transformation initiatives.

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The VRP agreement settled the civil damages claims by government against the seven companies stemming from the admissions by the companies in their settlement agreements with the Competition Commission for bid-rigging and collusion on projects in the build up to the 2010 Fifa World Cup.

Several of these companies are behind on their annual payments and/or have renegotiated the date of the payments while others, such as Group Five and Basil Read, have entered into business rescue proceedings.

WBHO and Raubex are the only companies that signed the VRP settlement agreement that are up to date with their annual payments to the TCF.

Construction industry organisations have also criticised the way in which the TCF has been managed and its programmes implemented.

The Black Business Council for the Built Environment (BBCBE) last year demanded re-engagement on the VRP because of the council’s extreme unhappiness about how the VRP settlement agreement has been implemented.

The BBCBE claimed black-owned construction companies have not benefited from the VRP.

Master Builders South Africa (MBSA) and the SA Forum of Civil Engineering Contractors (Safcec) have both been critical of the way in which the industry contributions to the TCF have been used, particularly the limited benefits flowing from the fund to emerging contractors.

This criticism resulted from allocations to enterprise development programmes targeting black contractors totalling only 23.8% of the total funds committed by the TCF since inception up to March 2021 and 51.36% or just over R148 million of the total R288.25 million committed in this period being allocated to social infrastructure programmes.

However, commitments to enterprise development programmes by the TCF increased to R142.5 million from inception until end-March 2022 while commitments to social infrastructure in the same period totalled R134.4 million.

This article originally appeared on Moneyweb and was republished with permission.

Read the original article here.

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