Building firms fined for price rigging

THE Office of Fair Trading has imposed fines totaling �129.5million on 103 construction firms across the country which it found had colluded with competitors on building contracts.

THE Office of Fair Trading has imposed fines totaling �129.5million on 103 construction firms across the country which it found had colluded with competitors on building contracts.

The decision follows preliminary ruling by the OFT in April last year after one of its largest ever investigations under the Competition Act.

The OFT has now concluded that the firms engaged in illegal anti-competitive bid-rigging activities on 199 tenders between 2000 and 2006, mostly in the form of “cover pricing”.

Cover pricing is where one or more bidders in a tender process obtains an artificially high price from a competitor. Such cover bids are priced so as not to win the contract but are submitted as genuine bids, which gives a misleading impression to clients as to the real extent of competition.

This distorts the tender process and makes it less likely that other potentially cheaper firms are invited to tender.

In 11 tendering rounds, the lowest bidder faced no genuine competition because all other bids were cover bids, leading to an even greater risk that the client may have unknowingly paid a higher price, said the OFT.

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It also found six instances where successful bidders had paid an agreed sum of money to the unsuccessful bidder, known as a “compensation payment”.

The infringements affected building projects across England worth in excess of �200 million including schools, universities hospitals, and numerous private projects from the construction of apartment blocks to housing refurbishments.

Eighty-six out of the 103 firms received reductions in their penalties because they admitted their involvement in cover pricing.

Within the East of England, Norfolk-based R G Carter, which operates from a dozen sites across the region, including offices in Ipswich, Bury St Edmunds and Colchester, is fined a total of �2,981,580.

Stowmarket-based Haymills, which was acquired last month by Vinci Construction UK after going into administration, is fined a total of �781,440.

Of this, �769,593 relates to the period before May 2004, during the firm's ownership by former parent company Corringway Conclusions, and �11,848 to the period after that date when the company was the subject of a management buy-out.

Ipswich-based ISG Jackson, which was named in the OFT's orginal report, is not the subject of a fine, although its north of England sister company, ISG Regions Building (formerly Totty Building Services) is fined �98,042.

Both companies are now part of the building services group ISG but, during the period covered by the OFT inquiry, were part of the Propencity Group.

The OFT has also informed nine companies originally listed in its Statement of Objections that it will not pursue allegations of bid-rigging against them as it considers it has insufficient evidence to proceed to an infringement finding.

Simon Williams, the OFT's senior director for the case, said: “Our investigation has uncovered significant infringements of competition law on nearly 200 projects across England. Bidding processes designed to ensure clients and in many cases taxpayers receive the best possible choice and price were distorted, creating a real risk of increased prices.

“This decision sends a strong message that anti-competitive and illegal practices, including cover pricing, must cease.

“The OFT welcomes initiatives by the leadership of the construction industry to add weight to that message through a clear compliance code which we hope will help to embed more fully a culture of competition within the construction sector.”

However, the UK Construction Group (UKCG), which represents 29 contractors, branded the decision to fine the companies as “unfair”.

UKCG director Stephen Ratcliffe said the industry was already reeling from the housing market downturn and recession.

“Everybody knows - including the OFT - that cover pricing was widespread in the industry in the past,” he said.

“It is perverse and unfair to impose such disproportionate penalties on a small number of contractors selected by geographical sampling.”