OFT fines construction firms

The Office of Fair Trading (OFT) has imposed fines totalling £129.5m on 103 construction firms in

for colluding with competitors on building contracts.

The decision follows an OFT Statement of Objections in April 2008 after one of its largest Competition Act investigations.

The OFT has concluded that the firms engaged in illegal anti-competitive bid-rigging activities on 199 tenders from 2000 to 2006, mostly in the form of 'cover pricing'.

Cover pricing is defined as one or more bidders in the tender process obtaining 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 give 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.

The OFT found that 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.

The government agency also found six instances where successful bidders had paid an agreed sum of money to the unsuccessful bidder, which is known as a 'compensation payment'. It was discovered that these payments of between £2,500 and £60,000 were facilitated by the raising of false invoices.

In their investigation, the OFT showed infringements affected building projects across England worth in excess of £200m including schools, universities, hospitals and numerous private projects from the construction of apartment blocks to housing refurbishments.

Out of the 103 firms, 86 received reductions in their penalties because they admitted their involvement in cover pricing prior to today's decision.

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.

The Office of Government Commerce and OFT have cautioned procurers against excluding the infringing firms from future tenders, as the practice of cover pricing was widespread in the construction industry and those that have already faced investigation can now be expected to be particularly aware of the competition rules.

Simon Williams, the OFT's senior director for this case, said bidding processes are designed to ensure clients and, in many cases, taxpayers receive the best possible choice and price without distortion.

‘This decision sends a strong message that anti-competitive and illegal practices, including cover pricing, must cease,’ added Williams. ‘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.'

Construction giant Balfour Beatty released a statement following the release of the OFT decision referring to fines applied to Mansell, one of its subsidiaries.

Balfour Beatty stated the £5.2m fine was for instances that took place before its acquisition of Mansell.

In light of the investigation, Balfour Beatty claims it has carried out a detailed audit of all its businesses to ensure that it is fully compliant with all aspects of competition law.

The company also stated that it has developed and implemented a comprehensive and detailed training and education programme for all key employees.