Building companies are fined £130m for rigging bids
More than a hundred construction companies were fined nearly £130 million yesterday after illegally colluding in bids to secure building projects, including schools and hospitals.
The Office of Fair Trading said that it had uncovered about 4,000 tenders that had been distorted by anti-competitive activities. The companies involved had driven up the price of the projects by agreeing to playground equipment submit artificially high quotes and, in some instances, compensating rivals for the cost of tendering.
One of the victims was Amsprop, a property firm run by Daniel Sugar, the son of Lord Sugar, Gordon Brown’s business adviser. Lawyers said yesterday that the construction companies could face legal claims by councils and other property owners who had been affected.
The OFT handed out fines to 103 companies, which amounted to more than 1 per cent of their total turnover — an average of £1.3 million per company. The biggest fine was £17.9 million against the Kier Group, while Balfour Beatty was fined £5.2 million and Carillion £5.4 million.
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The investigation began after a tip-off by a council in the East Midlands in 2004. It focused on illegal bid rigging and “cover pricing”, where companies collude to create an artificial tender process. In its simplest form, companies that do not have the resources to take on a job but still want to inflatable bouncers remain on tender lists obtain an inflated price from a rival and submit it, knowing that their bid will not succeed.
In six of the examples cited by the OFT, the collusion involved payments by the successful bidder to compensate a rival for the cost of tendering.Cover pricing was once so widespread that it was even described in industry textbooks. “The practice had been going on for years and was so common people didn’t even realise it was illegal,” Andreas Stephan, a competition expert at the University of East Anglia, said. In their defence, the construction companies argued that the practice was intended to prevent them losing future business rather than to overcharge clients and that often there was no financial advantage.
The OFT said that it had not quantified the level of financial loss caused by the collusion. A spokesman said: “We didn’t have to prove that there was a loss, just that there was an infringement of competition law.”
Some of the projects affected by the collusion were the refurbishment of a listed building at a Church of England primary school in Derbyshire, the construction of a diabetes clinic at City Hospital in Birmingham, the renovation of derelict council flats in Nottingham and the construction of three community leisure complexes in Lincolnshire. The fines were lower than expected, however. The OFT had come under pressure from trade bodies and the Government to soften its stance against an industry reeling from the economic downturn. It set total fines at £195 million initially, but this was discounted because many of the companies co-operated with the investigation. Nine companies named in the OFT’s preliminary statement of objections in April 2008 were let off because of a lack of evidence.
Stephen Ratcliffe, director of the UK Constructors’ Group (UKCG), said: “These fines could not have come at a worse time for the industry. It’s going through its sharpest downturn on record. These punitive fines will be hard to absorb and will cost jobs.”
Mr Ratcliffe welcomed guidance by the OFT urging public bodies to avoid blacklisting the companies subject to yesterday’s decision. In August the National Federation of Builders and the UKCG introduced a code of conduct aimed at showing the industry’s commitment to naughty castles stamping out anti-competitive behaviour, but the OFT said that there was evidence that bid rigging was still taking place.
Simon Williams, the OFT’s senior director on the case, said: “Bidding processes designed to ensure clients and 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 must cease.”
Alan Ritchie, general secretary of the construction union Ucatt, said: “The cover pricing scandal demonstrates why the construction industry cannot be trusted to police itself . . . bid rigging has undoubtedly led to local authorities and the public sector paying over the odds for contracts.”
