Building companies are fined £130m for rigging bids
Von wholesale81, 05:55

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.”

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Mandelson turns to Brussels with Magna to shed 1,200 Vauxhall jobs
Von wholesale81, 05:52

Lord Mandelson sent a warning signal to Vauxhall’s new owner yesterday when he wrote to Brussels urging European competition authorities to examine the viability of its plans for the British carmaker.

The Business Secretary sent the letter to pearl jewelry Neelie Kroes, the European Competition Commissioner, as it emerged that Magna International is planning to dismiss between 1,100 and 1,200 workers from Vauxhall — about 20 per cent of the workforce — weeks after being selected as the successful bidder for Vauxhall and Opel, the European operations of General Motors (GM).

Details of the job cuts were leaked from Germany yesterday. German plants will lose about 17 per cent of their workers, according to the leaks, fuelling suspicion that Berlin, although not immune from the cuts, has put itself in a favourable position.

Whitehall had been pushing to extract pledges from Magna to minimise British job cuts in return for government loans, but the planned redundancies have leaked out before detailed discussions with Lord Mandelson have taken place.
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About 5,500 workers are employed by Vauxhall in two factories in Ellesmere Port, Cheshire, and in Luton.

Tony Woodley, joint general secretary of Unite, Britain’s biggest union, said that he was extremely concerned about Magna’s plans for the factories and feared even more severe job cuts in the medium and long term. He is hoping to meet Magna executives next week.

No details of how the cuts will affect individual plants in Britain have emerged, although Opel insiders said that the factory in Luton, which produces the Vivaro van, would be worst hit.

Whitehall insiders said last night that the inflatable bouncers Government was frustrated by the procedures that Magna had followed when it bid for Vauxhall. They were also astonished that Magna executives had still to circulate their detailed, formal business plans for GM Europe, in which they acquired a 51 per cent stake this month.

Lord Mandelson was thought to have been prepared to offer up to £400 million of government loans to Magna in return for commitments over Vauxhall jobs. Any state aid disbursed by Britain and funds already handed over by Berlin to secure German jobs are subject to European approval. Brussels can veto the money if competition regulators believe that the state aid serves as a political fix rather than being aimed at securing the long-term viability of a business.

Lord Mandelson’s letter to Ms Kroes sends a signal to Magna that it does not have a free rein in decisions over redundancies if it wants state aid. The Business Secretary is understood to have expressed concerns to her about the commercial viability of some aspects of Magna’s plans and also that the cost to both the German and British governments was far higher than would have been the case with rival bids.

Carl-Peter Forster, head of GM Europe and of the Opel supervisory board, said: “We always said we would have to restructure in order to stay competitive in the long term, given the massive crisis in the car industry.”

Magna agreed, as a condition of receiving €4.5 billion (£4 billion) in a bridging loan and credit guarantees, to akoya pearl jewelry keep all four German plants open.

Klaus Franz, head of the Opel works council, said that he was not prepared to accept the proposed job cuts in Germany, where the workforce will be reduced from 24,700 to 20,584 by 2011.

The biggest loser, under the plan, would be Belgium, where the Antwerp plant will be closed down completely, with the loss 2,517 jobs. Workers there are set to protest again today.

Mr Forster said: “We will, of course, being looking through all the possibilities for Antwerp to see if something can still be done. Naturally, we have to take into account the fact that all the investors believe that Antwerp cannot survive in the long term.”

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