Building firms fined over ‘bid-rigging’

Author: By Kelly Macnamara, Press Association

Several major companies – including Balfour Beatty and Carillion – are among
those listed by the Office of Fair Trading (OFT) as having colluded with
competitors on building contracts.

The OFT said it had detected bid-rigging activities on projects across England
worth more than £200 million, including schools, hospitals and apartment
blocks.

The OFT said it had found 199 tenders dating from 2000 to 2006 where
bid-rigging took place.

This was mostly in the form of so-called cover pricing, where one or more
bidders arranges for competitors to put down high bids so as not to win the
contract but to increase the appearance of competition.

“This distorts the tender process and makes it less likely that other
potentially cheaper firms are invited to tender,” the OFT said.

It added that in 11 instances the lowest bidder faced no genuine competition
at all as all other companies involved in the tender had put down cover
bids.

The OFT warned that today’s revelation could be just the tip of the iceberg,
with the practice of cover pricing described as “widespread and endemic”
in the construction industry.

It uncovered evidence of cover pricing in over 4,000 tenders involving more
than 1,000 companies but said it had to focus on the companies and instances
where evidence was strongest.

In six instances, the OFT found that money had changed hands between the
firms, with the successful bidder paying “compensation” up to
£60,000 to its unsuccessful rivals by raising false invoices.

Of the firms fined today, 86 received a reduction in their fines because they
admitted their involvement in cover pricing.

The average fine was £1.26 million, which the OFT said represented 1.14% of
their annual worldwide turnover.

Some representatives of the construction industry reacted with anger to
today’s fines.

The UK Construction Group (UKCG), which represents 29 contractors, called the
decision to penalise the firms “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.”

The OFT has recommended that both public and private authorities putting
projects out to tender should not automatically exclude the listed firms
from bidding for future contracts.

But it warned: “It should not be assumed that the OFT would take a similar
view in future cases.”

Simon Williams, the OFT senior director on the case, said: “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.”

It welcomed a code of practice drawn up by the industry to ensure the message
is reinforced.

The OFT investigation began after an auditor in Nottingham raised the alarm in
2004 and it “quickly became clear from the evidence that the practice of
cover pricing was widespread”.

Incidents covered in the investigation are mainly focused on the East
Midlands, Yorkshire and Humberside regions.

The OFT said it does not have an estimate of how much extra the taxpayer and
private organisations will have paid because of the bid-rigging.

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