Construction firms’ £129.5m fines ‘should be returned to councils’

Author: Press Association

Local Government Association (LGA) chairman Margaret Eaton said there were
“simply no excuses” for collusion.

She said the fines should be returned to the councils and other public bodies
which have suffered from the practices, rather than filling central
Government coffers.

“It will come as a shock to residents that some construction companies have
rigged bids for contracts at taxpayers’ expense.

“Firms that are found to have colluded to inflate prices should not only have
to apologise to the public but also should consider giving money back to
local areas where this activity has taken place,” she added.

But unsurprisingly the construction industry has railed against the fines,
which come at a time when the industry is suffering its worst downturn on

Stephen Ratcliffe, director of the UK Contractors Group (UKCG), called them
“punitive” and based on practices not prevalent in the current market.

He also attacked the regional focus of the probe, and said they would cost
more jobs in an already beleaguered industry.

“Everybody knows – including the OFT (Office of Fair Trading) – that cover
pricing was widespread in the industry in the past. It is perverse and
unfair to impose such disproportionate penalties on a small number of
contractors selected by geographical sampling,” he said.

The UKCG introduced a new code of conduct in August and said each of its
members has compliance procedures in place to meet competition law.

But lawyers also warned that if under-pressure firms are forced out of
business, the punishment could also have the opposite effect.

Andrij Jurkiw, partner in the Competition team at DLA Piper, said: “If many
businesses are “tipped over the edge” as a result of today’s fines, this
will lead to reduced competition as opposed to increased competition – an
outcome the OFT will surely not be looking for.”

The individual firms who have commented so far have also been keen to
emphasise the historic nature of the offences.

The UK’s biggest builder, Balfour Beatty, saw subsidiary Mansell fined £5.2
million for practices before it became a part of the group. Likewise
Carillion – hit for £5.4 million – said the fines related to contracts
tendered by Mowlem, which it bought in 2006. “The decision does not involve
any other business within the Carillion group,” it added.

Galliford Try struck a more defensive tone over its £8.3m fine, noting that it
was not found to have made any financial gain, and the eventual price paid
by the client had not increased.

The firm said it would “consider carefully the detail of the OFT’s findings
and consider whether any further action is required, including any grounds
for an appeal”.

But there was no initial reaction from the companies hit hardest by the OFT –
Kier and Interserve. The penalties imposed on the two firms – £17.9m and
£11.6 million respectively – were described as a “real shocker” by Royal
Bank of Scotland analyst Mark Howson.

“These latter two hadn’t really made much about the issue previously and may
have somewhat underestimated the potential impact,” he said.

He said the two firms could be weighing up the chances of challenging the
penalty. He said: “Whilst we would understand the emotion of going for an
appeal, there are obvious dangers of the press honing in on these companies
during the appeal process and the potential for reputational damage with
their clients. Either way it will not be an easy decision.”

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