Construction giants could be fined millions for rigging contract bids

Published 31st Aug 2009

The Office of Fair Trading is expected to hit some of the biggest names in the construction industry with multimillion-pound fines next month, at the end of a four-year cartel inquiry.

However, industry insiders believe the fines will be much lower than those the sector was threatened with 18 months ago, as companies have co-operated with the competition watchdog to receive lenient treatment.

Crest Nicholson, Balfour Beatty, Kier, Carillion and Connaught were named among 112 companies alleged to have participated in cartel-type activity in bidding for public sector contracts worth up to £3 billion. It is thought to have been the widest inquiry carried out by the watchdog.

The OFT has the power to levy fines of up to 10 per cent of worldwide turnover, but the fines are expected to be far lower, because many companies have admitted their participation and the fortunes of the industry have worsened in the recession. Some of the bigger companies involved may pay only a few million pounds in fines, little more than a slap on the wrist for such leading players. About 100 companies face financial penalties, while some have gone under.

Construction companies were accused of ripping-off taxpayers to the tune of hundreds of millions of pounds through an industry-wide practice known as cover pricing. Companies would collude with one another, with some agreeing to make high and unattractive bids for public sector contracts, ensuring that the work went to their co-conspirators. By at least appearing to bid for the work, firms maintained a good relationship with local authorities and other clients.

In April 2008, the OFT said that cover pricing gave a false impression of the economy and led to inflated prices for work on schools, hospitals and local authority buildings. At the time, the watchdog said that the general rule of thumb was that cover pricing could lead to prices 10 per cent higher than those achieved where there was full competition. However, industry insiders say the OFT has since accepted that it had exaggerated the impact of the practice. Companies that have co-operated fully with the OFT will receive a discount on their fines.

Stephen Ratcliffe, director of the UK Contractors Group, which represents Britain’s biggest contractors, said: “These fines could not come at a worse time for the industry, which expects its output to have decreased by 20 per cent by the end of next year. Cover pricing was not the crime of the century because the motive was to avoid work. Even so, we also accept that the industry needs to be compliant with competition law and we have been working closely with the OFT.”

Hopes that the OFT’s decision will draw a line under the cover pricing saga may yet be dashed. Several local authorities have expressed interest in pursuing contractors for compensation on jobs where they think they have been overcharged.

The construction industry, which turns over £100 billion, is expected to shrink in value by about 10 per cent this year and the civil construction industry could be 20 per cent smaller next year, as public sector spending cuts start.

Last week the industry launched a new code of conduct in an attempt to clean up its damaged reputation and stamp out questionable practices that have evolved over years. Britain’s 25 biggest contractors have agreed to sign the code and the National Federation of Builders, which represents 1,500 small and medium-sized companies in England and Wales, is making the code mandatory for its members. In the wake of the OFT’s inquiry, all the main contractors have set up programmes to ensure that all bids comply with British and European competition law.

The OFT would not comment on the size or number of fines expected.

Source: ' Times '

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