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Thursday, April 24, 2008
UK Construction Firms accused of Bid Fixing
Reported by Miles Shepherd in the UK
Following one of the largest ever Competition Act investigations, the Office of Fair Trade (OFT) has issued a Statement of Objections (SO) against 112 firms in the construction sector in England. The OFT formally alleges that the construction companies named in the SO have engaged in bid rigging activities, and in particular cover pricing.
Cover pricing describes a situation where one or more bidders collude with a competitor during a tender process to obtain a price or prices which are intended to be too high to win the contract. The tendering authority, for example a local council or other customer, is not made aware of the contacts between bidders, leaving it with a false impression of the level of competition and this may result in it paying inflated prices.
Cover pricing arrangements have previously been found by the OFT and the Competition Appeal Tribunal to be illegal and in breach of the Competition Act 1998 due to the restrictions on competition that arise.
In addition, the SO formally alleges that a minority of the construction companies have variously entered into one or more arrangements whereby it was agreed that the successful tenderer would pay an agreed sum of money to the unsuccessful tenderer (known as a 'compensation payment'). These more serious forms of bid rigging are usually facilitated by false invoices.
The construction companies under investigation carry out general building work including construction of housing, as well as commercial and industrial construction both in the public and private sector. The SO allegations cover a diverse range of projects, including tenders for schools, universities and hospitals.
The OFT's investigation originated from a specific complaint in the East Midlands in 2004, but it quickly became clear from the evidence that the practice of cover pricing was widespread. The SO's formal allegations therefore cover neighbouring areas including Yorkshire and Humberside and also elsewhere in England. The OFT has also received evidence of cover pricing implicating many more companies on thousands of tender processes, but has focused its investigation on approximately 240 alleged infringements which are being pursued in the SO.
During the course of the investigation, the OFT carried out site visits at the premises of 57 firms. The OFT received 37 leniency applications in the investigation leading to this SO, and all other parties received an offer of a reduced financial penalty, which led to over 40 further companies subsequently admitting participation in some bid rigging activities.
No assumption should be made at this stage that there has been an infringement of competition law by any of the companies named in the SO. The 112 parties concerned now have the opportunity to make written and oral representations which the OFT will take into account before making a final decision as to whether competition law has been infringed, and as to the appropriate amount of any penalties the OFT may decide to impose on each of the firms concerned.
John Fingleton, OFT Chief Executive, said “Cartel activity of the type alleged today harms the economy by distorting competition and keeping prices artificially high. This investigation, together with the OFT's previous decisions in the roofing sector, will hopefully send out a strong message to the construction industry about the seriousness with which we view suspected anti-competitive behaviour. Businesses have no excuses for not knowing and abiding by the law.”
The Office of Fair Trade (OFT) is the UK's consumer and competition authority with a mission to make markets work well for consumers. OFT pursues this goal by: encouraging businesses to comply with competition and consumer law and to improve their trading practices through self-regulation; acting decisively to stop hardcore or flagrant offenders; studying markets and recommending action where required; and empowering consumers with the knowledge and skills to make informed choices and get the best value from markets, and helping them resolve problems with suppliers through Consumer Direct. The OFT is a non-ministerial government department established by statute in 1973. For more information, visit http://www.oft.gov.uk/.
Following one of the largest ever Competition Act investigations, the Office of Fair Trade (OFT) has issued a Statement of Objections (SO) against 112 firms in the construction sector in England. The OFT formally alleges that the construction companies named in the SO have engaged in bid rigging activities, and in particular cover pricing.
Cover pricing describes a situation where one or more bidders collude with a competitor during a tender process to obtain a price or prices which are intended to be too high to win the contract. The tendering authority, for example a local council or other customer, is not made aware of the contacts between bidders, leaving it with a false impression of the level of competition and this may result in it paying inflated prices.
In addition, the SO formally alleges that a minority of the construction companies have variously entered into one or more arrangements whereby it was agreed that the successful tenderer would pay an agreed sum of money to the unsuccessful tenderer (known as a 'compensation payment'). These more serious forms of bid rigging are usually facilitated by false invoices.
The construction companies under investigation carry out general building work including construction of housing, as well as commercial and industrial construction both in the public and private sector. The SO allegations cover a diverse range of projects, including tenders for schools, universities and hospitals.
The OFT's investigation originated from a specific complaint in the East Midlands in 2004, but it quickly became clear from the evidence that the practice of cover pricing was widespread. The SO's formal allegations therefore cover neighbouring areas including Yorkshire and Humberside and also elsewhere in England. The OFT has also received evidence of cover pricing implicating many more companies on thousands of tender processes, but has focused its investigation on approximately 240 alleged infringements which are being pursued in the SO.
During the course of the investigation, the OFT carried out site visits at the premises of 57 firms. The OFT received 37 leniency applications in the investigation leading to this SO, and all other parties received an offer of a reduced financial penalty, which led to over 40 further companies subsequently admitting participation in some bid rigging activities.
No assumption should be made at this stage that there has been an infringement of competition law by any of the companies named in the SO. The 112 parties concerned now have the opportunity to make written and oral representations which the OFT will take into account before making a final decision as to whether competition law has been infringed, and as to the appropriate amount of any penalties the OFT may decide to impose on each of the firms concerned.
John Fingleton, OFT Chief Executive, said “Cartel activity of the type alleged today harms the economy by distorting competition and keeping prices artificially high. This investigation, together with the OFT's previous decisions in the roofing sector, will hopefully send out a strong message to the construction industry about the seriousness with which we view suspected anti-competitive behaviour. Businesses have no excuses for not knowing and abiding by the law.”
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