The Office of Fair Trading has named and shamed 112 construction companies that it says have been guilty of illegally colluding when bidding for contracts, to try and force up the price. Its four-year investigation centred on a tactic called ‘cover pricing’, the practice of deliberately submitting an excessive bid for a contract you don’t want to win. This isn’t technically illegal – unless of course you secretly agree these bids with your rivals in advance, to give the purchaser a false impression of the competition and force them into paying well above the market rate. And particularly when you get a little sweetener for your troubles from the winning bidder.
To make matters worse, most of these contracts were for public sector projects like schools and hospitals – so it was usually our hard-earned cash at stake. At a time when the parlous state of the UK economy has highlighted our huge public borrowing, this is particularly galling (and there might be some red-faced civil servants around too).
The builders are protesting that cover pricing is just a way of avoiding work without upsetting the client, to make sure they're not removed from future tender lists - it certainly wasn't a way to make money at taxpayers' expense. And the cynic might point out that cover-pricing can also be good for the purchaser – if they’ve chosen their preferred supplier and can’t be bothered shopping around, they could create their own 'cover pricing cartel' by gathering some dummy quotes – although there’s no suggestion that happened here, we hasten to add.
Still, the miscreants involved (including industry giants like Balfour Beatty and Carillion) now find themselves in serious hot water. About two-thirds of those named have already bashfully held their hands up and asked for leniency, in an attempt to mitigate their inevitable fine – under competition law this could be up to 10% of turnover, which is not exactly what you need when your industry is about to get hammered by a serious economic downturn (especially since most of these companies are relatively low-margin businesses). It might be a nice little earner for the public purse in the short term – but the inevitable long-term effect will be that customers pay more for their building projects. Which is where we came in…
All 112 companies have now received the statement of objection from the OFT, and will be given a few months to put together a response. We’re not quite sure why they’ve been given so long to reply, but perhaps it’s because they need to go and have a smoke, drink six cups of tea and leaf through a copy of the Sun before they get round to writing back.