Some of the UK's biggest building companies - including the likes of Balfour Beatty, Carillion and Kier - have been slapped with fines totalling almost £130m by the Office of Fair Trading, after being caught red-handed in a price-fixing scam. The OFT found 103 firms guilty of something called cover-pricing, where they collude on tender bids to try and force the client into paying more. It's an outrageous practice that appears to have been rife throughout the construction industry - and it's clearly cost the taxpayer (and private developers) millions. But is anyone really surprised...?
The way it worked, apparently, was that all the potential bidders for a local contract would get together - no doubt in smoke-filled rooms, fuelled by industrial-strength tea and Digestives, and compare their bid prices. Those companies that didn't actually want the work would agree to submit an artifically high bid, thus creating a false impression of the fair price and forcing the client (whether that be a local authority, or private developer) to pay more for the winning bid. The successful bidder would then sometimes share the proceeds (as 'compensation') around the group. According to the OFT, this happened on no fewer than 199 tenders between 2000 and 2006.
Clearly there was a concern about kicking an industry that's already on its knees - given the current climate, if firms were blacklisted as a result of this probe, they probably wouldn't survive (hence why the Government said today that this would be the extent of their penalties). And it's true that the problem is partly a result of the way these contracts are awarded, particularly for public projects. Quite sensibly, there's an emphasis on getting a number of bids to ensure value for money. And if firms don't tender for a particular job, they run the risk of dropping off the preferred suppliers list for the next time round. So it's not hard to see where the temptation to collude comes from.
Nonetheless, any kind of collaborative price-fixing is illegal - and the firms concerned were clearly bang to rights, since 86 of them confessed all after charges were brought (in April last year) to try and secure a lighter penalty. Since they could technically have been fined up to 10% of their turnover - which would be a pretty big deal for someone like Balfour Beatty - that would be very painful indeed. Instead, with Kier receiving the biggest fine of £17.8m, you might argue that they've got off relatively lightly. After all, even the UK Construction Group's only complaint was that it was unfair to 'single' out these 103 firms when the practice was so rife across the industry - hardly a great defence, and hardly likely to rid the general public of the perception that builders are all a bit dodgy...
In today's bulletin