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OFT alleges bid rigging naming 112 construction companies

17 April 2008

The OFT has formally alleged that a number of construction companies have engaged in bid rigging activities, and in particular cover pricing. The Construction Confederation calls for a sensible and proportionate response to their findings.

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 (see press notices 49/07 and 50/07), 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 companies issued with undertakings are:
1. A. H. Willis & Sons Limited
2. ARG (Mansfield) Limited
3. Ackroyd & Abbott Limited together with its subsidiary Ackroyd & Abbott Construction Limited
4. Adam Eastwood & Sons Limited together with its controlling party the Sir John Eastwood Foundation
5. Admiral Construction Limited together with (for alleged infringements from 31 October 2003) its ultimate parent company A C Holdings Limited
6. Adonis Construction Limited
7. Allenbuild Limited and Bullock Construction Limited together with their ultimate parent company Renew Holdings plc
8. Apollo Property Services Group Limited formerly known as Apollo London Limited together with its former ultimate parent company Apollo Holdco Limited formerly known as Apollo Group Holdings Limited
9. Arthur M. Griffiths & Sons Limited
10. B & A Construction (Leicester) Limited
11. Baggaley & Jenkins Limited
12. Balfour Beatty Construction Limited, Balfour Beatty Refurbishment Limited, and Balfour Beatty Group Limited (for alleged infringements from 2000 onwards) and Mansell Construction Services Limited (for alleged infringements from 19 December 2003), together with their current ultimate parent company Balfour Beatty plc. For alleged infringements involving Mansell prior to 19 December 2003, Mansell and its former ultimate parent company Mansell plc
13.Ballast Nedam N.V. as the ultimate parent company of its dissolved subsidiary Ballast plc
14.Beaufort Construction (S-in-A) Limited together with its ultimate parent company Beaufort Holdings U.K. Limited
15.Bodill & Sons (Contractors) Limited
16.Bowmer & Kirkland Limited together with its subsidiaries B & K Building Services Limited and B & K Property Services Limited
17.Bramall Construction Limited and Frank Haslam Milan & Company Limited together with their current ultimate parent company Keepmoat Limited, formerly known as Keepmoat plc
18.C. J. Ellmore & Company Limited
19.Caddick Construction Limited together with its ultimate parent company Caddick Group plc
20.Carillion JM Limited
21.Chase Norton Construction Limited together with its ultimate parent company Chase Midland plc
22.Clegg Construction Limited together with its ultimate parent company Clegg Group Limited formerly known as D E Clegg Holdings Limited
23.Connaught Partnerships Limited together with its ultimate parent company Connaught plc
24.Crown Point Maintenance Group Limited as the ultimate parent company of its dissolved subsidiary Greenwood Building Contractors (Mansfield) Limited, for Greenwood's alleged infringements after 11 June 2002
25.Davlyn Construction Limited
26.Derwent Valley Construction Limited together with its ultimate parent company Chevin Holdings Limited
27.Dukeries Building Company Limited together with its ultimate parent company Gavco 159 Limited
28.Durkan Pudelek Limited together with its ultimate parent company Durkan Holdings Limited
29.E. G. Carter & Company Limited
30.E. Manton Limited
31.E. Taylor & Sons (Southwell) Limited, trading as Carmalor Construction
32.F. Parkinson Limited together with its ultimate parent company Mowbray Holdings Limited
33.Francis Construction Limited together with its ultimate parent company Barrett Estates Services Limited
34.Frank Galliers Limited together with its former ultimate parent company Frank Galliers Holdings Limited
35.Frudd Construction Limited
36.GAJ Construction Limited together with its current ultimate parent company GAJ (Holdings) Limited
37.G Carter Construction Limited
38.G. F. Tomlinson Building Limited together with its ultimate parent company G. F. Tomlinson Group Limited
39.G G Middleton and Sons Limited
40.G. & J. Seddon Limited together with its ultimate parent company Seddon Group Limited
41.GMI Construction Group plc together with (for alleged infringements after 6 February 2005) its current ultimate parent company GMI Construction Holdings plc
42.Geo Houlton & Sons Limited together with its ultimate parent company Geo Houlton & Sons (Holdings) Limited
43.George Law Limited together with its ultimate parent company Bosworth & Wakeford Limited
44.Greswolde Construction Limited together with its ultimate parent company Mantisson Limited
45.Hall Construction Group Limited
46.Harlow & Milner Limited
47.Harold Adkin & Sons (Sutton-In-Ashfield) Limited
48.Harper Group Construction Limited and J. Harper & Sons (Leominster) Limited together with their ultimate parent company Harper Group plc
49.Haymills (Contractors) Limited together with (for alleged infringements prior to 26 May 2004) its former ultimate parent company Corringway Conclusions plc and (for alleged infringements after 26 May 2004) its current ultimate parent company Haymills Group Limited
50.Henry Boot Construction (UK) Limited together with its ultimate parent company Henry Boot plc
51.Herbert Baggaley Construction Limited together with its ultimate parent company Baggaley Group Limited
52.Hill Bros. (Nottingham) Limited
53.Hobson & Porter Limited
54.Holroyd Construction Limited together with (for alleged infringements prior to 30 March 2005) its former ultimate parent company Holderness Investments Limited and (for alleged infringements after 30 March 2005) its current ultimate parent company Holroyd Construction Group Limited
55.Interclass Public Limited Company together with its ultimate parent company Interclass Holdings Limited
56.Interserve Project Services Limited together with its ultimate parent company Interserve plc
57.Irwins Limited and Jack Lunn (Construction) Limited together with their ultimate parent company Jack Lunn (Holdings) Limited
58.J. Guest Limited
59.J H Hallam (Contracts) Limited together with its ultimate parent company J H Hallam (R & J) Limited
60.J. J. & A. R. Jackson Limited
61.J. J. McGinley Limited, together with its former ultimate parent company McGinley Holdings Limited
62.John Cawley Limited
63.John Sisk & Son Limited together with its ultimate parent company Sicon Limited
64.K. J. Bryan (Builders) Limited
65.Kier Regional Limited together with its ultimate parent company Kier Group plc
66.Lemmeleg Limited together with its ultimate parent company Rok plc
67.Lindum Construction Co. Limited and Lindum Homes Limited together with their ultimate parent company Lindum Group Limited
68.Linford Group Limited together with its ultimate parent company F. & E. V. Linford Limited
69.Loach Construction & Development Limited
70.Lotus Construction Limited
71.Milward Construction (Belper) Limited
72.Morgan Ashurt plc formerly known as Bluestone Plc together with its ultimate parent company Morgan Sindall plc
73.North Midland Construction plc
74.P D H Developments Limited (formerly trading as G. Hurst & Sons (Contractors) Limited) together with its ultimate parent company G. Hurst & Sons Limited
75.P. Casey & Co. Limited together with its current ultimate parent company The Casey Group Limited
76.P. Waller Limited
77.Pearce Construction (Midlands) Limited together with its former ultimate parent company Crest Nicholson plc
78.Peter Baines Limited
79.Phoenix Contracts (Leicester) Limited
80.Piper Construction Midlands Limited together with its ultimate parent company Piper Securities Holdings Limited
81.Propencity Group Limited together with its wholly owned subsidiary companies, ISG Jackson Limited, ISG Regions Limited formerly known as ISG Totty Limited, ISG Totty Building Limited and Propencity Limited
82.Quarmby Construction Company Limited together with its ultimate parent company St James Securities Holdings Limited
83.Quarmby Construction (Special Projects) Limited together with its ultimate parent company Justgrade Limited
84.R Durtnell & Sons Limited together with its ultimate parent company R Durtnell & Sons (Holdings) Limited
85.R. G. Carter Limited, R. G. Carter Building Limited and R. G. Carter Construction Limited together with their current ultimate parent company R. G. Carter Holdings Limited
86.Richardson Projects Limited
87.Robert Bruce Construction Limited
88.Robert Woodhead Limited together with its ultimate parent company Robert Woodhead Holdings Limited
89.Robinson & Sawdon Limited
90.Shaylor Construction Limited
91.Simons Construction Limited and Wrights Construction (Lincoln) Limited together with their ultimate parent company Simons Group Limited
92.Sol Construction Limited together with its ultimate parent company Barkbury Limited
93.Speller-Metcalfe Limited
94.Spicers (Builders) Limited
95.Stainforth Construction Limited
96.Strata Construction Limited (formerly trading as Weaver)
97.T. & C. Williams (Builders) Limited
98.T. Denman & Sons (Melton Mowbray) Limited
99.Thomas Fish & Sons Limited together with its ultimate parent company Fish Holdings Limited
100.Thomas Long & Sons Limited together with its ultimate parent company Radford Holdings Limited
101.Thomas Vale Construction Plc together with its ultimate parent company Thomas Vale Holdings Limited
102.Thorndyke Limited
103.Try Accord Limited and Galliford Try Construction Limited together with their ultimate parent company Galliford Try plc
104.W. R. Bloodworth & Sons Limited
105.Wiggett Bros & Co Limited
106.Wildgoose Construction Limited
107.William Sapcote and Sons Limited together with its ultimate parent company Sapcote Holdings Limited
108.William Woodsend Limited
109.Willmott Dixon Construction Limited together with its ultimate parent company Willmott Dixon Limited
110.Wright (Hull) Limited together with its ultimate parent company T. Wright & Son (Holdings) Limited
111.Wygar Construction Co Limited together with its ultimate parent company Wygar (Holdings) Limited
112.York House Construction Limited


17/04/2008 Statement of the Construction Confederation

The Construction Confederation has called on the Office of Fair Trading (OFT) to ensure a sensible and proportionate response to the findings of their four-year investigation into industry practices. The bulk of the alleged infringements listed in the published Statement of Objections are examples of cover pricing, where busy companies who did not want to win the work submitted an artificially high bid.

While acknowledging that cover pricing may in some circumstances constitute a technical breach of competition law, the Confederation believes these historic infringements need to be viewed in context. There would usually have been no financial cost to the client or gain to the contractor and therefore did not have any effect on competition.

The Confederation says that if infringements are proven, then any fines levied by the OFT should be proportionate and those who are found to have contravened regulations in this way certainly should not face double jeopardy by being omitted from future public sector tendering lists.

The only motive in these cases was to avoid winning the work without upsetting the client and so stay on future tender lists. The simple act of putting in a high bid to avoid winning the work is not an infringement of competition law. However, if this artificially high tender is then discussed with another contractor who is also bidding for the work - for example, to confirm it was high enough not to win - it would breach competition law, even if the eventual price paid by the winning contractor was not affected.

There has been widespread concern at the possibility that the OFT might take disproportionate action to deal with the widespread practice of cover pricing by imposing excessive penalties on contractors. Fines could amount to a maximum of 10% of turnover which, in a sector where profit margins are traditionally 2.5%-3.5%, would threaten the viability of companies, the work programmes they deliver and the jobs they provide.

In addition, the possible removal of those companies from future public sector tender lists would hit the contractor with a second, wholly disproportionate censure. Ironically, it would also reduce the pool of contractors able to tender for this work, so decreasing competitiveness and impacting adversely on the client.

Construction Confederation Stephen Ratcliffe said: “Let’s be clear what we are dealing with in cover pricing - there was no intention to make a single penny at the tax payers’ expense, just an attempt by busy contractors not to win work without upsetting the client.

“Cover pricing was symptomatic of a time when work was won on lowest price and short term relationships were the norm. Culture in the industry has since shifted significantly and single stage competitive tendering based on lowest price is declining. In recent years, the industry has gone to great lengths to stamp out the practice. For example, companies are already ensuring that employees understand requirements for compliance and have written to all staff establishing protocols. We are concerned that, because the OFT fines system is based on turnovers, there is a risk that fines will be disproportionate in an industry which has high turnovers and relatively small profit margins. Another concern is that we have already heard suggestions that public sector procurers may exclude firms accused of cover pricing from future tender lists. Not only would this be an additional and disproportionate punishment, it would actually reduce competition and so potentially have an adverse effect on both client and contractor. We would like to see guidance drawn up by the OGC and the Department of Communities ansd Local Government (DCLG) so that public sector clients have the security of clear guidelines that contractors should not be omitted from tender lists because of these past infringements. It would also be helpful if the OFT could make it clear that contractors should not be dropped from tender lists as a result of their investigation.”

The Construction Confederation is the main representative organisation for building and civil engineering contractors within the UK construction industry, one of the largest and most diverse sectors within the British economy. The construction industry has an annual turnover of around £110bn and represents some 9% of GDP. The industry has in excess of 170,000 companies and employs around 3m people.
www.theCC.org.uk



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