The Office of Fair Trading (OFT) has fined 103 companies including many of the UK’s largest construction companies such as Kier, Interserve, Try Accord, Carillion and Balfour Beatty for colluding with competitors to rig the pricing of contracts worth more than £200 million.
Kier was fined £17.9m, more than any other building company. Interserve was fined £11.6m, Try Accord £8.3m, Ballast £8.3m, Bowmer & Kirkland £7.6m, Carillion £5.4m and Balfour Beatty £5.2m.
The most shocking aspect is that these are considered to be respectable companies and not the archetypal cowboy builders that we expect to rip us off. And it is us, the taxpayers, that were being ripped off, as many of these construction contracts were for public sector projects, such as school extensions, refurbishment of council housing, new medical centres, etc.
The investigation focused on the practice known as cover pricing, where one or more of the firms invited to bid submits an inflated price, making a supposed competitors bid look more attractive. This gives the client a misleading idea about the real extent of any competition. Indeed in some cases the winning bidder made payments of up to £60,000 to the others that had submitted high bids.
Predicatably some of the trade bodies such as the UK Contractors Group (UKCG) and the National Federation of Builders have called the fines unfair and that they will cost jobs. Is that really the case though, these companies have broken the law and the fines only account for 1% of their turnover. The Public Contracts Regulations allow for companies guilty of such offences to be barred from participating in any future public contracts, so they seem to have got off rather lightly.
It seems Lord Mandelson has personally intervened to ensure that these firms are not blacklisted by the public sector and unusually the OFT issued a guidance note to public procurement staff at the same time that the outcome of the investigation was announced.
Not every commentator has been so sympathetic, even those who are concerned about jobs in the construction sector. Alan Ritchie General Secretary of construction union UCATT, said: “It is clear that construction companies can’t be trusted to run their affairs properly ….. The cover pricing scandal demonstrates why the construction industry cannot be trusted to police itself.”