OFT Decision Lifts The Lid On Cover Pricing

Originally published 22 September 2009

The Office of Fair Trading ("OFT") today fined 103

construction companies in England a total of £129.5 million

for colluding with their competitors on building contracts. The

decision follows one of the largest competition investigations

which has ever been carried out by the OFT.

The decision focuses on 199 tenders over the period from 2000 to

2006.

The OFT found that, in the majority of cases, the companies

involved had been engaged in bid rigging through the practice of

cover pricing. This is where a competitor provides the bidder with

a tender price which appears to be competitive but which is priced

so that the bidder does not win the work. In the OFT's view,

this gives the misleading impression as to the extent of

competition.

It is also identified 6 instances where companies were involved

in arrangements for the payment of compensation (or losers'

fees) to the unsuccessful bidders. Such arrangements, which are a

more serious form of bid rigging, were effected through the raising

of false invoices and involved payments of between £2,500 and

£60,000.

The investigation focused on public and private sector building

projects throughout England totalling over £200 million,

including the construction of housing, commercial and industrial

construction.

Of the 103 companies implicated in the OFT's decision, 86

received a reduction in the level of penalty. Indeed, 33 of these

parties benefitted from discounts of between 35% and 65% under the

OFT's leniency regime. A further 41 parties received discounts

of up to 25% under the OFT's "fast track" scheme.

The highest fine of almost £18 million was imposed on Keir

Regional Limited together with its ultimate parent company, Kier

Group plc.

Today's decision confirms the seriousness with which the OFT

views suspected anti-competitive behaviour within the construction

industry. It should also make it clear to the industry that,

regardless of the past prevalence of cover pricing or any innocent

motives for engaging in such behaviour, cover pricing breaches the

competition rules. Any future infraction is likely to incur

substantially higher levels of penalty.

The OFT has also issued specific guidance addressed to procuring

parties in the public and private sectors which cautions them

against automatic blacklisting or disadvantaging of the companies

named in this decision. Quite simply, cover pricing was found to be

widespread across the industry and the OFT...