The decision by the Competition Appeals Tribunal to slash fines for the first six contractors found guilty of bid-rigging, could not have gone more comprehensively in favour of the building industry, and could hardly have been more embarrassing for the OFT.
Most commentators had thought that reductions of maybe 40-50% were on the cards, but few expected the decision to be so damning – with the six firms receiving on average a 89.5% reduction in fines. One, John Sisk, which received the biggest proportionate cut, will have to pay just 6% of its original fine, if the CAT’s decision stands.
Kier, on the other hand, got the biggest monetary reduction – of over £16m. As one industry commentator put it, simply: “Result. Drinks are on Kier!!!”
Now the OFT has already made it clear it may further appeal this decision, to the high court, but that doesn’t mean that today’s judgment is any the less satisfying for those companies that took the risk to challenge the fines – many against the best advice of the analysts and commentators, who said the issue was best forgotten.
It’ll also have raised the excitement levels for the other 19 companies who are still waiting for the result of their appeals. In particular because informed sources suggest the reason today’s decision has been so delayed (it was originally earmarked for early January) was so that the Tribunal could ensure consistency across the various decisions.
It’ll be interesting to see also what happens those few, like Durkan, that have challenged the fact of the allegations, rather than just the amount of the fine.
The language of the decision was damning, calling the OFT’s fines “excessive”, and saying simple mistakes had been made in the way those fines were calculated. Certainly, the scale of the reduction will already be making many who decided against launching appeals – remember a total of 103 were found guilty - rue a missed opportunity.
However the biggest question this raises is now over the conduct of the OFT. Not that there’s much debate that cover pricing was an activity not fit for a 21st century industry, that needed to be rooted out. But questions can be raised over the sheer scale of the OFT’s investigation – it’s largest ever – conducted over five years, to uncover a practise that may well have had little impact on the price paid by the public bodies supposedly hoodwinked.
At the end of it all the OFT identified examples of a widespread industry practise, but only came up with a very small number of the more serious competition breaches, where bribes were paid to stop companies bidding.
There was also a built-in unfairness to the way it selected those found guilty, given how widespread the practise was. The story the OFT followed, spreading out from its initial investigation of contracts involving Balfour Beatty subsidiary Mansell, meant that the verdict was massively swayed in favour of companies working on contracts in that area. As an endemic industry practise during that period, there will be many guilty of cover-pricing who never got caught, many singled out for public humiliation who behaved no worse than their peers.
This is not to defend the practise – cover pricing clearly has the ability to influence clients’ ability to get the best price for a job, so has no place in the modern industry, particularly in budget-straightened times. And that goes however much pressure a client puts on you to come up with a bid.
But the public good of the reform the OFt’s investigation has engendered has to be put against the real additional burden this has placed on an industry already suffering the worst recession for a generation. Only last month another firm, GAJ, fined by the OFT went under - and who’s to know the impact that the reputational damage did to it and other companies also on the edge.
In the coming days the OFT will have to answer questions about how much public resource it put into this investigation, and whether it still looks like it can be justified by this outcome.