Dominic Helps If you’re in any doubt about what constitutes collusive tendering, the Office of Fair Trading has just published a decision that makes it absolutely clear
For any director of a construction company, the decision of the Office of Fair Trading, following its investigation into alleged anti-competitive practices of flat roofing contractors in the West Midlands, will make salutary reading.
Mark Jones gave readers a helpful insight into the principles behind this decision (23 April, page 60). Since then the OFT has published its decision, which clarifies the nature of the practices for which the companies were fined.
The West Midlands decision dealt with numerous instances of “cover pricing” – whereby some suppliers had agreed to return tenders with “token bids” that were too high in order to allow others to win. During its investigation of business premises, the OFT came across a large number of faxes exchanged between supposedly competing tenderers, one for example containing the words “Rates as requested. Have a nice holiday”. These faxes and their attachments revealed that a number of tenderers were agreeing to return “token bids” they knew they would lose. Accordingly, the lowest bid
was not determined by market forces, but by the competitors themselves.
There were also instances of “bid suppression” (agreements to withhold or withdraw a bid) and job-sharing. In one case, a firm agreed with a competitor to withdraw a previously submitted bid in return for a promise on another contract. Although it duly tried to exclude itself from the running, it transpired that by that stage it had already won the tender. Faced with a difficult decision, it chose to upset the competitor rather than the client and went on to take the contract. Even though the agreement came to nothing, the firm was still fined by the OFT for its efforts to distort competition.
Mark’s article talked about the OFT’s powers of investigation, including dawn raids on business premises, document seizure and the right to “eavesdrop” on communications where foul play is suspected. The interesting thing here was that the investigation was actually triggered by voluntary disclosures from one of the conspirators.
The OFT came across faxes sent between supposedly competing tenderers. One said: Rates as requested. Have a nice holiday
Briggs Amasco applied to the OFT for leniency in 2001. In return for an amnesty on penalties, it disclosed evidence of cartel activity in the West Midlands. This disclosure came before the OFT had begun its investigation. Subsequently, another company, Howard Evans Roofing, came forward to provide evidence. Those companies were required to give interviews with the OFT on a voluntary basis. These interviews were decisive in establishing wrongdoing. Briggs had its fine reduced from £639,000 to zero and Howard Evans Roofing’s from about £90,000 to £45,000. Briggs had committed
13 infringements – more than anyone else.
The OFT clearly sees collusive tendering as a priority problem. Perhaps unsurprisingly, the decision reveals “many of the parties stated that the practice of cover pricing is endemic in construction in general. The OFT considers that it is necessary to deter undertakings in this area from engaging in collusive tendering.”
The OFT was unimpressed by defences based on the problems that firms face. A number of defendants argued that they were under intense pressure to return bids and if they did not, they risked being blacklisted by employers. Others argued that they had asked competitors for “covers” only because they did not have time to price jobs properly and wanted to stay on lists of approved tenderers.
So what can you do to avoid being hit? The best way to stay on the right side of the Competition Act is to put in place a compliance programme for management and staff. In the event of an investigation, this will send the message to the OFT that your firm is doing all it can to avoid breaking the law. Some of the fines in the West Midlands case were actually reduced because the defendants committed themselves to such a programme (even after they had been investigated). An added incentive is that bid-rigging is now a criminal offence, punishable by up to five years in prison.