In its enthusiasm to paint our industry as a bunch of dodgy operators, the Office of Fair Trading has got the whole cover pricing and bid rigging business mixed up
I suspect that the Office of Fair Trading has launched its cover price publicity bandwagon to put the willies up the industry. Actually it’s done more than that. It’s made an enemy out of it. The cover pricing story is being run by the OFT alongside “bid rigging”. Hell, they are two completely different pieces of footwork. But the OFT is managing to paint our industry as a bunch of villains. And that piece of paintwork is resented, Mr & Mrs OFT! Whether the industry is right or wrong in its perception of the competition rules, do get this straight: bid rigging is utterly rejected by the UK contractor. If it goes on – if, if, if – then it is reserved to that tiny minority of tykes that the industry would happily bury beneath one of those famous bridge piers on one of our famous motorways And, whether right or wrong in its perception of cover pricing, the industry intends not the slightest harm. For goodness sake, OFT, stop mixing these two together. Punish the bid riggers, poke the cover pricers, but do drop the idea of out-and-out punishment for those who, dear, oh dear, got a cover price.
Let me tell you construction bidders where all this springs from. The Competition Act of 1998 and the Enterprise Act of 2002 are the source. The idea in the legislation is to punish a mischief. It goes like this: if two or more companies agree a “concerted practice” that may affect trade within the UK and these folk have as their objective the prevention, restriction or distortion of competition within the UK, that concerted practice is prohibited and you will be punished. This rule applies in particular, says the act, to agreements or practices that directly or indirectly fix purchase or selling prices, or any other trading conditions, share markets or sources of supply. Have you got the idea and can you see where cover pricing fits?
Those of us who have actually worked in the real end of building and civil engineering, those of us who have actually worked in estimating departments, who worked like maniacs to get on to tender lists (alongside a bus-load of other tenderers), didn’t beat ourselves up to not win work. Go to any firm and watch them trying to win. Just occasionally, and rarely, we couldn’t cope with an invitation to bid. We were too busy. Half the trouble was that the invitation came out of the blue. Then we would be given four or five weeks to compile the bid (invariably with half-baked information, things that wouldn’t work, and more besides). Sometimes the job, if won, would require particular management skills such as having to deal with an architect from the awkward squad or having to deal with a PQS who thought he was a Samurai. But if the staff would not be available at our end, we would not be enthusiastic to bid. But that’s not when we sought a cover price. Usually we would bid high. But on rare occasions we would speak to the chief estimator at a competitor. He would not tell us his price, but he would tell us what figure was an inch or two higher than his. That is “cover pricing”. That, right or wrong, is not regarded by generations of builders as improper.
Now, if you are bursting to ask why we simply didn’t send the invitation to bid back with a sweet letter, then, my friend you’re fired! I will not even trouble to tell you why commercial people do not do that.
Instead, let’s ask if the practice “may affect trade”? Ask if the objective of a cover price is to “prevent competition”, “restrict competition”, or “distort competition”? Come to think of it, if I merely put in a high bid (not a cover price), am I preventing, restricting, or distorting competition?
An outsider to construction could easily say yes. But those in the industry know full well that the bid competition is safe and sound and good even though two or three out of the bus-load of bidders are too busy to bid competitively this time. Every experienced QS in the land, on the receiving end of the bids, knows that not all the bidders want this particular job. Even so, the customer almost always gets a selection of bids. Nothing distorts the deal. But wait; I said “almost always”. There is a tiny risk that the bid process is undermined, a tiny risk to which the over-enthusiastic OFT takes an exception. So if you want to play safe, play non-commercial and send the invitation back with a sweet letter.
Tony Bingham is a barrister and arbitrator