What a shabby week it’s been for construction. In fact, one of the shabbiest weeks in living memory.
The image of the sector has been sprayed with mud, angry councils are instigating witch hunts, MPs are calling for inquisitions and if you’re trying to persuade a talented outsider to join your firm, well, good luck.
The reason for all this gloom is that the Office of Fair Trading has concluded its biggest ever investigation into anti-competitive practices by accusing 112 construction firms of bid rigging. Much of what the OFT has found is still secret, so it’s hard to assess how badly clients’ trust has been abused or how much the OFT reckons the public purse has been diddled out of. It has said that bogus bidding has inflated the final contract sum by 10% – but 10% of what? The £3bn of contracts it investigated? Or (more likely) 10% of a few of them.
What we do know is that nine firms are accused of organised collusion, which includes such things as carving up regions among themselves and agreeing compensation payments to one another. If found guilty, they deserve all they get. And though only a few companies have been accused, the fact that the OFT has chosen not to publicly name them means that the reputations of all 112 firms, and by extension the whole industry, are dragged through the mud still further.
Most of the firms are accused of cover pricing, which is an age-old practice that occurs when an estimator doesn’t want to bid for a job, but doesn’t want to offend the client. So they ring up their mate in another firm and ask what price to bid so that they won’t win. This clearly frustrates the mechanism of competition and might make the client pay more that it would otherwise, but the firm entering the phoney bid does not profit financially from so doing: it’s daft rather than corrupt. The fact that estimators often write “offered covered price” in their files suggests that at some point it became a normal part of business practice. That said, there’s no place for it in today’s business world, and bosses look stupid for allowing it to operate – even unwittingly.
The problem is that cultural changes tend to happen at the top of an organisation but cover pricing takes place near the bottom; it can take years for the two to connect. What the OFT has done is to accelerate that process, and in so doing made it easier to say no to clients. Councils in particular will need to take a more grown-up approach to procurement and accept that the tender list won’t always be an arm and a leg long. Many firms have already put codes of conduct in place to educate their staff. We are launching the Rebuilding Trust campaign to put in place such a code of practice across the industry. Construction has a reputation to repair. It needs to inject trust and credibility. And it needs everyone to help scrape off the mud.
Denise Chevin, editor