Mark Jones and Victoria Slater kick off the analysis by explaining the background to the OFT’s interest in the building industry – which shows no signs of subsiding
The allegations of bid rigging levelled by the Office of Fair Trading against 112 contractors is the latest in a series of breaches of competition law uncovered over the past 14 years.
The OFT’s 2005/06 business plan stated that construction was one of its priority areas, and there is plenty of evidence to support this statement: over the past 14 years the industry has been subject to eight inquiries by UK and EU competition watchdogs. This suggests that lessons are not being learned.
The statement of objections issued by the OFT in April alleged that firms had engaged in a variant of bid rigging known as cover pricing, whereby competitors collude with one another during a tender process to set a price that is intended to be too high to win the contract.
In several more serious cases, the OFT alleges that the “winning” bidder also made compensation payments to the unsuccessful ones.
Bid rigging would appear to be the construction cartelists’ tool of choice: between 2004 and 2008 the OFT has carried out six investigations into more than 160 roofing and construction contractors for anti-competitive practices, including bid rigging, and has so far imposed fines of nearly £3.7m.
The OFT’s campaign against bid rigging in the roofing industry began in March 2004 when it fined nine West Midlands firms a total of £300,000 for rigging bids for repair, maintenance and improvement services contracts. This was followed in March 2005 by the imposition of fines totalling £830,000 against 10 roofing contractors in Scotland and north-east England for agreeing to fix the prices of, and in some cases to share out the market for, flat roofing services. Market sharing – where competitors agree, either expressly or tacitly, to carve up the market between them – is considered a serious breach of competition law.
Later the same year a further six Scottish roofing contractors were found by the OFT to have agreed to fix the prices of flat roofing services through bid rigging and were fined almost £260,000 in total. And in February 2006 the OFT fined 13 roofing contractors in England and Scotland £2.3m after they agreed to fix the prices for flat roofing and car park surfacing contracts through collusive tendering. The higher fines in this case reflected the fact that in three cases investigated by the OFT, the successful tenderer had paid losing contractors compensation, an allegation that has also been made in the latest case.
It is not only the UK authorities keeping a close eye on the industry: in 2007 the European commission concluded an investigation into collusive behaviour, including bid rigging and exchanging confidential information, by a number of lift manufacturers, with the imposition of a record total fine of €992m (£780m).
The companies named in the OFT’s latest statement of objections can now either admit the claims and settle early or defend the claims. If the investigation concludes that some or all involved are guilty, the penalties are likely to be severe. Given the number of companies accused and the fact that many of the victims of the infringements were schools and hospitals, which the OFT may consider an aggravating factor, the fines ultimately imposed by the OFT may be some of the biggest the industry has seen to date.
Mark Jones is a competition partner and Victoria Slater is a competition associate at Norton Rose