Hope for other firms as fines in first six cases are reduced by up to 94%
Construction firms awaiting appeal decisions on multi-million pound bid-rigging fines imposed by the Office of Fair Trading are likely to see the bulk of the penalties wiped out, following last week’s decision on the first six appeals.
Six firms on Friday received reductions in their fines of up to 94% from the Competition Appeals Tribunal (CAT), with the subject of the biggest fine, Kier, having its penalty reduced from £17.9m to £1.7m.
Construction lawyers said the nature of the decision, which stressed the commonality between the cases of the bulk of the 25 appellants, means there is little likelihood of others receiving smaller reductions.
The news comes as:
- Sources said it will take the CAT “at least a few weeks” to deliver all of the verdicts
- Lawyers suggested the OFT may be liable for contractors’ appeal legal fees of at least £5-7m
- The OFT has 30 days to decide if it wants to launch a further appeal against the ruling.
Alan Davis, partner at Pinsent Masons which acted for Galliford Try and Apollo, said: “While the Tribunal accepted that cover pricing is illegal, it is not as serious an infringement of competition law as the OFT made out and this means that the penalties needed to be reduced. It’s clear the approach will be the same across all the appeals.”
The tribunal accepted that cover pricing is not as serious as the oft made out
Alan davis, pinsent masons
As well as Kier, the CAT also dramatically reduced the amount levied on Ballast Nedam, Bowmer & Kirkland, Haymills, Thomas Vale and John Sisk. In total £41.8m of fines was taken down to £4.4m, a reduction of 90%.
The tribunal, led by the honourable Mr Justice Barling, concluded that the penalties imposed by the OFT for “simple” cover pricing were “excessive given the nature of the infringement, together with the harm it was likely to cause, together with … the fact that the practice was long-standing.”
Barling found that the 5% of turnover the OFT decided to fine was too high and that it applied the turnover fine on the wrong year. It said these were “recurring issues” across the appeals, meaning it is unlikely other contractors appealing the level of fines will see wildly different outcomes.
Of the firms appealing, 19 are questioning the value of the fines, with just six questioning liability. Friday’s decision gives little clue as to the outcome of these six.
Davis said the fact that the OFT appears to have lost on most of the appeal points so far means the OFT may have to shoulder the bulk of the appellants’ legal costs, which he said could be between £5m-£7m. Other sources said it could be higher.
Stephen Ratcliffe, director of the UK Contractors’ Group, said: “It looks like the OFT may have spent massively more than it is likely to recover in fines.”
OFT could pay for being over-keen
By Alistair Stewart, UniCredit Research
So, in theory, luxury handbag makers on high double-digit margins can expect the same punishment as local building contractors that struggle to get north of 2% at best.
There seemed scant rationale in the ranking of fines. Kier - a company that most rivals would probably affirm is as white as this slightly off-white industry gets - received the heftiest fine, £17.9m. There was evidence that some bigger and smaller groups than Kier did seek “compensation” from winning bidders - and chose not to appeal their much lighter fines.
OFT investigators are like referees who have whistles and cards and feel they have to use them
One of the shortcomings highlighted was that the turnover test was applied to the wrong year. In Kier’s case it was against the year of a record high. And there were inconsistencies over whether global or divisional turnover was the reference.
I shared a Chablis with Kier’s then-chief executive John Dodds on the evening in 2009 the fines were first announced. His mood was, initially, as dark as that of Arsenal manager Arsene Wenger’s after the red card shown to Robin van Persie in the Champions’ League last week. The Dutchman received a second yellow for time wasting, having kicked the ball wide of goal a second after the whistle went for offside. Like Kier, Wenger wouldn’t argue that the ref was following the letter of the law. He argued van Persie didn’t hear the whistle amid 95,000 baying fans.
OFT investigators may have acted a bit like referees who are over-keen to justify their employment. They’ve got whistles and cards and feel they have to use them. When the watchdog’s findings emerge, cost-cutting apparatchiks in Whitehall might wave some red cards of their own.
For Alastair Stewart’s full article click here.
Fines reduced in last Friday’s decision
Kier £17,894,438 reduced to £1,700,000
Ballast £8,333,116 reduced to £534,375
Bowmer and Kirkland £7,574,736 reduced to £1,524,00.
Corringway Conclusions (Haymills) £769,592 reduced to £119,344
Thomas Vale Holdings £1,020,473 reduced to £171,000
John Sisk and Sicon £6,191,627 reduced to £356,250
(figures are original OFT fines)
AH Willis and Sons* £120,018
Apollo Property Services £2,150,536
Barrett Estate Services and Francis Construction £530,238
Crest Nicholson* £5,188,846
Durkan and Concentra* £6,720,551
Galliford Try £8,333,329
GF Tomlinson £1,269,270
G&J Seddon £1,516,646
GMI Construction* £1,752,584
Hobson and Porter £574,507
ISG Pearce* £5,188,846
J H Hallam £359,588
North Midland Construction* £1,543,813
Quarmby Construction* £881,749
Renew and Allen Build £3,547,931
Robert Woodhead £411,595
Sol Construction £1,835,702
*These firms are disputing liability as well as the penalties