Guidelines revealed in advance of OFT's final verdict on cover pricing enquiry

The UK Contractors Group and National Federation of Builders have launched a new code of conduct designed to reassure regulators that contractors are abiding by competition rules.

The code has been launched in advance of the final verdict in the Office of Fair Trading's enquiry into cover pricing and is designed to head off severe fines from the regulator.

The code states construction companies need to have rigorous internal procedures to prevent anti-competitive practices, and the agreement between the UKCG and NFB promises guidance and training for those, mainly smaller, companies who have not yet established internal compliance regimes.

The NFB's 1,500 member firms, mostly small and medium-sized builders, and the UKCG's 26 members have committed to signing up to the scheme. However, the founders of the code hope it will be taken up beyond the trade group members.

The OFT is set to reveal at the end of September the sanctions it is to take against 112 firms found guilty last April of breaches of competition law, mainly cover pricing. Cover pricing is a practice whereby a potential bidder for work agrees with the client to tender an inflated bid without any intention of trying to win the work, in order to satisfy client requirements for a certain amount of competition.

The OFT can fine firms found guilty up to 10% of their annual turnover.

Stephen Ratcliffe, director of UKCG, said: “The code has real substance. All UKCG members have individual competition law compliance regimes within their businesses which ensure they are able to implement the code's principles.”

Julia Evans, chief executive of the NFB, said it was an effective and visible way of demonstrating that the industry has understood the OFT's message. She added: “We also hope it will provide some reassurance to public sector clients seeking evidence that contractors are aware of their obligations.”

The full code is set out below:

1. The UK construction industry is committed to compliance with UK and EU competition law.

2. The industry understands that the purpose of competition law is to preserve free, fair

and efficient competition for the benefit of all companies operating in the industry and

their clients

3. The industry agrees at all times to commit to ensuring the highest standards of competition law compliance within the sector by adhering in all of its business practices to the principle of fair competition and to ensure that construction companies do not engage in conduct which is anti-competitive

4. Construction companies must:

4.1 not restrain competition amongst themselves through agreements, arrangements or understandings that restrict competition

4.2 not bid for contracts and tenders independently from and without any agreement or arrangement with their competitors

4.3 not exchange competitively sensitive information or engage in discussions that may lead to the co-ordination of competitive behaviour and, in particular, must not share information about current or future pricing intentions for tenders, or any element that might affect prices or pricing practices, including the exchange of cover prices

5. Construction companies understand that co-operation with a competitor is justified only under the exceptions permitted by the competition rules or where they have been expressly required to enter into such arrangements by the client, for example, certain joint ventures and framework agreements, in which case such arrangements will be fully disclosed to the client.

6. The industry understands that each individual construction company is responsible for its own compliance with competition law and that the consequences of breaching competition law are severe including possible penalties, director disqualification, criminal sanctions and damages actions.

6.1 Construction companies will therefore endeavour to:

6.1.1 ensure that competition law compliance will be achieved through implementing effective competition compliance policies and guidelines throughout their businesses; and

6.1.2 promote an understanding of and compliance with competition law throughout their supply chains, including with their sub-contractors.