The OFT has outlawed cover pricing, but that won’t stop firms putting in high bids so they lose contracts they can’t cope with
Ok,ok ... the OFT has to apply the law, has to assess the offence, has to calculate the fines, has to set an example, has to hurt this industry. The £130m fine will have one hell of a knock-on effect. Knock on? Oh yes. It will be the supply chain that feels the pinch. Firms won’t pay the fine because the bankruptcy route beckons. Then the subbies and suppliers will suffer. Prices will tighten, payment periods will lengthen. Claims will expand. Teamwork will contract. This building industry of ours relies on cash; it’s the life blood. Profit isn’t there, there isn’t any. But the OFT has to apply The Law. All truth.
Another truth; bid-rigging is conspiracy, fraud, theft, prison. Always has been. Non found by the OFT. Another truth; cover pricing is not bid-rigging. OFT calls it bid-rigging. No theft, no fraud, no prison. Another truth; thousands of construction firms get cover prices. Why? Because the firm did not want to win this particular contract, but wanted to tender. Why? Because all hell lets loose when an invitation to tender is sent back saying “no thanks” (The OFT didn’t investigate that) The customer wants six bids for heavens sake!
So, now what? Today you must not, never, get a cover price. But you will still want to bid for a job you can’t cope with just now. So you will bid high. Any chief estimator worth his salt will rummage the tender bumf and fathom what the job is worth in approx pounds. Then add a lump. Cover pricing is unlawful because it produces an artificially high bid. Is an artificially high price without getting a cover price unlawful? A cover price is unlawful because it gives the appearance of competition rather than the aim of winning the contract. What of a price fathomed by a look and a sniff that gives the appearance of competition; is that unlawful? A cover price is said to distort competition. Is a high price without getting a cover price enough to distort the competition and is that unlawful?
The industry feels ambushed. Cover pricing was and is a norm. It only happens when you don’t want the job. So the act of parliament is being read to outlaw a norm. So be it. All that will happen now is that the estimator will bid high all by himself. Same meat different gravy.