Competition body’s admission will make it harder for councils to claim damages from contractors

The official leading the Office of Fair Trading’s inquiry into construction has admitted that the body has no way of proving that tender malpractice inflated contract prices.

The organisation had previously suggested that cover pricing and bid rigging had added up to 10% of the bill for public sector contracts. This led to reports that the taxpayer had been overcharged by as much as £4bn.

However, Simon Williams, director of cartel investigations at the body, has written to the Construction Confederation to say that the OFT “does not have any figure available for the possible inflation of prices”.

OFT: no proof cover pricing inflated tenders by 10%

He adds that the OFT will not seek to prove formally the effect, if any, of bid rigging.

He says general research suggests that price inflation from cartels may be in the region of 10%, but acknowledges that this is not specifically related to construction.

He says: “The extent, if any, of price inflation will clearly be circumstance-specific.”

The revelation will come as a blow to local authorities that are seeking to claim damages from contractors named by the OFT.

The watchdog published a list of the 112 companies it was investigating in April.

It emerged this week that two more law firms, Clyde & Co and Devonshire, have since sent letters to councils offering to act on their behalf to reclaim money.

Contractors have expressed anger at these letters, with one accusing lawyers of “making capital out of exploiting the fear of local authorities”.

Clyde & Co’s letter drew particular criticism, as it called the companies a “cartel”. The source said: “Are they implying that 112 firms were in a cartel together? That’s misleading.”

Meanwhile, it is understood that a small group of construction chief executives are to meet with Philip Collins, the OFT’s chairman, to discuss the industry’s compliance with competition law.

They will be drawn from firms not involved in the OFT inquiry and the discussion will not touch on the investigation.

Contractors involved in the investigation must submit oral evidence to the OFT by this week.