• Highways Agency begins wide-ranging review
• NHS issues alert to all finance directors
• Construction Confederation warns councils not to remove named firms from frameworks

• Wildgoose Construction is still trading and is not in administration as incorrectly stated in Building magazine

by the Building newsdesk

Public sector clients have been shaking up procurement procedures in the wake of the allegations made by the Office of Fair Trading against contractors last week.

The Highways Agency and the Department of Health have both reacted strongly to the naming of 112 companies in the OFT’s statement of objections.

A spokesperson for the Highways Agency said it would launch “a thorough review of its controls and procedures across its business to ensure these practices do not take place”.

David Nicholson, chief executive of the NHS, has written an internal memo to financial directors in the public health sector, warning them to report all suspicions of price-fixing.

The letter said: “All NHS organisations should familiarise themselves with the guidance from the OFT. Any organisations that have cause to believe that they may have been victims of these practices should contact the NHS Counter Fraud Service.”

Meanwhile, the Construction Confederation has written a letter to every local authority to ensure that the companies named by the OFT would not be unfairly removed from frameworks.

The Office of Government Commerce had said public sector clients would be entitled to drop suppliers from framework lists if they were found to have committed “grave professional misconduct”. However, it said the action could only be taken against individuals rather than companies in their entirety.

Private sector developers were concerned at the reputational damage that might occur as a result of the allegations.

Steve McGuckin, projects director for Land Securities, said: “This is an issue for all of us. I think clients and consultants will check off their current suppliers against the OFT list and, for a period, check any new suppliers against it.“

Although the OFT has claimed that the cost of some deals has been inflated by 10% as a result of tender pricing, industry experts say that the investigation is unlikely to lead to significantly lower pricing.

Simon Rawlinson, a partner in Davis Langdon, said: “The people who have priced a job properly in the past will be the same people now, irrespective of the ruling. We are not expecting prices to fall away like the OFT has said.”

Some firms are fined…

If firms are found to have infringed competition law, fines could be as high as 10% of global turnover, though legal experts say it is more likely to be 2-3% if the crime is simple cover pricing. However, when roofers were fined for cover pricing in 2006, fines for one company were increased four-fold to meet a “minimum deterrent threshold”.

…some are offered leniency…

The OFT can offer reductions on fines of up to 50% to companies that offer information on the cartel in which they are operating. Thirty-seven of the 112 companies have asked for leniency, including Balfour Beatty, Carillion, Henry Boot, ISG and Morgan Ashurst.

…but for some it’s too late

Nine firms named in the investigation are no longer trading:

  • Ballast, dissolved subsidiary of Ballast Nedam
  • Greenwood Building Contractors (Mansfield), dissolved
  • Frudd Construction,in administration
  • G Carter Construction, in liquidation
  • Corringway Conclusions, in liquidation
  • Thorndyke, in liquidation
  • William Sapcote and Sons, in administration
  • Thomas Fish & Sons, in administration

Wildgoose Construction was incorrectly named in Building magazine as being in administration. Wildgoose Construction are still trading and we apologise for the error.

Notes on a scandal: how the OFT’s biggest ever investigation unfolded

Thursday, 17 April
The Office of Fair Trading announces that it has issued a “statement of objections” to 112 companies. The statement accuses them of cover pricing. Balfour Beatty is the first to report to the stock exchange, but Galliford Try, Henry Boot, Carillion, Morgan Sindall and Kier follow suit.

Friday, 18 April
It emerges that only nine firms are accused in the statement of having made financial benefits from cover pricing. Deborah Jones, the OFT’s deputy director of cartels, says cover pricing “has been going on fairly recently” and that she has been told it is still “rife”.

Monday, 21 April
Tony Bingham, Building’s legal columnist, and Stephen Gruneburg, a Westminster University academic, defend the industry on building.co.uk. The Construction Confederation asks the OFT to clarify the evidence it has found, and how much the price fixing has cost the public purse.