Just how much have housing associations, local authorities and private developers overpaid contractors who rigged the tendering process? The depressing truth is that the Office of Fair Trading (OFT) investigation that ended today with 103 construction companies being fined £129.5m is only the tip of the iceberg.
The investigation reveals that a particular form of rigging known as cover pricing was rife in the industry throughout the noughties. This involved successful bidders for contracts obtaining artificially high prices from competitors. These are then submitted as genuine bids to give the client a false impression of the extent of competition for the work. In some cases there was only one genuine bid, in others the successful bidder paid the others compensation.
It’s clear from the list of 199 infringements [download here] between 2000 and 2006 published by the OFT that many of these cases involved new housing and housing refurbishment work - but they are just a sample of what went on.
As for the rest of the iceberg, the OFT says that it ‘uncovered evidence of cover pricing in over 4,000 tenders involving over 1,000 companies but had to focus its investigation on a limited number of companies and instances where the available evidence was strongest, in order to make best use of its resources and conclude its investigation within a reasonable timeframe. The OFT could not, therefore, pursue every firm suspected of involvement in cover pricing. Moreover, the endemic nature of the practice within the industry suggests that many other companies are likely to have been involved in bid rigging, even though such activity remained undetected.’
In other words, virtually any contract let by any housing organisation in the early noughties could have been been affected.
The response from contractors is the one they always give in the wake of price rigging and blacklisting scandals: that the charges relate to historic offences that do not relate to current practices. This time though they add a cheeky plea to clients not to inflict further punishment on the firms that were fined by blocking them from bidding in future.
According to Julia Evans, chief executive of the National Federation of Builders: ‘It is acknowledged that at one time cover pricing was a common practice in the construction industry. It does therefore seem unfair that a small, random sample of companies has been selected by the OFT to be punished as an example to the wider industry. As the construction economy continues to deteriorate, the fines will hit the businesses involved particularly hard. They should not now face additional financial hardship by losing access to public sector work.’
That’s the advice from the OFT and Office of Government Commerce too. They point out that the guilty parties have already suffered significant financial penalties and will be particularly aware of competition rules and that it would be wrong to assume that companies that were not fined were not also involved.
It may be true that bid rigging is just the flipside of competitive contracting and will therefore always be with us, but can you imagine that advice being given about any other group of offenders?
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