Andrew Harbourne, partner, Dawsons
Building relationships
Landlords must heed the implications of price-fixing uncovered in the building industry
I heard that the Office of Fair Trading has fined more than 100 construction companies nearly £139 million for bid- rigging. What have they done?
Most of the abuses were ‘cover pricing’, where one or more operators inflated their bids, making it easier for another to win the contract.
Since most housing associations are bound by the public procurement rules, does that mean we must exclude fined companies from tenders?
You’re thinking of Regulation 23 of the Public Contracts Regulations 2006, under which an operator convicted of specified offences must be excluded from tendering. The fines imposed by the OFT are, however, under special powers - they are not the result of criminal convictions.
An association can still exclude a company from tendering if it has committed an act of grave misconduct - which might apply here.
However, the OFT and the government advise that fined companies should not be excluded on that ground alone. The OFT found evidence of cover pricing in more than 4,000 tenders involving more than 1,000 companies, but could not investigate them all. Because the problem is so widespread, they argue it is unfair to exclude the fined companies. And, as they say, those companies that have been fined might be expected to take extra care in future.
Several companies intend to appeal their fines so some may be overturned.
Don’t forget that where works are below the EU thresholds, the rules may not apply in full or at all.
In practice, what can we do about this?
Some of the fines are in the millions. If you are in contract or considering contracting with a fined company, check that the fines have not undermined its viability or put it in breach of banking or insurance covenants.
Consider checking through tender histories - regardless of whether a fined company was involved - for evidence of bid-rigging.
For guidance in spotting it, see the Office of Government Commerce’s publication Making competition work for you, the Organisation for Economic Co-operation and Development’s Guidelines for fighting bid-rigging in public procurement and the OFT’s note.
If you uncover bid-rigging in a tender process, check whether the tenderers signed certificates stating that there had been no collusion.
If so, you might be able to sue if there was and you can show loss. If not, insist on such certificates in future.
Anything else?
The implementation of the new Remedies Directive in December will encourage disappointed tenderers to scrutinise and dispute many contract awards. It will be embarrassing if such investigations reveal evidence of bid-rigging which the authority should have spotted and did not, so take extra care.
If bid-rigging is suspected, take legal advice straightaway and consider contacting the OFT.
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Readers' comments (1)
darrenf | 23/10/2009 9:41 am
Could cover pricing be a symptom of restricted competition that arises from RSL framework partnerships that only contain a small number of contractors that can bid for work? If competitition for Build Contracts is openend to the wider market then it will be much more difficult for companies to collude with each other as it will be more difficult to know who the competitors are in a bid for work.
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