On 22 September 2009 the UK Office of Fair Trading (OFT) imposed fines totalling £129.5m on 103 construction companies in England that were found to have colluded on contracts for a variety of schools, universities, hospitals and private construction projects. The inquiry was triggered by a specific complaint about a hospital tender process in Nottingham in 2004.
After a lengthy investigation, the OFT concluded that the companies involved engaged in anti-competitive bid-rigging activities on a total of 199 tenders over six years between 2000 and 2006. While the findings relate to the conduct of the 103 parties named in the press release, the OFT’s investigation suggests that bid rigging, in the form of ‘cover pricing’, has been a widespread and endemic practice in the construction industry for many years. Indeed, the OFT indicated that it had uncovered evidence in over 4,000 tenders involving over 1,000 companies but had to focus its investigation on those areas where it had the strongest case.
Cover pricing
Most of the illegal activity was found to be in the form of cover pricing, which is where one or more of the bidders in a tender process obtains an artificially high price from a competitor. These cover bids appear to be genuine bids but are not priced to win the contract, resulting in a major distortion of the tender process and ruling out the possibility of cheaper tenders being invited from other companies. The OFT found that, in as many as 11 tenders, the lowest bidder faced no genuine competition because all the other bids were cover bids.
Penalties and damages actions
Under the Competition Act 1998, companies found guilty of bid rigging can be fined up to 10% of their worldwide turnover. However, 33 of the companies involved benefited from discounts of between 35-65% under the OFT’s leniency programme, 41 others received up to a 25% discount under a fast-track offer process and a further 12 received smaller reductions for admissions made to the OFT at a relatively late stage of the investigation. Overall the parties have been fined £1.26m on average, representing just 1.14% of their annual worldwide turnover.
While the OFT normally requires that fines are payable in full within two months of the decision, a combination of political pressure and the adverse economic climate means that it is exceptionally offering all parties the option of paying in instalments over three years.
Although the OFT has not pursued criminal sanctions in this case, the possibility of such sanctions cannot be ruled out if similar anti-competitive behaviour were found to take place in the future.
In addition, companies named in the OFT’s decision may find that damages actions are brought against them by third parties harmed by the anti-competitive behaviour.
Appeals
The companies involved now have two months in which to decide whether to appeal this decision. While many have co-operated with the OFT during the course of the investigation, there might be some who believe that they have been unfairly discriminated against given the widespread nature of the anti-competitive practices involved.
Comment
This decision is likely to have significant repercussions for the construction industry, both in terms of the financial effects on the companies involved and the prospect of public bodies and private entities ‘blacklisting’ them. The OFT (in conjunction with the Office of Government Commerce) has issued guidance advising against blacklisting the infringing firms from future tenders. It states that the companies involved are now fully aware of the implications of the competition rules and, interestingly, points out that it cannot be assumed that any company not named in its press release has not actually been involved in cover pricing.
This is not likely to be the end of the story for the construction industry, which has long been under the antitrust spotlight in Europe. Indeed, on the same day that the OFT published its fines in the construction industry, European Commission and Spanish antitrust officials carried out dawn raids at the premises of several cement manufacturers in Spain. Equally, in July this year, the Bulgarian Competition Authority carried out dawn raids at the premises of the Bulgarian cement industry association.
By Rebecca Timms, consultant, Berwin Leighton Paisner LLP.
E-mail: rebecca.timms@blplaw.com.
