Analysts play down threat of OFT bid-rigging investigation

City analysts have predicted that construction will weather the growing storm created by an Office of Fair Trading (OFT) investigation into bid rigging, despite several announcements from contractors on the issue, and the prospect of many more to come.

Rok, Galliford Try, Interserve, Connaught and Balfour Beatty all made announcements to the City last week, admitting that they each had tenders submitted between 2000 and 2005 under investigation.

They followed Kier’s admission that it was co-operating with the probe on 25 May and a statement from Carillion regarding the review’s investigation into the activities of Mowlem earlier in the year.

Although the investigation could see firms being fined up to 10% of their global turnover if any criminal activity were uncovered, Mike Foster at broker KBC Peel Hunt said he thought as long as the number of contracts under investigation at each firm was small and companies co-operated, the impact was likely to be minimal.

"It is pretty clear that there are a number of very likely transgressions of the law, but clearly of a minor nature," he said, commenting on the overall situation.

He suggested that the recent flurry of announcements was an attempt by companies to clarify their situation, prompted by Kier’s announcement.

Kier said it had chosen to make its announcement because it was "an appropriate step to take" because it was "responsible for communicating openly and honestly with our stakeholders".

Foster said he doubted that it indicated the likelihood of any major wrongdoing being uncovered.

Andy Brown of broker Panmure Gordon said the recent spate of announcements had probably come about to "highlight an issue that the market needed to be aware of" and that the companies were "clearly following good practice" in making their announcements.

But he said he thought that analysts trying to exert pressure on the firms to clarify their position might also have played a role.

"I’ve picked up the phone to companies that I think have been affected. I guess I would not be alone in doing that," he said.

The announcements so far:

25 April: Carillion says it has had no further contact from OFT since OFT raided Mowlem offices following the £313m takeover by Carillion.

25 May: Kier admits being contacted by OFT over 20 contracts which the firm’s regional operation tendered between 2000 and 2005.

30 May: Rok says two of its subsidiaries have received notices from the OFT in respect of "a small number of tenders" prior to their acquisition by Rok.

30 May: Galliford Try confirms it has received a letter regarding 17 tenders submitted between 2000 and 2005.

31 May: Interserve says it is in correspondence with the OFT regarding 16 tenders between 2000 and 2005

1 June: Balfour Beatty says it provided information to the OFT in early 2006 for its review.

1 June: Connaught announces it was contacted in relation to a ‘small number of tenders’ in one of its subsidiaries.