Construction bid-rigging Q&A

An overview of the five-year OFT (Office of Fair Trading) investigation into construction bid-rigging, including: background to the investigation; a list of all major construction companies implicated; and links to all key stories during this period.

View a timeline of the OFT investigation into construction cartels

When did the OFT start investigating the construction industry?

It dates back to June 2002, when the OFT started an investigation into tendering practices of flat-roofing contractors in the West Midlands. In March 2004, the OFT concluded its investigation, and nine roofing contractors in the West Midlands are fined £330,000 for price-fixing. 

In January 2005, the OFT warned it would be widening its investigations into the whole construction and housebuilding sector.

What is the OFT investigating?

The OFT has been variously described as investigating 'cartels', 'bid-rigging', or 'price-fixing' - but the practice that seems under particular scrutiny is 'cover pricing'.

What is cover pricing?

Cover pricing is when a contractor bids for a job with no intention of winning the tender.

For example, Company A has been invited to tender by a client, but for various reasons, it has no interest in winning this particular job. However, Company A wants to stay in favour with this client, and stay on its tender list.

So, Company A contacts Company B, which is also bidding for the job, and asks for a 'cover price'. Company B supplies Company A with a price roughly 5%-10% higher than its own bid. Company A supplies this price to the client as its own, safe in the knowledge it will not win. Company B is happy with the arrangement as it has not given away knowledge of its actual bid.

Why is cover pricing illegal?

The process of putting in an artificially high bid is not a breach of competition law - however, the brief conversation between two bidders which confirms it is sufficiently high not to win is an infringement.

That said, many estimators do not appreciate that cover pricing is regarded as collusive tendering, and it is thought to have been an established practice in the industry for many years.

What is the extent of the investigation?

The investigation looks at building contracts up to 31 December 2006. Most of these contracts are concentrated in the East Midlands, Yorkshire and Humberside areas.

Several big names came forward in the summer of 2007 to admit that some of their tenders in their regional operations were under investigation by the OFT.

But the OFT is thought to have stopped short of investigating cover pricing in all areas of the country. And other industry sectors such as civil engineering have not been touched at all by the probe.

How big is the investigation ?

More than 3,000 suspect contracts worth £3bn have been examined, with values ranging from just £30,000 right up to a major £25m design-and-build job. Some 57 firms are believed to have been subject to dawn raids.

The OFT itself has got a 20-strong team working on the investigation.

Which construction companies are being investigated?

Several big firms made announcements to the stock exchange in 2007 that they were under investigation but many other players’ tenders are also thought to be under investigation. Those that made announcements were:

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.

Have many construction companies cooperated?

The OFT is offering a 'leniency' deal, whereby firms putting their hands up may get a reduction in fines of 50%. Some 38 companies have already come forward under the leniency scheme to confess to cover pricing. 

What happens next in the OFT investigation?

The OFT is expected to release a ‘Statement of Objections’ in April or May 2008. This document, which will be sent out to all affected contractors, will detail how and why the OFT suspects their involvement in cover pricing.

It is thought likely that the names of those contractors will also be released to the public in a press release, although the full document will remain private.

Contractors will then have between one and two months to make submissions to the OFT based on the evidence presented to them. If the evidence against them is deemed to be strong enough, they could incur hefty fines of up to 10% of relevant turnover. This could represent millions of pounds.

Latest news stories about the OFT investigation into construction

* Thanks to Bernadine Adkins from Wragge & Co's antitrust team for help with this article.