Bid-rigging: Construction Confederation calls for 'sensible' response

The Construction Confederation (CC) has appealed for the Office of Fair Trading (OFT) to come up with a "sensible and proportionate" response to its four-year investigation into bid rigging.

In a statement following this morning's announcement that 112 contractors are under suspicion either of questionable industry practices, the CC pointed out that the bulk of alleged infringements listed in the Statement of Objections are examples of 'cover pricing' where companies submit inflated bids to avoid winning a tender without discussing their bids with other firms.

It pointed out that while this is a technical breach of competition law there would have been no cost to the client or gain to the contractor.

Meanwhile it also expressed concern that fines levied by the OFT could be as much as 10% of a company's annual turnover, in an industry where profit margins are traditionally 2.5% which could threaten their viability.

CC chief executive Stephen Ratcliffe said: "Cover pricing was symptomatic of a time when work was won on lowest price and short term relationships were the norm.  Culture in the industry has since shifted significantly and single stage competitive tendering based on lowest price is declining.

“In recent years, the industry has gone to great lengths to stamp out the practice. For example, companies are already ensuring that employees understand requirements for compliance and have written to all staff establishing protocols.”

“We are concerned that, because the OFT fines system is based on turnovers, there is a risk that fines will be disproportionate in an industry which has high turnovers and relatively small profit margins.

“Another concern is that we have already heard suggestions that public sector procurers may exclude firms accused of cover pricing from future tender lists. Not only would this be an additional and disproportionate punishment, it would actually reduce competition and so potentially have an adverse effect on both client and contractor.

“We would like to see guidance drawn up by the OGC and the Department of Communities and Local Government (DCLG) so that public sector clients have the security of clear guidelines that contractors should not be omitted from tender lists because of these past infringements.

“It would also be helpful if the OFT could make it clear that contractors should not be dropped from tender lists as a result of their investigation.”