OFT investigates construction companies of
bid-rigging
112 construction companies are being accused, by the Office of
Fair Trading (OFT), of rigging bids when competing for contracts,
in doing so operating a cartel.
Contracts involved in the investigation include projects for
schools, hospitals and other public and private sector buildings,
the majority located in Yorkshire and Humberside. The investigation
particularly centres upon the practice of 'cover pricing' where two
or more competing bidders collude during a tender process to fix
their respective bid prices with all but one of them offering a bid
price intended to be too high to win the contract. The one bidder
who it is agreed will put in the lowest bid therefore has the
opportunity to win the tender at a higher price than might
otherwise have been offered. The tendering authority is not made
aware of the contacts between bidders, leaving it with a false
impression of the level of competition and this may result in it
paying an inflated price. This is a particular concern for public
sector tenders where the tendering authority may well seek tenders
as against its disclosed project budget thereby enabling the
successful colluding bidder to win the tender with a bid
significantly in excess of the budget figure.
The OFT also investigated two allegations of companies
which:
- over-bid when they did not want to win the contract but felt
that they should put in an offer in order to maintain a
relationship with the client
- decided in advance who would get the contract and then the
competing contractors would receive compensation from the
successful company using a fake invoice
The 112 construction companies involved are now able to write or
speak to the OFT about the accusations before the ten week deadline
when the OFT will decide the penalties issued.
Firms which are found to have operated a price fixing cartel
could be fined up to 10% of their annual worldwide turnover.
Individuals engaging in such activity and who have acted
dishonestly can be sentenced up to five years in prison and
company directors can be banned from acting as directors for 15
years. Firms which disclose cartel participation to the OFT can
seek so called whistle blower's leniency.
Blake Lapthorn advises on the whole spectrum of competition law,
covering merger control clearance procedures, general contractual
compliance and the making and defending of complaints. It has
particular expertise in advising upon the conduct of OFT
investigations and the related issue of negotiating and handling
requests for leniency.
For further information on competition law services contact
Peter
Bond on 020 7814 6931 or email peter.bond@bllaw.co.uk and for
applications for leniency contact Peter
Barber on 023 8085 7079 or email peter.barber@bllaw.co.uk
and/or John Mitchell on 023 8085 7231 or email
john.mitchell@bllaw.co.uk
Also for information on construction law services please contact
Richard Wade, head of Blake Lapthorn's
Construction and Development group on richard.wade@bllaw.co.uk or
call 01865 254244.
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