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Industry bitten by construction cartel allegations

The Office of Fair Trading is alleging 112 construction firms were involved in price-fixing to push contract prices up and is not ruling out the possibility of more OFT investigations into construction tenders.
The OFT issued a Statement of Objections (SO) against 112 firms who it believes engaged in bid-rigging activities. In particular it alleges cover pricing (where one or more bidders collude with a competitor during a tender process to agree a price which is intended to be too high to win the contract).

The OFT said more than 40 companies had already admitted price-fixing so far.

The OFT has received evidence of cover pricing implicating more companies on thousands of tender processes. The OFT alleges that a minority of the construction companies colluded to ensure the successful tenderer pays an agreed sum to the unsuccessful tenderer.

The construction companies under investigation carry out commercial and industrial building work in the public and private sector. The OFT said its investigations into these firms and all tenders they are involved in are ongoing and has not ruled out the prospect of further investigations into construction tenders.

Between 2004-06, the OFT found Competition Act infringements - specifically cover pricing and other bid rigging infringements, in the roofing sector. It was the appeals of these OFT decisions to the Competition Appeal Tribunal that confirmed the illegality of cover pricing.

The Heating and Ventilating Contractor's Association's legal expert Rod Pettigrew said 'There was a high level of publicity in relation to the roofing appeals decisions and one would have thought these construction firms would have taken note.

'The Competition Act has been around for a quite a while. One has to recognise that the OFT have given a fair degree of time for companies to bed down their procedures.

'The knock-on effect of the OFT's announcement should be that companies including sub-contractors ensure they have effective compliance procedures in place.

'If a firm is in doubt about where it stands, I would urge them to contact the HVCA to discuss how to ensure they do not fall foul of competition legislation'.

Under the Competition Act 1998, any business found to be a member of a cartel could be fined up to 10% of its worldwide turnover.

As reported earlier this year by heatingand ventilating.net, numerous house builders sent letters to sub-contractors blaming the credit-crunch and the rising cost of materials on pay cuts it wanted to impose on sub-contractors contracts.

Some in the HVAC industry fear not just the credit crunch but the cartel crunch could hurt sub-contractors as builders past down fines incurred, by squeezing those further down the supply chain.
One sub-contractor said 'The rest of the industry would react very angrily if this resulted in builders using this as an excuse to squeeze the supply chain'.

The OFT said 37 firms out of the 112 have applied for leniency. Penalty immunity or a significant penalty reduction may be granted by the OFT (under its leniency policy) in return for reporting Competition Act infringement and assisting the OFT with its investigation.

Subject to ongoing co-operation, one of the firms granted leniency by the OFT is Balfour Beatty.
In a statement made by Balfour Beatty, the firm said 'Balfour Beatty announced in June 2007 that it had undertaken a full review of the group's compliance with the Competition Act, the results of which it has made available to the OFT.
Balfour Beatty is confident that all of its subsidiaries are now fully compliant with the Competition Act. Balfour Beatty neither promotes nor condones anti-competitive behaviour'.

The OFT's is waiting to receive written and oral representations from the 112 firms and will consider each firm's case before making a decision on whether they have infringed competition law.

The OFT's Competition Act investigations which included OFT on-site inspections to the premises of 57 firms, was sparked by a price-fixing complaint by a health authority in Nottingham in 2004.

John Fingleton, OFT chief executive, said: 'This investigation, together with the OFT's previous decisions in the roofing sector, will hopefully send out a strong message to the construction industry about the seriousness with which we view suspected anti-competitive behaviour.'

On the morning of April 17, the OFT published the full list of 112 firms which it alleges were involved in price-fixing. To view the list of firms visit www.oft.gov.uk/news
17 April 2008

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