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OFT publishes findings on 103 construction firms fined £129M

The Office of Fair Trading (OFT) has published the findings of its investigation into 103 construction firms fined £129.2M for bid-rigging.
OFT publishes findings on 103 construction firms fined £129M
Published in a 1,945 page document are the findings of the OFT's investigation into firms involved in colluding with competitors on 199 building contracts from 2000 to 2006. The document's publication follows the OFT's case decision in September 2009 and its imposition of fines.

The OFT's full decision document outlines the detailed evidence and findings on each infringement, representations made by the construction companies and details of the OFT's calculation of the fines imposed. OFT lists the 103 parties involved and sets out the fines imposed after all discounts including for leniency.

The companies fined included Balfour Beatty Construction and Balfour Beatty Refurbishment (for infringements from 2000 onwards) and Mansell Construction Services (for infringements from December 19, 2003 and its parent company Balfour Beatty plc. The fine was £5,197,004. For infringements involving Mansell prior to December 19, 2003, Mansell and its former parent company Mansell and Mansell plc are jointly liable for the entire fine.

Concerning Balfour Beatty Plc, the OFT's full decision document states: 'The OFT considers that a parent company may be held liable for an infringement committed by its subsidiary even though it had no specific involvement in or knowledge of the infringing conduct. It follows that Balfour Beatty plc cannot escape liability for the relevant infringements by reference to its argument that it had no specific involvement in or knowledge of the infringing conduct'.

The 103 construction firms' bid-rigging activities involved cover pricing, where one or more bidders in a tender process obtains an artificially high price from a competitor. Cover bids are priced so as not to win the contract but to distort the reality of the competition and make it less likely that other potentially cheaper firms are invited to tender. In 11 tendering rounds, the OFT found that the lowest bidder faced no genuine competition because all other bids were cover bids, leading to a greater risk that the client may have unknowingly paid a higher price.

The OFT found six instances where successful bidders had paid an agreed sum of money ('compensation payment') to the unsuccessful bidder. These payments of between £2,500 and £60,000 were done by the raising of false invoices.

Eighty-six out of the 103 firms received reductions in their penalties because they confessed their involvement in cover pricing prior to the OFT's decision.

Under the Competition Act 1998, firms can be fined up to 10% of their worldwide turnover. The parties have on average been fined £1.25 million, representing on average 1.13% of their annual worldwide turnover.

Fines are normally paid in full within two months of the decision, but the recession's impact on the construction industry has resulted in the OFT offering all parties the option of payment by instalments over three years, to avoid a large volume of requests for special payment terms.

The OFT is warning 'procurers against excluding the infringing firms from future tenders, as the practice of cover pricing was widespread in the construction industry and those that have already faced investigation can now be expected to be particularly aware of the competition rules'.

See firms,fines and full decision document
23 November 2009

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