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Construction's image takes a huge beating

Construction was left reeling from a series of bad news stories last week that seemingly left its public image in tatters.

Last Thursday the Office of Fair Trading (OFT) named 112 English construction firms for their alleged involvement in bid rigging, including major contractors Balfour Beatty, Carillion and Interserve.

On the same day, three Amey Mouchel workers were jailed for three years each for racist bullying.

These stories came on the back of the death of a Costain surveyor working on its M25 site two weeks ago, plus the beleaguered opening of Heathrow Terminal 5 and continuing problems with Glasgow's Clyde Arc.

Association for Consultancy & Engineering chief executive Nelson Ogunshakin said such stories came at the worst possible time as the industry finds itself in the middle of a skills crisis.

"At a time when the skill shortage is abysmal and we need to encourage the industry this is not encouraging news," said Ogunshakin.

"The last thing we need is people being turned off coming into the industry," he said.

While the OFT has focused on cover pricing, the building sector of construction, engineers this week claimed that many civils firms were also guilty of bid rigging for smaller jobs.

Cover pricing involves a group of contractors agreeing among themselves who will win a job. Members of the group will inflate their bids to ensure the contractor they agree should win undercuts them and wins the work.

One senior consultant said he was: "shocked, but not surprised," by the OFT investigation. "I had experience of this 20 years ago," he said.

"Because many civils programmes are big, I can't imagine cover pricing would happen as the business interest would be so overwhelming.

"But, people in an active market may say, "we'll take a cover" on a smaller scale. I can't endorse that, but I can see it is happening, and would be good business sense," he said.

According to industry figures, collusion was endemic 15 years ago, but is now less prevalent.

An NCE online poll this week revealed that 34% of respondents said they had witnessed cover pricing in civil engineering.

A contractor who wished to remain anonymous said cover pricing still goes on, but is not a form of corruption.

"In my experience cover pricing is driven by public sector procurement policies," he said.

"Councils always want six firms on a list. Contractors are expected to return a price despite the fact that the tender period is too short, tenders land with no notice, and if you do not submit a tender, you are removed from future tender lists."

Another senior figure at a major consultant said clients were partly to blame, and may even drive the legal practice of "over pricing", where a busy contractor deliberately bids too high for a job it does not want.

"Clients will ask for bids, which suppliers or contractors then price because they have no intention of winning."

Local Government Association chairman Sir Simon Milton rejected this. "There are simply no excuses for collusion, bid rigging or cover pricing which leaves the public and councils to pick up the tab.

"It will come as a shock to residents that some construction companies have rigged bids for contracts at the taxpayers' cost."

A spokesperson for construction industry umbrella group The Construction Confederation said: "The OFT have damaged the sector by exaggerating claims – they named 112 companies, but the vast majority are for benign cover pricing. Collusion or bid rigging is a technical breach of the law, but the vast majority of these companies are caught like this," he said.

Read the full story on the OFT investigation, and see the names of all 112 firms.

One senior consultant shared this anecdote, which illustrates the practice 20 years ago when he worked as a contractor:

"With the cover price, you do not determine the price. Your contact in another company will phone and he will tell you the price to bid at.

"You would have groups of contractors, some you would deal with who engaged in cover pricing, while others you would not.

"In one case, another contractor contacted us, and told us to bid at a certain price. Their bid won, on a slightly lower bid, but their application was found to have errors in it, and they had to pull out.

We actually then won the bid by default. We just had to get on with it," he said.

Bid rigging terminology

Cover pricing - Companies agree the prices they will quote a client before they are submitted. It is agreed that the company that wants to win the bid will supply the lowest quote, and win. This contravenes the Competition Act.

Over pricing - A company will submit a bid it knows will be too high. This is done without collusion and is legal. The company may have been asked to submit the bid, or may want to remain on a client’s list. Also known as benign cover pricing

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