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OFT publishes full decision on bid-rigging in the construction industry

The Office of Fair Trading (OFT) has today published the full decision it made following its investigation into anti-competitive collusion by 103 construction firms.

This publication follows the announcement of the decision in September 2009 and its imposition of financial penalties on the firms as a result of findings of illegal bid-rigging activities in 199 tenders from 2000 to 2006.

The OFT has concluded that the firms engaged in illegal anti-competitive bid-rigging activities on 199 tenders from 2000 to 2006, mostly in the form of ‘cover pricing’.Cover pricing is where one or more bidders in a tender process obtains an artificially high price from a competitor. Such cover bids are priced so as not to win the contract but are submitted as genuine bids, which gives a misleading impression to clients as to the real extent of competition. This distorts the tender process and makes it less likely that other potentially cheaper firms are invited to tender.

In 11 tendering rounds, the lowest bidder faced no genuine competition because all other bids were cover bids, leading to an even greater risk that the client may have unknowingly paid a higher price.

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

The infringements affected building projects across England worth in excess of £200 million including schools, universities, hospitals, and numerous private projects from the construction of apartment blocks to housing refurbishments.

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

The OFT also informed nine companies originally listed in its Statement of Objections that it will not pursue allegations of bid-rigging against them as it considers it has insufficient evidence to proceed to an infringement finding.

Related guidance issued by the OFT in conjunction with the Office of Government Commerce (see Information Note link above) cautions 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.

The full decision document can be viewed at http://www.oft.gov.uk/advice_and_resources/resource_base/ca98/decisions/bid_rigging_construction

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