The Office of Fair Trading ("OFT")
has issued a Statement of Objections ("SO") in
its much publicised investigation into alleged anti-competitive
tendering practices in the UK construction industry. The
OFT named 112 companies in its press release as having allegedly
been engaged in certain bid rigging activities.
The SO is
only an intermediary stage in the investigation and represents
the provisional findings of the OFT. It sets
out the OFT's case against the companies involved and will
be the first time that many of the companies will have seen
the evidence against them. The SO is made available only
to the companies that are caught up in the investigation
and its purpose is to enable each company to exercise its
rights of defence.
The OFT has not at this stage imposed fines on any company
but the SO does provide some guidance on how fines will be
calculated. It is only when the final decision is published – probably
in early 2009 - that the actual fines will be announced.
In the meantime, each firm will have more than 2 months to
prepare written representations in response to the SO and,
if it wishes, an oral hearing with the OFT case team.
Cover
pricing is an outdated industry-wide practice that went on
for many years and wasn't generally understood to
be illegal by the participants at the time. For the most
part, cover pricing did not have an effect on competition
in the sense of increasing prices to customers. The purpose
of taking a cover price was to enable the company in question
to provide a bid that appeared plausible but would not win
the work. Yet it would still be close enough to the winning
bid so that the firm could stay on the tender list. Crucially,
during the tender process there would almost always still
be a number of competing tender bids so the winning price
would be a competitive price.
As the OFT admits, the bulk
of the alleged infringements involved this type of cover
pricing rather than a more aggravated
form involving "compensatory payments", evidence
of which the OFT said that it found in a "minority" of
cases.
The maximum fine that the OFT can impose
is 10% of the global turnover of a firm but it will usually
be significantly
less.
The industry has called on the OFT to take into account
the minimal effect, if any, on competition arising from the
practice
of cover pricing and to take a proportionate response when
calculating the level of penalties. If penalties are set
at a disproportionately high level, it would arguably have
a negative effect on competition if contractors were to
be put out of business.
April 2008.
