Nexnet

Last September, the Office of Fair Trading (OFT) handed out £129.5 million in fines to 103 construction companies which were found to have breached competition rules by colluding on tender bids. Of the 199 infringements found, around three-quarters related to public sector building contracts.

 

Competition law specialist Jonathan Sinclair, a partner at boutique litigation firm Stewarts Law, has written a briefing paper for the Association for Public Sector Excellence (APSE) advising members of their legal position following the so-called cover pricing scandal. He is due to make a presentation at Jonathan Sinclair APSE’s annual Housing & Building Seminar at the Crowne Plaza, Manchester on Friday, July 2.

 

According to Jonathan, the OFT report described cover pricing, which involves construction companies submitting artificially high bids to effectively help rivals win contracts, as ‘endemic’ in the industry. He said public bodies needed to remain vigilant to make sure they were not paying inflated prices.

 

“A survey published by the OFT this month suggests that perceptions of the illegality of bid rigging and cover pricing within the construction sector remain low despite a greater awareness of possible penalties,” said Jonathan.

 

“The prosecutions brought by the OFT last year were just the tip of the iceberg. During its five-year investigation, it found evidence of more than 4,000 infringements relating to contracts with a combined value of over £3 billion.

 

“A sizeable proportion of those contracts came from the public sector, which at the very least raises serious questions about whether the public purse has been getting best value for money. When you have companies submitting artificially high bids, it is inevitable that the market becomes distorted.

 

“It is never easy to quantify potential losses arising out of anti-competitive behaviour, but given how deep-rooted cover pricing is in the construction industry and the sheer number of contracts involved, it is reasonable to guess that the value of the distortion could have run into millions of pounds.”

 

Jonathan said that although organisations had a right to seek compensation if they could prove financial losses as a result of cover pricing, he did not expect to see a large number of cases brought. He instead advised public sector bodies to take steps to guard against future losses.

 

“The OFT investigation did not touch on whether or not organisations had suffered financially because it did not have to. That is something organisations themselves would have to review on a case-by-case basis. If a loss can be proven on the balance of probabilities, companies have the right to claim, but again, the difficult thing is putting a figure on how much prices may have been inflated. Oneobvious first step would be to review the professional advice originally received prior to putting the job out to tender and look for discrepancies between the initial budget estimate and the final price paid.

 

“The main thing is for public bodies to be aware of what cover pricing is, the extent to which it has been taking place, and to increase their vigilance accordingly in future procurement procedures. At a time when purse strings are being tightened, those in charge of procurement will be expected more than ever to deliver best value. That means being alert to anything which might be suspicious and perhaps taking into consideration whether a particular company has been investigated for this offence when reviewing tender submissions.”

 

 

Issued on behalf of Stewarts Law LLP, www.stewartslaw.com, by Nexnet PR, 8 York Place, Leeds, LS1 2DS, www.nexnet.co.uk. For further information call Nexnet on 0113 247 0029 or email paul.newham@nexnet.co.uk or joanne.mead@nexnet.co.uk.