Construction firms fined for price rigging

Construction workers

More than 100 construction companies - including Balfour Beatty - have been fined a total of £129.5 million by the Office of Fair Trading (OFT) for rigging bids for contracts.

The consumer watchdog said its investigations show 103 firms were engaged in illegal anti-competitive bid-rigging activities on 199 tenders between 2000 and 2006, mostly in the form of ‘cover pricing’.

Cover pricing is where one or more bidders in a tender process obtain an artificially high price from competitors. The bids are not priced to win the contract but are submitted as genuine bids in order to give a misleading impression to clients as to the real extent of competition.

The OFT says cover pricing distorts the tender process and makes it less likely that other potentially cheaper firms are invited to tender.

Some of the largest fines include almost £17.9 million for Kier Group and £11.6 million for Interserve. Connaught was also fined £5.6 million, while Balfour Beatty’s Mansell Unit was fined £5.2 million. Balfour said Mansell’s involvement in the investigation took place before its acquisition of the firm.

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, between £2,500 and £60,000, were facilitated by the raising of false invoices.

The cases affected building projects across England including schools, universities and hospitals.

In August, the UK Contractors Group and the National Federation of Builders jointly launched a competition law code on conduct to help avoid breaches of competition law by the industry.

The OFT says 33 firms were given discounts of between 25% and 65% under its leniency programme, while 41 others received up to 25% discount under a ‘fast track’ offer.

In total, fines have been reduced from a pre-discount level of £194.4 million.

While penalties are normally payable in full within two months of the decision, the OFT says it is exceptionally offering all parties the option of payment by instalments over three years due to the difficult economic climate.

Simon Williams, senior director at the OFT, adds: “This decision sends a strong message that anti-competitive and illegal practices, including cover pricing, must cease.”

Balfour Beatty and Kier’s shares were down 1.6% and 0.6% respectively while Connaught and Interserve were up 0.3% and 0.7%.

In a statement, Balfour Beatty says it "neither promotes nor condones anti-competitive behaviour".

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