In the Media

OFT faces new legal fight as builders line up to challenge their fines for bid-rigging

PUBLISHED December 7, 2009

The competition regulator fined 103 companies £130m for inflating bids for projects, including schools and hospitals

The Office of Fair Trading (OFT) is facing another costly legal battle after 25 construction companies contested penalties imposed by the competition regulator for illegally inflating bids for building tenders.

Several of Britain?s biggest construction companies are among those challenging the fines, including Bowmer & Kirkland, Galliford Try and Kier.

Their move represents the greatest number of appeals that the OFT has faced to one of its decisions and drags the regulator into another potentially lengthy court fight after its recent surprise defeat in the bank charges case.

In September, the OFT fined 103 construction companies a total of almost £130 million after one of its longest investigations. A five-year inquiry uncovered widespread evidence of competition law violations in the sector, including 4,000 tenders in which bidders had artificially inflated prices by colluding to submit fake bids. The regulator singled out 199 cases for prosecution, including projects such as schools and hospitals.

Although the fines imposed by the OFT could have been significantly higher ? they amounted to just over 1 per cent of collective turnover, but could have been as high as 10 per cent ? dozens of companies complained that the methodology used to set individual fines was flawed.

Twenty-five companies that submitted appeals before the deadline on November 23 will ask the Competition Appeal Tribunal (CAT) to overturn their penalties or significantly reduce them.

According to court filings made public this week, Bowmer & Kirkland ? fined £7.6 million for three infringements ? will argue that the OFT overstated the economic impact of its collusion and did not allow the company the chance to apply for leniency.

Kier, which received the largest fine at £17.9 million, will argue that its penalty was excessive and discriminatory. Other companies fined more than £1 million that are contesting the decision include Apollo, Ballast Nedam and North Midland Construction.

An OFT spokesman said: ?The OFT will consider all appeals on their merits but believe their decision to be robust and accordingly anticipate contesting all appeals.?

The CAT is likely to hold a hearing in the next few weeks to determine how to proceed with the appeals. It may decide to combine the cases.

The OFT began its investigation into bid-rigging after a tip-off by a council in the East Midlands in 2004. In its simplest form, known as ?cover pricing?, companies that do not have the resources to compete for a particular project but still want to remain on tender lists collude with rivals to submit artificially inflated prices, knowing their bid will not succeed.

The practice was so widespread that many in the industry did not know it was illegal. In their defence, the construction companies claim it was their intention to avoid losing future work rather than to overcharge customers.

Last week, the OFT suffered a black eye after the Supreme Court ruled that the regulator did not have the power to determine whether unauthorised overdraft charges were fair. The decision, which overturned earlier findings by the High Court and Court of Appeal, left millions of customers who were hoping for refunds disappointed.

Britain?s beleaguered construction sector continued to shrink in November, although at a slightly slower pace, new figures showed yesterday.

The Markit/PMI gauge of activity in the building sector showed a reading of 47, below the 50-point mark that indicates the sector is growing. This was slightly up from 46.2 in October, but marks the 21st month in which the reading has remained below 50.

Activity in commercial property continued to decline in November, with the index falling from 46.5 to 46.1, indicating concern among developers over rental demand for commercial properties.

Economists said that the disappointing figures suggested that the sector was unlikely to make a positive contribution to GDP in the final quarter of the year.

There was more positive news for the residential construction sector however, as the figures showed a continued rise in activity.

The index for housing activity climbed from 50.9 to 53, the third monthly rise, reflecting a pick-up in demand for houses among consumers. The volume of new orders also rose for the first time in 21 months, signalling that conditions would continue to improve.