Construction is under the microscope again for anti-competitive practices, this time for cover pricing in the demolition sector. Ten well known demolition contractor names have been warned by the Competition and Markets Authority (CMA) that they can expect fines totalling tens of millions of pounds by the end of the year (See the CL website). Eight contractors have accepted that anti-competitive behaviour took place, while two have decided to contest the CMA’s findings. Disqualification of some directors has not been ruled out.
The warnings come in the CMA’s provisional findings following an investigation that has been underway since March 2019. The CMA says that bids were being rigged through firms agreeing to submit tenders that were designed to lose. This made the winning bid, which might well have also been higher than it otherwise might have been, look acceptable. As compensation for deliberately pricing tenders to lose, payments are said to have been made to seven of the ten, with false invoices sometimes being issued as cover. These payments were of up to over £500,000 so the illegal profits that can be earned from this behaviour are obviously considerable.
The CMA said 19 projects involving demolition and asbestos removal were affected during the period investigated to 2019. Contracts worth over £150M were affected, including the Old War Office in London, the redevelopment of Bow Street Magistrates Court, the Metropolitan Police training centre in north London, redevelopment at Selfridges on Oxford Street and at Oxford University.
Two of the ten took advantage of the CMA’s leniency policy and reported their wrongdoings, and will benefit from discounts on any fines. In their defence some of the companies pointed out that the bid rigging was carried out under previous management regimes, and sometimes by subsidiary companies. Some argued that they did not make or receive compensation payments or benefit from the award of contracts. Some point out that the anti competitive behaviour took place under previous ownerships. One has admitted that these practices took place but it was decided to stop them before the investigation started.
The CMA’s senior director of cartels Juliette Enser has reportedly said that it is important to stamp out any ‘lingering’ poor practice in the industry. Coming from someone with over ten years experience at the CMA and its predecessor body the Office of Fair Trading that could be taken to suggest that the problem of anticompetitive behaviour is becoming a thing of the past in construction. There is very good reason why it should be – fines of over £60M have been levied on construction companies for anti competitive behaviour, including cover pricing, in recent years. Two of the companies named in this investigation are reported to have made provisions in their accounts of £9M and £6M in anticipation of fines.
Presumably, once it was known that the CMA was onto the scam in 2019 other perpetrators changed their ways and others will have been discouraged from starting – but as any investigator will tell you, stupid behaviour by law breakers forms a large part of their case load, so there is possibly still some of this happening in other sectors of construction. The CMA is offering rewards of as much as £100,000 for information leading to convictions for anti-competitive activity; only the seriously stupid would ignore all this – but they will always be with us.