The Office of Fair Trading could expect no sympathy from the construction industry over the headline in the Times that announced the unprecedented cuts in fines imposed on six of the contractors found guilty of cover pricing: ‘Hammering for OFT as builder’s fines are slashed’ it thundered.
This represents a major slap in the face for the OFT from the Competition Appeal Tribunal and calls into question major parts of its approach in pursuing cover pricing in construction as anti-competitive behaviour. The tribunal ruled that the final penalties imposed by the OFT on each of the six contractors for ‘simple’ cover pricing were excessive given the nature of the infringement, together with the harm it was likely to cause, together with certain general mitigation, including the fact that the practice was long-standing in the industry and widely regarded as legitimate (see News).
The OFT allegations were first contained in a report with what now looks like an even more incendiary title than it did originally – ‘Bid rigging in the construction industry in England’ – published in September 2009. No evidence of bid rigging was found but the OFT went out of its way to give the impression that anti-competitive behaviour was rife in construction. The size of the fines imposed seemed to justify the OFT’s concern.
Critics of the OFT have said that it was an organisation looking for a justification following the collapse of several cases and that construction looked like an easy target. So it was, as cover pricing has been for long an accepted feature of the industry, as the tribunal recognised. But it is one that was never designed to make a client pay more than it otherwise might and was not the result of companies colluding to push prices unfairly high. The penalties have been felt across the industry as all clients must have been given at least pause for thought about how much they can trust companies they have been dealing with for many years. Some public sector clients felt statutorily obliged to seek legal advice on whether they should be trying to recover sums from the firms that had been fined.
Councils were advised however that there were insufficient grounds to sue for losses as a result of cover pricing and that proving a loss directly linked to cover pricing would be difficult. European Community law ruled out the use of blacklists.
The OFT has not immediately put its hands up and admitted that it was wrong, either in its tarring construction as a hot bed of corruption, or in its method of calculating fines. In a terse press statement after the tribunal ruling the OFT said: ‘Today’s judgment was limited to the level of penalty for these six companies, who did not challenge our finding that they engaged in illegal cover pricing, in breach of competition law’. The OFT in fact said it was considering taking the tribunal decision to the Court of Appeal.
So, another 19 companies that have appealed against the fines have to wait for another long period while the OFT tries to find a face saving way out of this embarrassment. One of the companies whose fine was cut, Corringway Conclusions, has since gone into liquidation. Let’s hope no others suffer the same fate while they await the final resolution of this.
Nick Barrett
Editor