Builders brace for big price-fixing fines

Leading construction companies are braced for fines running into tens of millions of pounds in a long-running price-fixing probe that has pulled in scores of businesses and thrown the industry into turmoil.

The Office of Fair Trading is expected soon to announce it plans to impose penalties after uncovering alleged breaches of competition rules involving more than 100 companies working on public and private sector contracts, lawyers and industry insiders say.

The findings – which the companies can challenge – would be the most wide-ranging yet in the OFT’s expanding efforts to tackle alleged cartels in high-profile industries ranging from airlines to milk production.

People familiar with the matter say the number of companies involved meant the total fines could surpass last year’s OFT cartel penalties of £121.5m on British Airways and £116m on leading supermarkets and dairies.

Businesses that have acknowledged they are under investigation include some of Britain’s largest contractors, such as Kier, Galliford Try, Interserve, Connaught, Balfour Beatty and Carillion. The companies have neither admitted nor denied wrongdoing.

People involved in the probe on the corporate side said the fines would cause shockwaves across the industry, as they could lead to mass ejections of companies from lists of approved contractors for tenders for big public and private sector projects.

One person said: “The problem in this investigation is that you have got everyone involved, from the biggest companies to one man and his dog sub-contractors.”

People familiar with the case said more than 30 companies had reached leniency agreements with the OFT, while others were co-operating in exchange for reduced fines. The OFT had warned companies to expect an announcement imminently about the results of the three year probe, which has examined the pricing and tendering practices of more than 100 business between 2000 and 2005.

The OFT has the power to fine companies up to 10 per cent of their annual turnover for price-fixing, although actual penalties are likely to be significantly smaller than that if businesses have co-operated. The OFT declined to comment yesterday.

The probe stepped up a gear in March last year, when the OFT offered companies reduced fines in exchange for admitting wrongdoing. The watchdog said it had already found bid rigging in thousands of tenders with a value estimated at close to £3bn, as well as evidence of bungs being paid to rig bids.

The industry has been particularly alarmed by the OFT’s focus on the practice of ”cover pricing”, under which companies deliberately lose tenders by putting in a higher bid than rivals. Industry insiders admit cover pricing is widespread – even appearing in business textbooks – but say it is used legitimately by contractors who don’t want the job in question but want to indicate their interest in future tenders.

Stephen Ratcliffe, head of the Construction Confederation said that, although his organisation acknowledged cover pricing was illegal, it was “not the crime of the century”. He said: “It’s not a cartel, it’s not even a distortion of competition. Imposing fines [for it] is one thing, but many contractors also fear being struck off tender lists, which for some of them would be devastating.”

The dispute over motives has echoes of last year’s OFT investigation into alleged fixing of milk prices by dairies and supermarkets, which claimed their actions were intended to help the farming industry and were carried out under pressure from government. A group of leading supermarkets and dairies reluctantly agreed in December to pay fines to settle the case, although Tesco, the biggest supermarket chain, continues to fight on.

The construction price-fixing probe comes as the OFT is separately investigating the £20bn house-building market amid concerns that buyers are being hit by supply shortages, low quality and a lack of innovation among construction companies.

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