Angela Jameson, Industrial Correspondent and Dominic Kennedy
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Local authorities have been colluding with builders in the “bid rigging” of construction projects to make it appear as if proper competition has taken place, it was claimed yesterday.
Widespread price fixing by building companies has cost the taxpayer up to £4 billion, according to one of the largest investigations by the Office of Fair Trading (OFT), the competition watchdog. But yesterday one of the companies named in the OFT investigation into cartel activity in the construction industry claimed that the bogus bidding was being organised by public and private-sector purchasers.
It alleged that buyers had been asking builders to submit hopeless tenders to fool taxpayers and shareholders into believing that proper competition had taken place.
The OFT urged anyone with information about dishonest buyers to contact its cartels hotline and said that any such purchasers could be jailed.
Its four-year investigation — which began with a tip-off about contracts at the Queen’s Medical Centre in Nottingham — resulted in 112 construction companies in England being ac- cused yesterday of illegal activities, including bid rigging and cover pricing.
The OFT said that the endemic practice of cover pricing would have pushed up public sector costs by 10 per cent. The public sector construction budget is worth £40 billion a year.
Work on hospitals, schools and medical centres is included in the scandal, which has dragged in household names including Balfour Beatty, Carillion, Connaught, Kier and Galliford Try.
The 300-plus page “statement of objections” sent to construction companies contains details of 240 cases in which costs were inflated because of “cover pricing” — where companies place a high bid for work that they have no intention of winning so that they are not left off a client’s tender list. The cover price is fixed after consultation with another supplier.
Mark Denman, of T Denman & Sons (Melton Mowbray), which was named in the inquiry, issued a statement explaining that buyers were involved in cover pricing too. “Clients (including those in the public sector) have been known to specifically request a cover price where their initial inquiries had produced insufficient response, in their own attempt to show competition,” Mr Denman said.
The company, which said the OFT appeared to be looking at only three of its projects, insisted it had never artificially raised the prices for work for which it was competing. “Our company, and indeed the majority of those affected by this investigation, has simply engaged in what was accepted as standard industry practice,” Mr Denman said. As soon as it realised that this practice breached competition law, Denman stopped doing it.
In one case revealed by the OFT, the price of building work at a college leapt by 25 per cent after four bidders agreed artificially high bids.
Cover pricing has been illegal since 2000 but was common in the industry until 2004, when it became clear that the OFT was to crack down. One contractor said: “Clients like to see a few names in the frame when a project comes up. You’d chat with another bidder, find out what it was pricing at, and go in far enough over the top to make sure you didn’t win.”
John Fingleton, chief executive of the OFT, said: “Cartel activity of the type alleged harms the economy by distorting competition and keeping prices artificially high. We hope this investigation will send a strong message to the construction industry about the seriousness with which we view suspected anti-competitive behaviour.”
Stephen Ratcliffe, of the Construction Confederation, said: “The only motive was to avoid doing the work but stay on tender lists and there was no intention to make a single penny at the taxpayers’ expense.”
Companies found to have broken the law could find themselves facing big lawsuits from local authorities.
Unions blamed the use of the Private Finance Initiative in public procurement and the outsourcing of work previously done by public sector workers. Dave Prentis, of Unison, said: “Building contractors make huge profits without having to resort to tactics that fleece the taxpayer. They have a win-win situation with all these public contracts.”
£100,000 reward for information
— Price fixing – when two or more businesses agree to raise the price of their products or services instead of setting them independently and competing with each other – is a form of cartel activity and is illegal in civil and criminal law
— Individuals engaging in price fixing and acting dishonestly can be imprisoned for up to five years and face unlimited fines under the Enterprise Act 2002. Company directors implicated can be banned for up to 15 years
— Under civil law, companies that take part in price fixing can face fines equivalent to 10 per cent of their worldwide turnover
— The Office of Fair Trading offers rewards of up to £100,000 for information about price fixing and all other cartel activity, which it describes as potentially very harmful. It also guarantees to protect the identity of whistleblowers and may offer them leniency if involved
Sources: OFT; Times archive
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It is time all the finances of councilers was thoroughly looked at by a public body or the taxpayer's alliance to see who is getting backhanders this country is just as corrupt as the countrys we denounce
Syd, Leeds, uk
Councils have to have a miniumum number of bids, dependent on value of work. Contractors bid, so as to remain "in favor" with Councils. If a contractor really wants the work, then the bid is competitive. If he has sufficent work, then he will "throw" a number at it. Some times the number sticks!!
Where ever there is competitive bidding, there will always be colusion.
Nic, Fort Myers, Florida
Hope this includes Councils' own building departments. I used to work in this area and recall being charged £55/m2 for finishes work that should have been £14/m2 - snags and defects were charged twice as well.
Some small contractors seemed to be able to get away with murder as well.
GQ, London,
Local Authorities involved in corrupt activities? I would suggest that all local authorities be investigated over all aspects of contracts and bidding and that additional investigations are made into planning permissions and planning consents.
Rodney Barker, Gainsborough, England UK
I'm with you Pete from St Albans, you've only got to read 'Rotten Boroughs' in Private Eye to realise just how appalling these instruments of Government are.
martin, reading, uk
One article said building firms profit margins for these large projects are typically low at around 3-5%... these figures differ with that. I wonder which is right.
This article details a situation where council A asks for tenders on a project but only one or two come back, they then ask a couple of companies to issue over the top bids... reason because otherwise the project could not have gone ahead becasue they didn't generate enough competitive bidding.... that sounds feasable... it also sounds like a pragmatic way of getting through the red tape in such a situation... it doesn't mean the price would have been less if they had not asked for a couple of overbids.... Will the council as insitigators get fined in these cases.
Where there is genuine collusion there should be fines, but the level needs to apportionate to the profit/loss made, and equally the OFT needs to deal sensitively with cases where councils have instigated cover pricing to get a job underway.
abharrisson, london,
what, corruption in Local Councils, never, and i thought all along these people in council were here to serve us, the taxpayer that us....
...i think if you look deep enough you will find that the whole system is corrupt from top to bottom....
C. Kroustis, London, UK
you were always alright if you had the right hand shake! My father worked in the council all has life and saw the way people got tenders, it was always a case of you scratch my back and I will scratch yours, one person in the council got his house nearly rebuild by a grateful builder my father got offered favours and use to laugh because he never picked anyone who would not have got the job anyway!!!! He always said they didnot have enough to make him a crook. But most could not resist the 30 pieces of silver
June Hart, Hockley, UK
where are the professionals in all this,and their governing bodies?
david little
david little, bridgend,
There is nothing more corrupt than local government!
Pete, St Albans, England
Does it mean that if the building contract is 'Overpriced' the subsequent PFI contract (God knows for how many lifetimes) is subsequently inflated in price<
Nigel Ashurst, Leicester, England
I seem to recall in the 1960s a person named John Pollson going to prison along with Dan Smith M.P. for corruption concerning government contracts, many others were involved, nothing has changed. It is no different to drug dealing the rewards are so great it is worth the risk.
Bill, Middlesbrough
Bill Hawthorne, Middlesbrough, Cleveland
This must be a case for Yates of the Yard not Umbungo of a quango.
Why are the police not investigating?
Does anyone know of any other criminal investigation where the investigator sends the accused their initial evidence and basically 'plea bargains'
£4 billion pound is a huge chunk of council tax which me and every other tax payer has been defrauded of.
Rob, derby, uk
It is common practice for public sector sponsors to need a minimum number of tenders to satisfy value for money criteria. Since Lord Egan's report encouraged collaborative working and hands on management of the supply chain, building contractors have been less willing to provide resources to one off clients when partnership arrangements result in lowered costs for both the builder and the client. Public sector clients are in a quandary for one off projects and can find it difficult to fill tender lists with sufficient willing tenderers who meet competence and capacity tests.
Something has to give. Whilst collusion is a real crime, competent public clients are usually happy if there are two genuine competitive tenders returned at the end of the bidding process. In complex markets this is very difficult (e.g. combined construction and services PFI bids) and the OGC has issued specific guidance to ensure value for money is obtained at regular intervals in 25 year contracts.
Rusty, London, UK
I like the sound of this Australian Commission Against Corruption. Can we have one? (Properly resourced & financed of course - not set up to fail from day one as per usual).
Oscar, Edinburgh, UK
The world goes round...
Nnuts - Ecclesiastes 1:9 - Nothing new under the sun.
Robert Tressells book ' The Ragged Trousered Philanthropist ' of the early 1900 describes the building trade of a hundred year ago.
There are a few winners and many losers - nothing changes
j o'bacon, elmstead, uk
We can get a pensioner, protesting about Council tax, sent off to prison quick enough , in handcuffs, but I doubt there will be the political will to see this through . Why? Because we have all seen this type of criminal behaviour surface time and time again (in the last 40 years, that I can remember), and surely before then. It would seem to be an endemic and chronic disorder of the management of Local Authority and Government spending systems. Promises of action to clean it up never come to anything it seems. Could this be because the combined powers of those implicated is simply too great? Is it not time that a Commission, independent of our present army of arrogant self interested and incompetent MPs investigated how our parliamentary democracy might be changed for the better, and the Power of the two main parties questioned?
nemo, nivillac, france
Can someone explain why the guilty companies will not be required to reimburse the taxpayer by the full estimated £4billion?
Malcolm Williamson, WGC, UK
I live in Sydney, & in NSW there is a govt body named the Independent Commission Against Corruption (ICAC) and It;s sole duty is root out corruption in the public sector. It has it's own team of investigators that are separate from the police. ICAC uses all modern technology including bugging devices, hidden cameras etc to enable it to do its job. It investigates all levels of the public sector including ploice & polititions. At the moment it is heavily involved in bringing to book some members of Wollongong local council and developers. It is refreshing to see how effective this body is in unveiling corruption within NSW.
Paul Jeffery, Sydney, Australia
The law suits against these companies will of course expose those corrupt officials in public office - this will mean that after a suitable time and vast expense we will discover that there is not enough evidence to proceed.
Wills, soton, uk