Price Rigging - Construction Companies Under Scrutiny

Following one of the largest ever investigations under the Competition Act 1998, the Office of Fair Trading (OFT) has issued a Statement of Objections (SO) against 112 firms in the construction sector in England that it alleges have engaged in bid rigging activities and, in particular, in ‘cover pricing’.
Cover pricing occurs when one or more of the parties bidding for a contract collude with a competitor during the tender process in order to obtain a price or prices which are intended to be too high to win the contract. The tendering authority, for example a local council or other customer, is left with a false impression of the level of competition and this may result in it paying inflated prices.

In addition, the SO formally alleges that a minority of the construction companies have entered into one or more arrangements whereby the successful tenderer would pay an agreed sum of money (known as a ‘compensation payment’) to the unsuccessful tenderer. This more serious form of bid rigging is usually facilitated by the issuing of false invoices.

The allegations cover a range of projects, including tenders for schools, universities and hospitals. The 112 parties concerned now have the opportunity to make written and oral representations in response to the case set out by the OFT. These will be taken into account before a final decision is reached as to whether competition law has been broken and as to the appropriate amount of any penalties the OFT may decide to impose on each of the firms concerned.

Under the Enterprise Act 2002 it is a criminal offence for an individual to dishonestly engage in cartel agreements. Recently, three businessmen were sent to prison after the first ever criminal prosecution for price rigging.