What price reputation after collusion shame?

Nothing quite sours a relationship like suspicion. The bidrigging scandal has shamed an industry, tarring innocent and guilty alike, and called into question the sincerity who would be proud partners to social housing.

As first reported on our sister website, following one of its largest investigations of this kind, the OFT has imposed fines totalling £129.5 million on 103 construction firms in England, after it found them guilty of colluding with competitors in so called ‘cover pricing deals’. The illegal bid rigging took place on 199 tenders between 2000 and 2006, affecting building projects across England said to be worth in excess of £200 million. These included schools, universities, hospitals, and numerous private projects, from the construction of apartment blocks to housing refurbishments.

“Our investigation has uncovered significant infringements of competition law,” said Simon Williams, the OFT’s senior director for the case. “Bidding processes designed to ensure clients and in many cases taxpayers receive the best possible choice and price were distorted, creating a real risk of increased prices.”

Some of the companies named and shamed by the OFT are well-known brands partnering in the social housing sector; many indeed proud proponents of the benefits that partnership working can bring to building a positive working relationship based on mutual trust and respect, so the bidrigging scandal has inevitably cast a shadow of doubt over some of these relationships. Reputation may be intangible, nonetheless, and certainly hardwon trust has been dented.

“In the eyes of the public, the investigation has reinforced the image of building firms conducting underhand deals in back rooms and fixing prices to defraud their clients, but in reality the vast majority of those fined were accused of the rather less serious practice of cover pricing. Whilst cover pricing is wrong and breaches competition law, in all but a few cases it would be difficult to prove that a client paid more for a project... The fallout from the investigation has been substantial, not just from fines, but through the damage to reputations of all companies involved,” said Andrew James, head of construction at Harrison Clark solicitors, who worked with several construction firms subsequently cleared by the OFT.

For the Local Government Association (LGA), there is “simply no excuse” for this kind of anti-competitive behaviour, and the penalties imposed should be paid as a kind of reparation to the local areas affected.

“These fines should not simply go to central government but should be given back to the councils and other public bodies which have been victims of these unlawful practices,” said the LGA’s chair Councillor Margaret Eaton. “It will come as a shock to residents that some construction companies have rigged bids for contracts at taxpayers’ expense. Firms that are found to have colluded to inflate prices should not only have to apologise to the public but should also consider giving money back to local areas where this activity has taken place.”

Even that doesn’t go far enough for one industry source, who believes the guilty parties have got off lightly. Speaking in a personal capacity, Chris Cheshire, chief executive of the Kinetics Group and an RSL board member, told Northern Housing that none of the 103 contractors fined by the OFT should work in the public sector again, saying “it is not just to allow them to carry on”.

“There have been too many weasel words from both the industry’s governing bodies and some of the guilty parties,” Cheshire said. “Too many people are keen to just brush the matter under the carpet in the hope that eventually the matter will go away... For clients, tenants and leaseholders who paid for the work through rents and service charges there should be an investigation of every contract of the 103 firms involved. These people have been short-changed and the clients cannot say hand on heart that they received value for money. It is scandalous that some contractors completely avoided their duty of care to provide an honest bid.”

Furthermore, he said that client procurement teams, along with procurement and consultation bodies, should review every contract, and RSLs should consider seeking out new partners to deliver their work.

“We need a complete review of PQQ and tendering as the current system is open to abuse and has failed,” he added. “[H]onest people will have lost out here; tenants and others have been legged over and the industry has been tarnished, wiping out all of Egan and Latham’s triumphs in a swift move. The guilty have to pay the butcher’s bill and compensate everyone who has financially lost out.”