Taking a Cover Price or Collusion?
The Office of Fair Trading has fined 103 construction companies
a total of £129.5m for colluding on building contracts for local
authorities. The decision followed what was one of its largest ever
Competition Act investigations.The OFT said that the 103 firms
engaged in "illegal anti-competitive bid-rigging activities" on 199
tenders from 2000 to 2006, mostly in the form of 'cover
pricing'.
The Guild of Builders and Contractors believe that all clients,
whether private, government department or local authority, are
entitled to expect fair and honest tendering for their construction
projects. Construction companies invited to submit a tender for a
building project should either price the work without collusion
with other tendering contractors or ask the client to be excused
from submitting a tender, perhaps due to pressure of work or some
other legitimate reason. Clients should not prejudice building
contractors from tendering for other or future works just because
they acted openly and honestly in asking to be excused from
tendering on that occasion. The practice of taking a "cover price"
from another tendering contractor fails the integrity test for a
number of reasons. Firstly, each cover price tender reduces the
number of genuine tenders the client will receive. If the client is
advised early in the tendering process that a particular
construction company is unable or unwilling to submit a tender the
client would have time to invite a replacement construction company
to join the tender list. Secondly, the taking of a cover price from
another tendering contractor means contact and provides information
to the other tendering contractor that could result in a less than
competitive price. Any collusion could result in bid-rigging.
The practice of taking a cover price results in companies
submitting higher tenders knowing they will not be chosen but
showing a continuing interest in tendering for further contracts.
Clients, sometimes ultimately the taxpayer, received a false
impression of the level of competition and could end up paying
inflated prices.
Apparently the Office of Fair Trading uncovered six instances of
bid rigging where the successful contractors had paid an agreed sum
of money to the unsuccessful tenderers. In 11 instances, the lowest
tenderer had no genuine competition because all other tenders were
cover prices. The client probably paid a higher price than it
should have for the construction work.
The illegal anti-competitive bid-rigging affected a series of
building projects, including schools, hospitals and residential
schemes, worth a total of more than £200m.
Members - any comments?
this type of fraud goes on all the time but the little builder like me never get a chance as i would never carry out this type of price fixing let the indepedant builder have a chance!!
Fantastic, I didn't know about that up to now. Thanx.