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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