Four years ago a local-authority auditor in Nottingham was looking at bids for work at the Queen’s Medical Centre, the city’s large university hospital. Something looked a bit fishy about them and, after a word with his superiors, his concerns were reported to the Office of Fair Trading (OFT), the national competition watchdog.

Now, thousands of hours of investigation and 57 dawn raids later, the OFT has pounced. Following the thread provided by the Nottingham auditor, its staff have in their biggest-ever inquiry unravelled 240 separate instances of bid-rigging by, it is alleged, 112 building firms, including such household names as Balfour Beatty, Carillion and Morgan Sindall.

All 112 were last week named by the OFT, and sent the evidence against them. It runs to 1,700 pages and 13 disks, and provides a detailed record of individual contracts and the behaviour of the individual companies.

Of those named, 77 have already admitted their part, with the rest to decide their response to the allegations over the next six months. Fines, which could be a maximum of 10% of turnover, are likely to be announced early next year.

It was a coup for the OFT, and vindication of a change of direction instigated by Philip Collins and John Fingleton, the agency’s chairman and chief executive. In May 2005, when the pair were just six months in to their jobs, they said it would in future take on fewer cases – about a third less – and concentrate on those it had a good chance of winning. The construction investigation was already under way, and it clearly fitted the bill.

Construction has proved a happy hunting ground for fraud and competition investigators. In the early 1990s the Serious Fraud Office cracked a ring of businessmen that was corruptly influencing the awarding of contracts for North Sea pipe and steel fabrication. Throughout the 1990s the OFT scored successes against regional cartels in the supply of ready-mixed concrete.

This time, the alleged offence was more subtle. The OFT investigated cases where firms would bid for contracts – mostly for public-sector work, but also on private deals – without any intention of winning. They would enter at a high price, allowing a competitor to win. In some cases the winner paid compensation to the under bidder.

This tactic, called “cover pricing” is not illegal – as long as there is no collusion between the companies.

The Construction Confederation, the trade body for the industry, insisted last week that most of the alleged infringements “are examples of cover pricing, where busy companies that did not want to win the work submitted an artificially high bid”.

“Cover pricing was symptomatic of a time when work was won on lowest price and short-term relationships were the norm,” said Stephen Ratcliffe, chief executive.

The OFT disagrees. Deborah Jones, deputy director of cartels, said the agency had acted “only when there has been some form of collusion”.

“We are not interested when the firm has genuinely acted independently. This is two or more firms speaking to each other,” said Jones.

Investigators gave 37 groups an assurance of leniency in return for admitting their part. In March last year, having amassed sufficient pleas for leniency, the OFT told other companies under suspicion that they might be given a reduction in fines if they came forward.

Another 40 did – much to the surprise of some observers.

“It is extremely unusual for anyone, or any company, to admit to an offence when the case against you, and the penalty, is not completely clear. It is counter-intuitive that so many firms came forward at that stage,” said Adrian Magnus, competition partner at Berwin Leighton Paisner, the City law firm.

The 35 firms that have not admitted any wrongdoing will now have to review the evidence and decide whether to cave in or fight.

For all the 112, however, there is the unwelcome prospect of additional fallout. In a note to local authorities last week, the watchdog gave its views on “the potential for exclusion of the companies under investigation from future tender lists”.

Times Recommends

• Lies and cover-up at MG Rover exposed by report
• High oil prices push manufacturing costs up
• Primark founder steps down as chief executive