The Office of Fair Trading (OFT) today fined the construction industry £129.5 million after an investigation into bid-rigging between companies tendering for public sector building contracts.

Today's fine, which follows a four-year cartel inquiry, is far lower than had been expected. The OFT has the power to impose fines of up to 10 per cent of turnover against a company for cartel activity but today’s penalty is believed to be equivalent to between one per cent to two per cent of each business’s turnover.

In total, 103 companies have been fined for engaging in "illegal anti-competitive bid-rigging activities” on 199 tenders between 2000 and 2006 worth £200 million. The OFT had accused 112 companies of colluding to rig bids on building contracts worth as much as £3 billion, beginning the investigation in 2004 after a complaint from an East Midlands council.

The OFT said the companies that had been fined had mostly engaged in "cover-pricing"

Cover pricing is where bidders in a tender process obtain an artificially high price from competitors. Such bids are not priced to win the contract and give a misleading impression to clients as to the real extent of competition.

Tristan Meears-White, a lawyer with Watson Burton, who represented 14 of the smaller companies, told The Times: “Bearing in mind the huge resource the OFT has thrown at this four-year case – they brought in a lot of agency staff, which must have cost them a fortune, this is not a massive fine.

“It might sound like a lot, but relatively speaking its not been the most profitable return for four years' work.”

Out of the total 103 companies that were fined, 86 businesses were granted reductions to penalties either through applications for leniency, acceptance of a "fast -track offer" from the OFT or they had made admissions for a smaller fine after the OFT published its statement of objections last year.

The OFT has been under intense pressure from industry bodies to soften its stance against anti-competitive behaviour in the sector amid fears that substantial fines could cripple companies reeling from the downturn.

The industry is expected to shrink in value by 10 per cent this year. Construction companies feared an adverse finding could prevent them from bidding in future for contracts awarded by public bodies.

Construction companies have been contacted to confirm Lord Mandelson's position that businesses subject to today's decision and fines should not be automatically barred from future tenders for public sector work or face adverse conditions that would make it difficult to bid for work.

Mr Meears-White said: “To stop them being hit with double jeopardy, Lord Mandelson has sent this note around to public procurement offices.

“I think, politically, it would have been difficult if in the current climate this decision had led to 50 or 60 of these companies going under – they are big employers,” he added.

However, the Business Secretary’s note is for guidance only and government departments can make their own decisions about whether to hire companies who have been found guilty of price-rigging.

The OFT said this morning Balfour Beatty has been fined £5.2 million, Carillion must pay £5.3 million while Ballast Nedam has been penalised for £8.3 million.

Balfour Beatty said today price-rigging took place at its subsidiary Mansell before it acquired the company.

“In light of the investigation, Balfour Beatty carried out a thorough and detailed audit of all its businesses to ensure that they are fully compliant with all aspects of competition law,” the company added.

Carillion said its £5.4 million fine also related to activities at its subsidiary Mowlem before it bought the business.

“Immediately following the acquisition of Mowlem, Carillion took steps to apply its own procedures within Mowlem to ensure that Mowlem complied with the requirements of the Competition Act 1998,” the company said.

The National Federation of Builders (NFB), which represents 1,500 small and medium-sized firms, this morning called on the industry's clients not to inflict further punishment on the construction companies fined.

Julia Evans, NFB chief executive, said: “It does seem unfair that a small, random sample of companies has been selected by the OFT to be punished as an example to the wider industry. As the construction economy continues to deteriorate, these fines will hit the businesses involved particularly hard. They should not now face additional financial hardship by losing access to public sector work.

“The OFT itself has said that this was not their intention. In fact, the withdrawal of so many companies from the tendering pool could actually make some local markets less competitive, a move which would disadvantage clients as well as contractors."

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