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25th April 2019
Is Bid-Rigging Back, Or Did It Never Really Go Away?

Those with long memories will doubtless recall that back in 2009, the predecessor to the Competition and Markets Authority (CMA), the Office of Fair Trading (OFT), handed out enormous fines to firms caught rigging bids. It fined 103 UK construction firms a total of £129.2m (reduced to £63.6m following appeal) for having taken part in bid-rigging activities on 199 tenders over a six-year period. Those fined weren’t by and large small firms; some were big household names, including the now-defunct Carillion.

The OFT ruled that the businesses involved had manipulated the tender processes for building projects worth more than £200m, including construction work on schools and hospitals.

How the tendering process can be manipulated

The CMA points out that illegal practices within the construction industry affecting the tendering process can take a variety of forms, including where suppliers arrange between themselves to allow one another to make the most attractive bid for contracts on a rotation basis, or rival suppliers agree not to submit a competing bid for a contract in return for payment or access to parts of the work under sub-contracting agreements offered by a successful bidder. Whilst the process of putting in an artificially-high bid is not a breach of competition law, a conversation between two bidders which confirms it is sufficiently high not to win is an infringement.

All it takes is for two or more contractors to organise themselves collaboratively in an effort to control who wins the bid for a particular project. Collusion often leads to the pricing and profit being agreed in such a way by the contractors involved that the owner inevitably ends up spending more money than is necessary, meaning that the benefit of competitive bidding is lost.

Worryingly, research has shown that more than 40% of businesses in the UK do not know that bid-rigging is illegal. Anti-competitive practices such as bid-rigging in the form of ‘cover pricing’ – the act of tendering an artificially-high price for a contract on the assumption that it will not be accepted – were outlawed under the Competition Act 1998, and were made a criminal offence under the Enterprise Act 2002 and the Bribery Act 2010.

New moves from the CMA

A new probe has been launched into possible collusion in the supply of construction services. The industry can’t say it wasn’t warned; the CMA revealed last year that it would be targeting construction in a fresh crack-down on cartels, and has been given extra funding of £2.8m from the government specifically for this initiative.

Already this year, five fit-out contractors have been fined a total of £7m after they admitted that they had been involved in price-fixing deals, and two companies that produce concrete products confessed to breaking the competition laws following a CMA probe.

For suppliers, effective and regular training of staff engaged in all aspects of tendering is business-critical, as failure to adhere to the rules can seriously impact future business opportunities. Strong penalties, including company fines, exclusion from bidding for further work, and criminal prosecution should prove to be strong deterrents.

 

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