OFT alleges massive fraud by construction industry

Well, I never…

The construction industry was reeling on Thursday after the competition watchdog accused more than 100 companies of price-fixing and local authorities demanded refunds for overcharging in rigged bids.

The Office of Fair Trading said businesses ranging from listed companies to one-man bands colluded on billions of pounds of private and public sector contracts. This raised the prospect that those involved could be excluded from future tenders.

Executives were digesting a report issued by the OFT after a three-year investigation that it said showed the most rife price-fixing it had seen in any industry. “In terms of sheer numbers, there is nothing that beats this one,” said Simon Williams, OFT senior director of cartels and criminal enforcement.

The named listed companies – which have the right to challenge the findings – are Balfour Beatty, Ballast Nedam, Carillion, Connaught, Galliford Try, Henry Boot, Interserve, Kier, Morgan Sindall, Renew and Rok.

The OFT said 77 of the 112 companies had admitted some form of wrongdoing in exchange for reduced penalties. The OFT said 5-10 per cent of the companies were accused of more serious rigging, in which winning bidders paid “compensation” to losers with whom they colluded. […]

The National Health Service’s counter-fraud service said it would be working with the OFT to determine if NHS hospitals have paid over the odds for work. The Office of Government Commerce, which oversees government procurement, said companies found guilty of grave professional misconduct could be excluded from bids under European Union procurement law.

The construction industry has been particularly alarmed by the OFT’s focus on the practice of “cover pricing”, under which companies deliberately lose tenders by putting in higher bids than rivals. Industry insiders admit cover pricing is widespread but say it is used legitimately by contractors who do not want the job in question but want to indicate their interest in future tenders.

The Morning Star has a few words to say about…

Greed and no shame
(Thursday 17 April 2008)
CONSTRUCTION Confederation chief executive Stephen Ratcliffe must think that the rest of us came up the nearest river on a bike if he thinks that we will accept his special pleading for the crooks in his organisation.

Mr Ratcliffe may well believe that “cover pricing” is merely a technical breach of competition law, but this is rubbish.

Similarly, his assertion that cover pricing involves no extra cost to the client, since the successful contractor would have offered a “fair” price, would only fool people who still believe in fairies at the bottom of the garden.

He and the construction company bosses have, effectively, been peddling a fallacy, misleading clients and the public into accepting that competition holds down the cost of major contracts and encourages greater efficiency in the industry.

The reality is that, in a practice that is likely to be even more widespread than suspected by the Office of Fair Trading, building companies are stitching up tendering processes, deciding which “competitor” should scoop the pool and then copping for compensation payments from the lucky winner.

If Mr Ratcliffe believes that such a non-competitive arrangement carries no danger of extra costs, then, clearly, there is no point in real competition since, by extension, it would result in no savings.

This is a nonsense and Mr Ratcliffe must know it.

Quite how much of the £3 billion worth of contracts considered by the OFT was skimmed by means of this stratagem can only be guessed at, but it is certainly not marginal otherwise there would have been no point in establishing and running this cartel.

Mr Ratcliffe’s plea for leniency to be shown to his clients should be rejected out of hand.

Unfortunately, the maximum possible fine for this fraudulent behaviour is 10 per cent of a company’s annual turnover, but they should all be punished to the maximum.

Construction company bosses already get away with murder on a daily basis, running an industry where disregard for safety is such that more building workers, 307, have been killed on sites in Britain since 2003 than British troops in Iraq.

And yet these same bosses prevail upon the government to allow them to avoid personal responsibility for deaths caused by safety breaches, paying spurious fines to sweep them under the carpet.

In addition, construction union UCATT points out that, while unscrupulous employers are driving down pay rates by exploiting vulnerable migrant labour, there is no such parsimony in the boardrooms.

Average basic salary for top executives of large construction companies in 2006-7 was £474,000, with average bonuses of £467,000 and various other supplements that took the average total salary to £1,012,000.

In contrast, workers on the full craft rate can be paid as little as £19,712 a year.

And, while Eddie Shah feels free to slander building workers as “lazy, incompetent and shoddy,” often working just five hours a day, he has nothing to say about the bid rigging and greed of his fellow construction bosses.

Once again, the myth of private-sector efficiency and cost control is smashed. Honesty and safety dictate the necessary return of public-sector, direct labour building organisations to help clean up the construction industry.