- OFT Fines 103 Construction Companies Record £129.5 Million for Bid-Rigging
- September 25, 2009 | Author: Gillian Sproul
- Law Firm: Mayer Brown International LLP - London Office
On 22 September 2009, the Office of Fair Trading ("OFT") issued a decision1 finding that 103 construction firms had infringed competition law by engaging in bid-rigging in England in the period from 2000 to 2006. Individual fines ranged from £713 to £17.9 million and totalled £129.5 million.
This fine is the largest ever imposed by the UK competition authority on a cartel, the largest previously being the £121.5 fine imposed in the British Airways/Virgin Atlantic fuel surcharges case.2
The 103 firms were found to have engaged in 199 instances of bid-rigging, which took two forms:
- Cover pricing: a firm not intending to win a contract contacted another firm it knew was bidding for the same contract and obtained from that firm a price (a “cover price”) which would be too high to win the contract. By bidding in the knowledge that it would not win the contract, the firm was able to remain on the customer’s list of firms to invite to future tenders. This particular practice has been the subject of previous OFT infringement decisions in the roofing sector.3
- Compensation payments: in six instances, the OFT found that construction companies that won tenders on the basis of cover pricing also made compensation payments of between £2,500 and £60,000 to unsuccessful tenderers pursuant to other secret agreements. These are viewed by the OFT as a more serious anti-competitive practice.
The OFT's investigation
The OFT's investigation, which it describes as "one of its largest Competition Act investigations", followed a complaint in relation to a tender in the East Midlands in 2004. The scope of the investigation then grew to include other tenders in the East Midlands, Yorkshire and Humberside, and eventually encompassed tenders across England. The OFT has stated that it received evidence of cover pricing implicating many more companies than the 103 companies fined, in relation to thousands of tender processes, but it focused its investigation on approximately 240 alleged infringements.
The OFT made site visits to 57 of the businesses under investigation and 37 firms made applications for leniency.4 41 firms accepted the OFT's subsequent "fast track offer" which granted a reduction of up to 25% in penalties in return for full cooperation in the investigation, an admission of infringement in relation to the contracts specifically identified by the OFT and certain ancillary promises.
A Statement of Objections ("SO") was issued to 112 firms on 17 April 2008, after which they made written responses to the OFT, and some put forward their case at an oral hearing. The OFT later informed nine companies who were named in the SO that it had insufficient evidence to proceed with an infringement finding and therefore would not pursue the allegations against them.
The 103 addressees of the OFT's decision received a confidential copy of the decision on 22 September.
Under UK competition law, infringing companies can be fined up to 10% of the annual worldwide turnover of the corporate group to which they belong. The amount of the fine will vary according to a number of factors. These include the gravity of the infringement, its duration, the company's turnover in the relevant market, and aggravating and mitigating factors, including the extent to which a company cooperates with the investigation. Details of the way in which the fines have been calculated in this case will remain confidential until the OFT publishes a non-confidential version of its decision later this year.
What is known is that 86 parties benefitted from discounts on the levels of fine either under the OFT's leniency programme or the fast-track offer, or because they admitted the alleged infringements after receiving the SO. These reductions amounted to £64.9 million in total.
The parties now have until 5pm on 23 November 2009 to make any appeal to the Competition Appeal Tribunal as to:
- whether they have infringed the Chapter I prohibition;
- the imposition of a penalty; or
- the amount of the penalty.5
1OFT press release "103 construction firms fined for illegal bid-rigging" dated 22 September 2009
2 In that case, British Airways was fined £121.5 million and Virgin Atlantic was granted full immunity from fines having qualified under the OFT's leniency policy. See OFT press release "British Airways to pay record £121.5m penalty in price fixing investigation" dated 1 August 2007
3 These decisions include: (i) a 2004 OFT infringement decision against certain roofing contractors in the West Midlands, which was upheld by the Competition Appeals Tribunal in its judgment dated 24 February 2005 (Apex Asphalt and Paving Co. Limited v Office of Fair Trading, Case No. 1032/1/1/04) and (ii) a 2006 infringement decision against a number of roofing contractors in England and Scotland, which was also upheld by the CAT - see judgment dated 22 February 2007 (Makers UK Limited v Office of Fair Trading, Case No. 1061/1/1/06)
4 A successful application for leniency means that in return for an admission of misconduct and full cooperation with the enquiry, including the provision of incriminating evidence, a firm can be granted either complete immunity from fines, or a substantial reduction in the amount that it has to pay.
5 Section 46(1) of the Competition Act