Building companies fined £130m by OFT

Biggest ever investigation by regulator finds evidence of 'widespread' illegality

The construction industry was fined £129.5m yesterday after the Office of Fair Trading (OFT) found evidence of widespread and endemic illegal and anti-competitive practices, many of which involved tendering for publicly funded projects.

A total of 103 companies were penalised after the biggest investigation of its type conducted by the consumer watchdog, with fines ranging from hundreds of pounds to £17.9m in the case of Kier.

The investigation centred on firms engaged in so-called cover pricing – the practice of submitting an unreasonably high bid so that a supposed competitor's cheaper tender looks more attractive. The investigation began after the OFT received a tip-off following a tender process for work at a hospital in Nottingham. In some cases, the winning bidder would pay a fee to those that had submitted inflated bids.

"The industry has accepted that the practice of cover pricing was endemic," said Stephen Blake, a director in the OFT's cartels unit. "It has been impossible to establish a rotation system, where companies would take it in turns to win contracts, but it would be reasonable to assume there was an element of 'I'll scratch your back if you scratch mine.'"

The investigation focused on 199 cases between 2000 and 2006, but Mr Blake conceded yesterday that there was evidence that cover pricing had taken place in "thousands of contracts, involving thousands of firms".

One of the victims of the practice was Lord Sugar, whose Amsprop development group was duped by building firms during the £2.9m refurbishment of the Dover Street Market in London. Other casualties included the Salvation Army, a number of schools, hospitals and other taxpayer-funded projects, as well as the City of London Corporation.

Kier attracted the biggest fine, with a number of other well-known companies also found to have acted illegally. Interserve was fined £11.6m, Galliford Try will be forced to pay £8.3m, Connaught was hit with a £5.6m fine, while Carillion, Balfour Beatty and Henry Boot were also found guilty.

The size of the fine depended on a number of factors, including the scale and seriousness of the illegality, the size of the company and whether or not they had co-operated with the investigation and had admitted guilt by participating in the OFT's leniency scheme. The relative turnovers of the companies was also considered.

Kier, which is currently working on the new UK Supreme Court building, said it is "totally committed to ensuring that the practice of cover pricing and anti-competitive behaviour more generally is totally driven out of the construction industry".

Companies have two months to lodge appeals, and it unclear whether groups such as Kier will contest the fine. A source close to the company confirmed that the group had not used the OFT's leniency scheme. Others such as Balfour Beatty, which was fined £5.2m, said the illegality occurred at a unit that was not owned by the group at the time.

The OFT has abandoned its usual practice of insisting that fines are paid within two months. Companies will be given two years to settle fines. The OFT pointed to the fact that scores of construction firms have struggled in the recession.

103

The number of companies found guilty of collusion by the Office of Fair Trading.