Building firms could be fined billions over bid rigging

The UK's construction industry could be hit with fines totalling billions of pounds after the Office of Fair Trading yesterday charged more than 100 companies implicated in a massive bid-rigging scandal.

After one of the watchdog's largest-ever investigations, the OFT formally charged 112 construction companies of allegedly colluding to put up the prices to build schools, hospitals and other buildings. It will give a final verdict on the cases next year.

Several of the country's largest contractors, including Carillion and Balfour Beatty, have been named in the investigation. The OFT believes there are "thousands" of cases of fraud, but for the purposes of the investigation is focusing on 240 instances. At least 37 of the 112 companies named have applied for leniency in exchange for their cooperation. The OFT could fine guilty companies by up to 10 per cent of their global turnover.

Much of the alleged activity involved "cover-pricing", in which bidders agreed ahead of time the level of bids they would submit for a particular project. This in some cases led to the artificial inflation of the final bid and to the winning companies giving kickbacks to its accomplices, accounted for through false invoices.

Both Balfour Beatty and Carillion said they will be fined less – if found guilty – after agreeing to cooperate with the OFT. Carillion said the alleged violations are related solely with Mowlem, the property group it bought last year. It has since implemented greater controls on the business, it said.

Balfour Beatty began its own internal investigation after the OFT raided its offices last year and said it would continue to cooperate with the watchdog. The companies named in the statement of objections have two months to respond.

John Fingleton, head of the OFT, said: "Cartel activity of the type alleged today harms the economy by distorting competition and keeping prices artificially high. Businesses have no excuses for not knowing and abiding by the law."

The OFT raided the offices of 57 businesses in the course of the investigation, which began in 2004 after a single complaint about a job in the east Midlands. It was soon widened to include Humberside, Yorkshire and other parts of England.

In many cases, the customers fleeced by the alleged bid-rigging were local councils and other public sector bodies, with losses to the taxpayer estimated at as much as £300m. Sir Simon Milton, head of the Local Government Association, called for any ill-gotten gains to be returned to local authorities.

He said: "There are simply no excuses for collusion, bid-rigging or cover-pricing which leaves the public and councils to pick up the tab. If construction firms are fined by the Office of Fair Trading, the money should not go into a central government piggy bank but instead should be given back to councils who have been the victim of these unlawful practices."

A spokesman from the Department for Business Enterprise and Regulatory Reform said it would wait for a conclusion to the investigation before deciding whether a revamp of the construction industry regulation is warranted.

The spokesman said: "Clearly we are dismayed by the implications for the industry's image and, indeed, by any anti-competitive activity within it... The investigations by the OFT are still on going. They will publish their final decisions during the early part of 2009 and we await their conclusions."

The Construction Confederation, the industry group, urged the OFT to consider a "sensible and proportionate response". It said much of the cover-pricing was not an example of collusion but was explainable by busy firms that didn't have the resources for a particular job but nonetheless wanted to stay on good terms with clients.