Construction firms' £129.5m fines 'should be returned to councils'

The body representing local authorities called on the construction firms hit with £129.5m in fines to apologise today and said the money should be given back to councils.

Local Government Association (LGA) chairman Margaret Eaton said there were "simply no excuses" for collusion.

She said the fines should be returned to the councils and other public bodies which have suffered from the practices, rather than filling central Government coffers.

"It will come as a shock to residents that some construction companies have rigged bids for contracts at taxpayers' expense.

"Firms that are found to have colluded to inflate prices should not only have to apologise to the public but also should consider giving money back to local areas where this activity has taken place," she added.

But unsurprisingly the construction industry has railed against the fines, which come at a time when the industry is suffering its worst downturn on record.

Stephen Ratcliffe, director of the UK Contractors Group (UKCG), called them "punitive" and based on practices not prevalent in the current market.

He also attacked the regional focus of the probe, and said they would cost more jobs in an already beleaguered industry.

"Everybody knows - including the OFT (Office of Fair Trading) - that cover pricing was widespread in the industry in the past. It is perverse and unfair to impose such disproportionate penalties on a small number of contractors selected by geographical sampling," he said.

The UKCG introduced a new code of conduct in August and said each of its members has compliance procedures in place to meet competition law.

But lawyers also warned that if under-pressure firms are forced out of business, the punishment could also have the opposite effect.

Andrij Jurkiw, partner in the Competition team at DLA Piper, said: "If many businesses are "tipped over the edge" as a result of today's fines, this will lead to reduced competition as opposed to increased competition - an outcome the OFT will surely not be looking for."

The individual firms who have commented so far have also been keen to emphasise the historic nature of the offences.

The UK's biggest builder, Balfour Beatty, saw subsidiary Mansell fined £5.2 million for practices before it became a part of the group. Likewise Carillion - hit for £5.4 million - said the fines related to contracts tendered by Mowlem, which it bought in 2006. "The decision does not involve any other business within the Carillion group," it added.

Galliford Try struck a more defensive tone over its £8.3m fine, noting that it was not found to have made any financial gain, and the eventual price paid by the client had not increased.

The firm said it would "consider carefully the detail of the OFT's findings and consider whether any further action is required, including any grounds for an appeal".

But there was no initial reaction from the companies hit hardest by the OFT - Kier and Interserve. The penalties imposed on the two firms - £17.9m and £11.6 million respectively - were described as a "real shocker" by Royal Bank of Scotland analyst Mark Howson.

"These latter two hadn't really made much about the issue previously and may have somewhat underestimated the potential impact," he said.

He said the two firms could be weighing up the chances of challenging the penalty. He said: "Whilst we would understand the emotion of going for an appeal, there are obvious dangers of the press honing in on these companies during the appeal process and the potential for reputational damage with their clients. Either way it will not be an easy decision."