UK competition tribunal reduces fines of construction companies for bid-rigging

Thursday, 24 March 2011

The UK’s specialist competition tribunal, the Competition Appeal Tribunal (“CAT”), has reduced the fines of several construction companies. The fines were imposed by the British competition authority, the Office of Fair Trade (“OFT”), for rigging bids in the construction industry. 

In September 2009 the OFT imposed fines on 103 companies for a total of 129 million pounds. The companies were fined for cover pricing, an industry practice where firms submit unrealistic bids for tenders of projects with no intention of winning. The company that submits an unrealistic bid has no interest in winning this particular tender. However it wants to stay in favour with the company that issued the tender and wishes to stay on the tender list. This company contacts a competitor and asks for a ‘cover price’. The competitor will provide a price that is higher than the price the competitor will submit itself. In this way the company that has no interest in winning the tender is able to submit a bid and therefore stays on the tender list. In addition it also has the knowledge it will not win the tender.

Around 25 companies appealed the decision of the OFT in the construction cases. The CAT has handed down judgements in already 7 cases. The judgements of the OFT in the other construction cases are expected shortly. The fines of the companies involved are reduced up to 90 percent of the original fine by the CAT. The company Kier saw its fine of 17.9 million pounds reduced to 1.7 million pounds. The fine of the company Durkan was reduced from 6.7 million pounds to around 2.4 million pounds. The CAT stated that the OFT used incorrect turnover numbers to calculate the fines. In addition the CAT said that the way the fines were calculated to ensure deterrence had led to penalties which were excessive and disproportionate. In a reaction the OFT said it would “consider the judgements alongside those in the other construction cases already handed down or yet to be determined. This will include deciding whether to appeal judgements to the Court of Appeal.”