OFT investigation: It’s wrong – but how wrong?

We’ve had 18 months of revelations, allegations, explanations and appeals. Now the Office of Fair Trading is about to reveal which of the 112 contractors it accused of anti-competitive practices will be fined – and by how much. As officials make the final calculations, it’s worth making one final plea for them to keep the fines in perspective.

When the watchdog announced its probe back in April 2008, accompanied by panicky reports of industry-wide cartels and amusing “Can we price fix it?” headlines, industry leaders, lawyers, and even some clients, argued that things weren’t quite what they appeared to be at first sight. Their point was not that the accused had done nothing wrong, but that there was a difference between cover pricing and bid-rigging, of which only nine companies were accused. Firms that give a cover price do not win the job or receive kickbacks from rival bidders, and therefore do not make a direct financial gain. If the firm that does win knows a competitor has deliberately put in a losing bid, it may feel under less pressure to squeeze its margin, but as there are genuine bidders it’s debatable whether clients suffer a loss. What makes it wrong is that collusion takes place between bidders. Then again, there was anecdotal evidence that clients themselves sometimes asked a firm to bid in return for a promise not to pick it, as the more bids they attracted, the better their procurement performance appeared to be.

Other factors have arisen since that April. One is the question of proportionality. The recession has weakened regional contractors to the point that a fine set at the “lenient” level of 2% of turnover may force many to close down. If that weren’t enough, there is a fear that councils will kick convicted cover pricers off their tender lists; given the industry’s reliance on public sector work that is as good as a death sentence – which is a severe punishment for what is essentially a misdemeanour. Another question involves what philosophers call “moral luck”. The OFT has said up to 1,000 firms were involved in cover pricing, but it didn’t have the resources (or the stamina) to pursue them all. So is it really fair that a firm’s survival should depend not on how skillfully its managers are coping with the recession, but on whether it had the bad luck to be in the wrong place at the wrong time up to 10 years ago? Or on which side of the line it fell at the point that the OFT’s investigators decided they’d had enough of dawn raids?

Construction is a bleaker place than it was when this investigation began in 2004. By all means, if companies have been found guilty of bid-rigging, then treat them accordingly. But for the other companies, the OFT and clients would do better to focus on clarifying codes of conduct for the future. After all, if too many firms are forced out of business, that may eventually push up tenders by more than cover pricing ever has.

Why copenhagen matters to us

A third of all carbon emissions come from buildings, so this ought to be high on the agenda at December’s climate change conference in Copenhagen. What’s more, research shows cutting emissions from buildings is cheap and effective, so anything that drives all countries to do it must be a good thing. Not only will it make a big difference, it will make Britain’s tough carbon policy feel less futile, given what’s currently happening in China and India. On a more commercial note, our targets have made the UK world leaders in designing energy-efficient buildings; agreement at Copenhagen could open up a huge market for our hard-won expertise.

Sarah Richardson, assistant editor