The Office of Fair Trading is planning up to 65 investigations into anti-competitive behaviour in construction. What should you do if one of them is aimed at you?

Construction companies will soon find new interest being taken in their businesses. Unfortunately, this will not be from potential customers, but the Office of Fair Trading, which has recently published its draft business plan for 2005/06. In it, the OFT promises to focus on five priority areas for competition enforcement, and one of them is the construction and housing industry. The OFT has also identified procurement by public bodies (which will of course include construction contracts) as a priority area.

Why has the OFT decided to take such an interest? Because, it says, “the construction and housing markets … form a significant part of the workload of the [OFT’s] cartels branch. They are of prime importance in many large public procurement exercises. We continue to receive many complaints from consumers”.

The OFT has already issued two recent decisions arising from anti-competitive behaviour in the construction industry. Nine roofing contractors were fined about £300,000 for colluding to fix prices in local authority tenders. In another recent case, five companies were fined £1.7m for price fixing a double-glazing product, although the original fine of £2.4m was reduced because the companies involved co-operated with the OFT’s investigation. The OFT clearly believes that there are many other arrangements in the construction sector that have not yet been discovered and

it intends to put a stop to them. To be more precise, it anticipates that during 2005/06 it will investigate between 45 and 65 cases for suspected breach of the competition rules.

The annual plan also indicates that the OFT will initiate up to 10 market studies, or market investigation references, to the Competition Commission. These are more wide-ranging investigations into whether a particular market is working to consumers’ detriment, even if the OFT does not suspect the companies involved of acting in an anti-competitive manner. The OFT may itself undertake market studies lasting up to about year, or it may order the Competition Commission to undertake a detailed investigation, potentially lasting up to two years.

Either way, construction companies are likely to find themselves being questioned and scrutinised closely by the OFT. The OFT has wide powers to require companies to provide it with information and documents. These range from the ability to make written requests for information to dawn raids at a company’s offices or an individual’s home. If the OFT sends a written request for information, then the recipient may have time to review all relevant documentary evidence, speak to relevant employees and to decide how best to present its case. However, in a dawn raid, there is no such opportunity for reflection.

If a company has infringed the competition rules, and finds itself at the centre of an OFT investigation, then the option of applying for leniency should be considered. This is where the company provides information about anti-competitive behaviour in return for a reduced or even zero fine. The testimony given is then used as evidence in enforcement actions against the other companies. Companies must weigh up the pros and cons of seeking leniency, but invariably they need to reach a decision quickly and without knowing what information the OFT really has about their activities.

Admitting liability might avoid an OFT fine, but could expose a company to actions for damages by parties, such as consumers, which were adversely affected by the anti-competitive behaviour. Before invoking the leniency process, companies and their advisers should also try to guess how strong the OFT’s evidence might be: without the leniency application, might the OFT be unable to find sufficient evidence that the competition rules had been breached? Reaching a decision against this background requires considerable judgment and experience.

Companies in the construction and housing sectors, and suppliers of goods and services to them, should also consider acting now to review their practices and procedures to ensure that they are not likely to become inadvertently involved in anti-competitive behaviour. This should not be a one-off check-up, but part of a continuing system of regular reviews and staff education to ensure compliance with the competition rules.

Guy Lougher is a partner at Pinsent Masons