OFT verdict: The client's options

The OFT has decided today that it regards cover pricing to equate to bid rigging and that it deems unlawful under the Competition Act 1998. This is the first time any competition authority in Europe has decided that simple cover pricing equates to bid rigging.

Apart from the fines levied, totalling £129.5m, infringements of competition law may also lead to damages actions by those affected by anti-competitive behaviour. In this case, public authorities who commissioned buildings and works from those companies found to have participated in simple cover pricing may decide to bring claims. Historically, damages actions in competition cases generally have been rare. However, given the high value of construction projects and the increasing awareness that damages may be available, some public authorities may be considering this option.

However, to succeed, the authority must show that it suffered a loss and that loss was caused by the cover price. The OFT has not found the existence of any inflated bids as a result of simple cover pricing. It says there might have been higher prices. This will make it harder for public authorities to claim damages from contractors, because the public authority will have to establish that prices were inflated. But given that the alternative to a cover price was either no bid, or a bid that was too high (submitted without any discussion with a competitor), public authorities may be hard pressed to show the outcome of the tender would have been any different. After all, apart for the cover prices, the other bids submitted were genuine competitive bids placed by contractors that wanted to win the work. So, if a public authority wants to sue, it ought to ensure it is in a no-win, no-fee arrangement and has insurance in place to cover the other side's costs, because the action is unlikely to succeed in most cases.

On a separate but related point, in press statements issued today to public authorities, the OFT and the Office of Government and Commerce (OGC) have recommended that construction companies should not be excluded automatically from future tenders on the grounds that they are parties to the OFT's decision, or be subject to similar adverse measures making it more difficult for them to qualify for such tenders

Public authorities are advised to consider the following points. First, firms have received significant financial penalties. Second, it would be wrong to automatically assume that construction companies that are not named in the OFT's decision have not also engaged in cover pricing. Third, firms that can be expected to be aware of the competition rules and the need for compliance and are more likely to be compliant. Fourth, companies have co-operated fully with the OFT's investigation and most of them have introduced or reinforced formal compliance programmes to ensure staff are aware of their competition law obligations. Indeed, the industry has adopted a new code of conduct.