Construction Industry In Cartel Allegations

The Office of Fair Trading (OFT) alleges that over a hundred construction companies have colluded with each other (known as cartel behaviour) and committed serious breaches of the Competition Act 1998, the consumer protection based legislation.

The Competition Act prohibits, among other things, agreements and behaviour between parties which aim to prevent, restrict or distort competition. Examples of prohibited activities are price fixing, dividing up customers or markets and bid rigging (agreeing not to participate in a tender process).

The OFT alleges (in a formal document known as a Statement of Objections) that the parties were also involved in cover pricing (where bidders agree with competitors during a tender process to submit unrealistic high prices). This practice is condemned by the OFT as it falsely inflates prices paid by the customer (usually a public authority or body).

The exact allegations are not yet publicly available so that the parties can respond before the OFT decides on the penalties of each company. The OFT has the power to fine parties up to 10% of their UK turnover for each year of the infringement and order them to “cease and desist” any future anti competitive behaviour.

Directors can be imprisoned for up to five years if their business was involved in anti competitive behaviour under The Enterprise Act 2002. Other punishments include the possible disqualification of directors.

Depending on the OFT’s final decision, any agreements between third party local authorities and public bodies with organisations affected by the alleged anticompetitive behaviour are null and void. There may be may be knock on consequences which will need to be dealt with once that decision has been taken.

Other third party businesses or organisations such as competitors who were not part of the alleged cartel may seek damages through the national courts for damage caused to them by any breach of the competition rules.

The OFT has published a notice to local authorities and other procuring entities to put the Statement of Objections in context and to warn that these 112 companies mentioned may not be the only ones involved in these illegal practices. They have not yet decided whether there have been infringements (at this stage it is just allegations based on the OFT’s investigations) and they hope some of the accused parties will take this as an opportunity to set their houses in order.

The OFT is giving interested third parties until 30 April to contribute to the OFT’s final decision. The OFT has not indicated publicly when the accused parties must respond by, but has said that it won’t be publishing its decision on this until next year.
If the accused parties had complied fully with the Competition rules, it is unlikely that they would now be in this uncertain situation, not knowing which, if any, penalties the OFT may levy, as well as wasting management time and incurring legal fees.

Foot Anstey offers audits of business practices, preparation of compliance programmes and staff training to limit the risk of breaches of the Competition Act.

For more information or advice, contact Rachel Robinson

Published 24/04/2008. The author of this article is Rachel Robinson