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OFT fines have altered procurement

The Office of Fair Trading’s cover pricing inquiry has led to the revision of bid documents and retendering of contracts, a survey of senior local authority managers has confirmed.

The OFT last month fined 103 construction companies a total of £129.5 million after they were found to have colluded on building contracts.

In a Construction News survey of 25 senior local authority managers with responsibility for construction contracts – conducted in conjunction with CN’s sister title Local Government Chronicle – more than one in 10 said the investigation would strongly affect tendering decisions.

In total, 80 per cent said the investigation might or would affect such decisions. One manager confirmed their authority had already “ordered the retendering of certain contracts”.

The industry’s reputation as a whole has also been tarnished by the fines. One manager said: “Trust in these companies has been lost, and procurement will be more robust in future.”

Most respondents confirmed their procurement teams had begun their own investigations into the matter.

When asked what measures they would be taking to safeguard themselves against anti-competitive activities, many said new controls were “under discussion”.

One said: “We revised our ‘invitation to tender’ documents, making it clear that if we become aware of any anti-competitive behaviour such as cover pricing, the firms concerned will be struck off our approved list and we will report them to the OFT or the police, or both.”

More than half the officials said both cover pricing and bid rigging distorted competition and were as bad as each other. A further 16 per cent also said they still did not understand the difference between cover pricing and bid rigging.

More than 90 per cent also said the inquiry had damaged the reputation of the industry. “This has made us review our procurement policies and will ensure we now review large differentials in pricing,” one senior manager said.

Construction lawyers warned contractors following the OFT announcement that the fines could be “just the start” for implicated firms.

While the OFT and the Office of Government Commerce released guidance asking procurers not to “automatically exclude” guilty firms from future tenders, they admitted individual bodies had the power to decide how to react to the investigation.

Only one official that responded to the survey said they found cover pricing to be understandable, accepting the firms involved were not aiming for financial benefit from their activity.