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OFT 'fails to prove' cover pricing in latest appeal

One of the firms to receive the largest fines from the OFT’s cover pricing investigation has succeeded in its appeal that there was insufficient proof of its alleged illegal activity.

The Competition Appeal Tribunal on Tuesday agreed to reduce Durkan’s fine from £6.7 million to £2.4m and quash one of the alleged offences due to insufficient proof.

The tribunal upheld that the OFT had provided insufficient proof that Durkan had supplied a cover price to Mansell for a refurbishment job in London 2005.

The OFT had relied on evidence submitted by Mansell, which as part of its application for leniency from the OFT provided a sheet of paper with a list of contractors bidding for the project, and a contact at each firm.

Next to the Durkan contact’s name someone had marked “£1,360,000”. Mansell’s bid for the scheme was £1,306,722, Durkan’s was £1,201,740, and the winning bid was £931,031.15.

Despite further testimonies given by Mansell employees in the OFT’s investigation, which explained how the cover pricing process worked, the Tribunal upheld Durkan’s appeal.

It found that the OFT “failed to prove, on the balance of probabilities, that Durkan Limited was the source of the cover price used by Mansell”.

Despite this, Durkan’s fine is the largest of the seven firms to have had their appeals heard by the tribunal - two weeks ago six firms saw their cover prices slashed contractors from a total of £41.8 million to £4.4m.

The tribunal found that, as with the previous six firms, Durkan’s fines for its two remaining infringements should have been based on the company’s turnover in the financial year preceding the offence (2003 and 2006), rather than the year preceding the charge (2009).

However, unlike the previous six firms, the tribunal upheld the starting point at which Durkan’s fine for one of its two remaining offences was calculated.

For the previous six firms, the Tribunal reduced the starting point of 5 per cent of relevant turnover - where 10 per cent is reserved for the most serious of competition offences – to 3.5 per cent, arguing it was too high given the relatively harmless nature of their “simple” cover pricing offences i.e. where one or more bidders in a tender process obtains an artificially high price from a competitor, in order to maintain links with clients without winning work.

Durkan’s fine for one of its remaining offences related to the more serious charge of a compensation payment of £60,000 agreed between subsidiary Durkan Pudelek and Mansell in relation to a project in London in 2003. The tribunal said that given the seriousness of the offence, the OFT was “entirely justified” in applying a higher starting point for the fine of 7 per cent.

The tribunal also upheld the OFT’s decision to increase Durkan’s fine by a further 5 per cent due to the involvement of a director of Durkan Pudelek, Mr Colin Simmons, in the compensation payment offence.

And it rejected Durkan’s appeal that it was not liable for the activities of its subsidiary Durkan Pudelek, later known as Concentra, in relation to its two outstanding offences.

A statement issued by Durkan said the firm was “extremely disappointed” with the Tribunal’s decision to hold it liable for Concentra’s activities, and said that it would be considering further legal action.

An OFT spokesman in response to the judgement said: “The OFT will consider the judgment alongside those in the other construction cases already handed down or yet to be determined. This will include deciding whether to appeal judgments to the Court of Appeal. We note that the CAT upheld our decision on liability in relation to two out of the three infringements and provided an important statement of the law, in confirming that the OFT was justified in finding the parent company liable for infringements by its subsidiary.”

A further 18 firms are due have their appeals judged in the coming weeks, with the next six due to be heard on Thursday

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