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Editor's blog: Cover pricing is the past - we must build future

How hard done by can the industry feel after last week’s announcement about bid rigging and cover pricing by the Office of Fair Trading?

There has certainly been criticism of some of the OFT’s claims, and the media’s reporting of them.

Last Thursday the country was left with the impression that vast swathes of the industry was corrupt, going through the pockets of school children and the terminally ill.

Did the OFT prove beyond reasonable doubt that cover pricing had seriously damaged competition? Not really - its statements say only that there was a risk of this happening.

Media speculation that public sector costs were inflated by 10 per cent are not supported by the facts of the inquiry.

But can the industry really claim cover pricing has no effect on competition? It stands to reason that artificially high bids will raise the bar on what price a job is seen to be worth. It doesn’t matter whether that was the intention or not. You don’t have to gather in smoky rooms with envelopes of cash to affect competition.

It is now eight years since cover pricing was made illegal. Wishing it were otherwise is beside the point.

It is true that the way many parts of the public sector used to buy construction contributed to the problem. Long tender lists, strict rota systems, lowest price wins - they all combined into a toxic stew that poisoned any prospect of a healthy relationship with the industry. But we can’t hang on to that past - public sector procurement has improved in the past 20 years.

Repairing a damaged reputation

So where does all this leave us? First, the reputation of the industry has suffered in the eyes of clients, regulators and the public who will provide tomorrow’s workforce. The ongoing inquiry will mean the healing process can’t really start until well into next year.

Second, individual companies will be damaged. The OFT shows every sign of making the levels of fines a real deterrent. In what was going to be a tougher year anyway, some companies might even go bust.

Third, corporate governance can no longer be the dull bit at the end of board agendas. The centre cannot afford not to know everything that is going on in regional offices and subsidiaries. Other industries have been tightening up their procedures over the past decade and construction companies must increase their efforts.

Fourth, and more positively, impetus will be given to everyone in the industry to know the competition legislation. And accept it with the same vigour and rigour that companies increasingly do with health and safety regulations.

Finally, the industry and its clients can try to focus on the kind of relationships that have sometimes seemed so elusive since the Egan report 10 years ago. It won’t be easy, but nor is finding 10 per cent of your turnover for a fine. That’s why we hope early signs of kneejerk reaction from local authorities do not catch on.

It’s our problem. Let’s accept it, take on the challenge and solve it.

To see CN's Nick Edwards commenting on the OFT's investigation into bid rigging on Channel 4 News, click on the following link and click on Watch the Report below the headline OFT alleges building industry cartel