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When an inspector calls

AGENDA

The Office of Fair Trading is now looking into recruitment companies which deal with construction firms as part of its wider investigation of the industry. Domenic Donatantonio reports on just what is going on and which firms may be involved

THE OFFICE of Fair Trading's probe into shady dealings in the construction industry has claimed a new victim - recruitment companies - and the investigation into malpractice has sent shock waves through the marketplace.

Recruitment firms are unashamedly aggressive in competing for each other's business, so it came as a big surprise when three of the leading construction recruitment firms - Hays, AndersElite and Eden Brown - all admitted to being under investigation.

If any of the firms are found guilty, they could face a hefty fine since any business found to be a member of a cartel can be fined up to 10 per cent of its worldwide turnover.

Hays banked overall profits of £192 million last year on a turnover of £1.68 billion, while the smaller Eden Brown recorded a turnover of £57.8 million in 2005. So these investigations pose a real threat to their business.

US-based CDI Corp, AndersElite's parent company, admitted that it is expecting to be hit in the pocket by the investigation. In a statement it said: 'It is likely that the OFT will ultimately impose a fine on Anders. However, it is too early in the process to determine with reliability the amount of the fine.'

As yet, the OFT is remaining tight-lipped about what the firms have done.

A statement on the current investigation on the OFT website reads: 'The OFT can confirm that it has visited several business premises in England as part of a Competition Act investigation into allegations of anticompetitive behaviour in the provision of recruitment services for the construction industry.

'No assumption should be made at this stage that there has been an infringement of competition law. The OFT will not be in a position to decide if the law has been breached until it has completed its investigations and assessed the available evidence.'

Industry insiders have put forward their own suggestions to the alleged wrongdoing.

Sources have suggested collusion over contracts in the public sector, price fixing, clubbing together against a competitor or possible tacit agreements on tendering.

One source explained: 'Most of the big deals are done through master vendor and neutral vendor management. This is when a client outsources recruitment needs to a third party. A master vendor is also a recruitment company, while a neutral vendor is usually a management firm.

'With a master vendor set-up, there is a fear factor that a master vendor will claim staff as its own. This may prompt agencies to act together in holding on to what staff they may have.'

Perhaps unsurprisingly, Tom Hadley, director of external relations for the Recruitment and Employment Confederation, the official body for the recruitment ndustry, expressed his surprise at the allegations directed at these big firms.

He said: 'It's not something that we have heard of before. We don't believe this form of collusion is widespread.'

But one construction recruitment industry insider admitted that agreements, though unlikely, do happen:

'It's not unusual for the big companies to talk if there are benefits for them.'

If OFT investigators do uncover wrongdoing, they will be waiting to see who will crack first and name and shame its own and its rivals' malpractice. The OFT can reduce a financial penalty to zero for the first member of a cartel to come forward and can potentially halve a fine for any subsequent whistleblowers.

This latest probe shows that the OFT is prepared to back up its hardline approach to the construction industry . Last year, it revealed that construction is one of five areas set to see increased scrutiny. The director of cartel investigations Simon Williams said that cartels in construction were a widespread problem and urged firms to blow the whistle on their associates to spare themselves a likely fine.

In March, Morgan Sindall subsidiary Bluestone and Mowlem, which had just been taken over by Carillion, became the latest high-profile construction companies under scrutiny as the OFT began its ongoing probe into their activities. Industry rumours suggested that up to 25 firms had been raided.

But what is the nature of the construction recruitment marketplace? According to figures from the Office of National Statistics, in the first quarter of 2006, 6.9 per cent of the UK workforce were employed in the construction industry.

This relatively small percentage sees the major recruitment players struggling hard to attract talent to their clients while maintaining a strong public image.

Recently, Bournemouth recruitment agency Peartree was slammed for paying labourers less than the minimum wage under a 'contract of services'.

Sue Dodd, director of Agile Intelligence, a provider of business analysis on the recruitment market, estimates the construction industry staffing market is worth around £2 billion.

However, Ms Dodd believes that the OFT may have some difficulty in measuring the size of the marketplace to put any wrongdoing into context.

She said: 'It's very difficult for the OFT to put into context the size of the construction recruitment marketplace. No-one really knows how big the market is.

You would have to look at everyone including the oneman bands to find out the size, which is practically impossible.'

For onsite recru itment , it seems that m ig rant labou r has taken a stranglehold. One senior consultant estimates that applications from migrant workers and UK workers are at a ratio of 10 to 1.

Jamie Dargie, from Now Recruitment in Birmingham, said: 'If you have a good advertised position, you have to go out and find it yourself. These people are not coming to you. It's virtually one-way traffic. For a good site manager, the chances are you won't find someone from the UK.'

The working population is not getting any younger either. A recent survey by recruitment firm Roevin found that the overall age of workers in the construction sector is growing each year.

Around 62 per cent of the temporary workforce is now between the ages of 41 and 65. This would seem to create a rather distressing picture for an important section of the industry.

But Kay Richardson, a construction consultant at Tudor Appointments in Cheam, Surrey, said the OFT's investigations would not damage the industry's credibility too much.

She said: 'We are a wealth of information to construction firms. We know the salary levels that are going round at the moment.

'I would urge the big firms out there not to tar us all with the same brush and to realise what benefits we can bring them.'

It's now in the hands of the OFT to determine the fate of an industry which may find its own public credibility as the biggest casualty.

Naming names

THE OFFICE of Fair Trading has kept good its promise to target the construction industry.

In March, Mowlem and Morgan Sindall's Bluestone building business were both raided by the Office of Fair Trading as part of an investigation into price-fixing.

Three months later, the OFT hit four double glazing firms with fines totalling £1.4 million.

EWS, Thermoseal, Double Quick Supplyline and Ulmke Metals were found guilty of fixing prices for aluminium double glazing spacer bars used in the manufacture of double glazing units.

The OFT let Ulmke Metals off paying the fine in return for its co-operation in the investigation.

In the same month, 13 roofing contractors were fined a total of £2.3 million for price-fixing.

Investigators discovered the firms - Anglo Asphalt, Asphaltic Contracts, Briggs Roofing & Cladding, Cambridge Asphalte, Coverite, Durable Contracts, Holme Asphalt, Makers UK, Pirie Group, Prater, Rio Asphalt & Paving, Rock Asphalte and WG Walker & Company - were rigging flat roofing and car-park surfacing contracts in south-east England, the Midlands, Doncaster, Edinburgh, Glasgow and London.

The 13 firms had their fines reduced to £1.6 million for various degrees of co-operation with the investigation.

Briggs had its fine reduced to zero for being the first to volunteer information.

Back in July 2005, five Scottish flat roofing contracting firms were hit with fines after being found guilty of operating a cartel.

OFT investigators discovered that six companies agreed to fix prices for contracts for felt and single-ply flat roofing. Among the customers affected were banks, schools and hospitals.

Paisley firm Pirie, the cartel's main whistleblower, had its original £86,000 fine reduced to nil.

The five others - WG Walker, Advanced Roofing, Geo Brolly, Bonnington Contracts and McKay Roofing - were given penalties totalling £138,000.

PUBLIC SECTOR INTRIGUE

THE OFT is believed to be looking into allegations that recruitment companies have fixed prices on public-sector contracts. The labour agency sector is the latest to come under scrutiny from inspectors at the cartel buster which has made construction a priority target area. The blitz has seen a host of firms investigated by the OFT this year with no name beyond its gaze. Earlier this year, offices at both Mowlem and Bluestone were raided with rumours that other big names were targeted in an investigation into price fixing. The OFT says all the raids are part of 'an ongoing investigation into bid rigging in the construction industry'.