In September 2009, the Office of Fair Trading issued a decision finding that 103 construction firms had infringed competition law by engaging in bid-rigging in England in the period from 2000 to 2006. The fines the OFT imposed on individual companies ranged from £713 to £17.9 million.

The total amount of the fines is a record-breaking £129.5 million - the largest previously imposed by the UK competition authority being the £121.5 million fine in the British Airways/Virgin Atlantic fuel surcharges case.

The question, however, is whether these fines will stand. 25 of the construction companies concerned – nearly a quarter of those fined – have appealed against their fines to the Competition Appeal Tribunal (CAT). The case summaries on the CAT website suggest that the majority of the appeals are based on the disproportionate size of the fines.

The infringements

The 103 firms were found to have engaged in 199 instances of bid-rigging, which took two forms:

  • Cover pricing: a firm not intending to win a contract contacted another firm it knew was bidding for the same contract and obtained from that firm a price (a “cover price”) which would be too high to win the contract. By bidding in the knowledge that it would not win the contract, the firm was able to remain on the customer’s list of firms to invite to future tenders. This particular practice has been the subject of previous OFT infringement decisions in the roofing sector. (See issue 53.)
  • Compensation payments: in six instances, the OFT found that construction companies that won tenders on the basis of cover pricing also made compensation payments of between £2,500 and £60,000 to unsuccessful tenderers under other secret agreements. These are viewed by the OFT as a more serious anticompetitive practice.

The OFT’s investigation

The OFT’s investigation, which it described as “one of its largest Competition Act investigations”, followed a complaint in relation to a tender in the East Midlands in 2004. The scope of the investigation then grew to include other tenders in the East Midlands, Yorkshire and Humberside, and eventually encompassed tenders across England. The OFT has stated that it received evidence of cover pricing implicating many more companies than the 103 companies fined, in relation to thousands of tender processes, but it focused its investigation on approximately 240 alleged infringements.

The OFT made site visits to 57 of the businesses under investigation and 37 firms made applications for leniency. 41 firms accepted the OFT’s subsequent “ fast track offer,” which granted a reduction of up to 25% in penalties in return for full cooperation in the investigation, an admission of infringement in relation to the contracts specifically identified by the OFT in the offer and certain ancillary promises.

A Statement of Objections (“SO”) was issued to 112 firms on 17 April 2008, after which they made written responses to the OFT, and some put forward their case at an oral hearing. The OFT later informed nine companies who were named in the SO that it had insufficient evidence to proceed with the case against them.

The fines

Under UK competition law, companies that have infringed competition law can be fined up to 10% of the annual worldwide turnover of the corporate group to which they belong. The amount of the fine will vary according to a number of factors. These include the gravity of the infringement, its duration, the company’s turnover in the relevant market and aggravating and mitigating factors, including the extent to which a company cooperates with the investigation.

The non-confidential version of the OFT’s decision, published in November, indicates that 86 parties benefited from discounts to their fines, under the OFT’s leniency programme or the fast-track offer, or because they admitted the alleged infringements after receiving the SO. These reductions amounted to £64.9 million in total. However, many of the fines imposed on the addressees of the decision were set at a fixed percentage of their total turnover – referred to by the OFT as the “Minimum Deterrence Threshold” (MDT) – to ensure that the penalty represented a figure that, in the OFT’s opinion, would be a sufficient deterrent. The application of this MDT appears to have massively inflated some companies’ fines, and many of the appeals have challenged this aspect of the fine.

Next steps

The hearing of the 25 appeals before the CAT is unlikely to take place until the second half of 2010. In the meantime, the CAT will need to determine the way in which it wishes to handle a large number of appeals, and the OFT will no doubt be considering the implications for its budget of defending so many appeals.