The Office of Fair Trading ("OFT") today fined 103 construction companies in England a total of £129.5 million for colluding with their competitors on building contracts. The decision follows one of the largest competition investigations which has ever been carried out by the OFT.

The decision focuses on 199 tenders over the period from 2000 to 2006.

The OFT found that, in the majority of cases, the companies involved had been engaged in bid rigging through the practice of cover pricing. This is where a competitor provides the bidder with a tender price which appears to be competitive but which is priced so that the bidder does not win the work. In the OFT's view, this gives the misleading impression as to the extent of competition.

It is also identified 6 instances where companies were involved in arrangements for the payment of compensation (or losers' fees) to the unsuccessful bidders. Such arrangements, which are a more serious form of bid rigging, were effected through the raising of false invoices and involved payments of between £2,500 and £60,000.

The investigation focused on public and private sector building projects throughout England totalling over £200 million, including the construction of housing, commercial and industrial construction.

Of the 103 companies implicated in the OFT's decision, 86 received a reduction in the level of penalty. Indeed, 33 of these parties benefitted from discounts of between 35% and 65% under the OFT's leniency regime. A further 41 parties received discounts of up to 25% under the OFT's "fast track" scheme. The highest fine of almost £18 million was imposed on Keir Regional Limited together with its ultimate parent company, Kier Group plc.

Today's decision confirms the seriousness with which the OFT views suspected anti-competitive behaviour within the construction industry. It should also make it clear to the industry that, regardless of the past prevalence of cover pricing or any innocent motives for engaging in such behaviour, cover pricing breaches the competition rules. Any future infraction is likely to incur substantially higher levels of penalty.

The OFT has also issued specific guidance addressed to procuring parties in the public and private sectors which cautions them against automatic blacklisting or disadvantaging of the companies named in this decision. Quite simply, cover pricing was found to be widespread across the industry and the OFT considers that these companies, in particular, will now be well aware of the competition rules and the types of behaviour which are prohibited.

In light of the current economic climate, the OFT is also offering all of the parties involved the opportunity to pay fines by instalments over a three year period.