Construction sector under the spotlight

Construction firms fined for breaking competition law by rigging bids.

On 23 March 2023, the Competition and Markets Authority (CMA) announced that it had fined 10 construction firms nearly £60 million for breaching competition law. The CMA also secured the disqualification of three directors, with the longest disqualification period being 7 years and 6 months.

The CMA’s decision followed a lengthy and large-scale investigation which commenced in 2019 and involved dawn raids of 15 business premises, interviews with 35 individuals and an extensive evidence review, including emails, mobile phone communications and financial records. 

Why were the construction firms fined?

The construction firms were found to have engaged in illegal cartel behaviour by colluding on prices when submitting bids in competitive tenders for contracts (bid rigging). This type of conduct is regarded by competition authorities as a serious infringement of the competition rules.  

The CMA found that one or more of the construction firms agreed to submit bids that were deliberately priced to lose the tender. The CMA noted that this practice, known as “cover pricing”, can lead to customers paying a higher price and/or receiving lower quality services. In addition, the CMA found that on a number of occasions the “loser” of the tendered contract was then compensated by the tender winner. The compensation was, in one instance, higher than £500,000.  

The CMA found that big rigging occurred in 19 different contract tender processes, over a five-year period. The contracts concerned demolition work and were, in total, worth over £150 million. Public and private sector contracts were impacted, including contracts relating to Bow Street Magistrates Court and Police Station and Selfridges (London). 

What are the implications of the CMA’s decision?

This decision is the latest in a long line of competition law investigations in the construction sector.

The imposition of significant fines in this case serves as a reminder to firms in the construction sector (and beyond) that the CMA will not tolerate unlawful cartel behaviour. Moreover, the disqualification of certain directors who were involved in the practices in question reaffirms the CMA’s strategy of driving deterrence by focusing on the personal responsibility of directors to ensure that their companies comply with competition law. Firms should therefore consider whether they need to implement, or refresh, competition compliance measures, including measures to ensure that directors are aware that their responsibilities for ensuring their companies comply with competition law and may be disqualified if they fail to do so.

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