The demolition industry stands accused of wholesale corruption after an investigation by the Competition & Markets Authority (CMA).
The bid rigging relates to 19 contracts, mostly in London, worth more than £150m. Eight of the 10 firms have admitted it.
Following an investigation launched in 2019, the CMA has provisionally concluded that the firms colluded on prices through illegal cartel agreements when submitting bids in competitive tenders for contracts. These bids were rigged with the deliberate intention of deceiving the customer that they were competitive when that was not the case.
The bids were rigged by one or more construction firms agreeing to submit bids that were deliberately priced to lose the tender – cover pricing.
In addition, the CMA has provisionally found that seven of the firms, on at least one occasion each, were involved in arrangements by which the designated ‘losers’ of the contracts were set to be compensated by the winner. The value of this compensation varied but was higher than £500,000 in one instance. Some firms produced false invoices in an attempt to hide this part of the illegal behaviour.
The CMA has provisionally found that the collusion affected 19 contracts for demolition work in London and the Midlands, including contracts for the development of Bow Street’s Magistrates Court and Police station, the Metropolitan Police training centre, Selfridges, Oxford University, shopping centres in Reading and Taplow, and offices on the Southbank, London. Not all of the firms were involved in colluding in each of these contracts, and not every contractor who submitted a bid for these contracts was involved in the illegal collusion.
Eight firms have admitted their involvement in at least one instance of bid rigging between January 2013 and June 2018:
- Brown & Mason
- Clifford Devlin
- John F Hunt
Two other firms provisionally foudn to be guilty by the CMA, Erith and Squibb, have not admitted their involvement in any bid rigging.
The seven firms provisionally found to have been involved in compensation arrangements as well as cover pricing are: Brown & Mason, Cantillon, McGee, Scudder, DSM, Erith and Squibb. Again, Erith and Squibb are contesting the finding.
Michael Grenfell, the CMA’s executive director for enforcement, said: “The construction sector is hugely important to Britain’s economic well-being. Bid rigging can result in worse deals, which can leave businesses – and sometimes taxpayers – out of pocket.
“This is unacceptable, and the CMA won’t hesitate to come down hard on these activities and impose appropriate fines.”
The CMA’s findings are provisional. The final total of any fines to be paid will be determined at the end of the investigation. However, the contractors know that they will be heavy. In its latest accounts, published last week, Keltbray made provisions for an expected fine. “The range of potential liability is between £3.9m and £16m,” it said. “Having received advice, a best estimate provision of £6m in relation to potential liability has been considered by the directors to be appropriate.”
Scudder and McGee reported their own involvement in the behaviour and so will benefit from a discount on any fine, provided they continue to co-operate, the CMA said.
Today Keltbray issued this statement: “Keltbray strongly condemns anti-competitive practices and, having co-operated fully and formally settled its case with the CMA, acknowledges the findings relating to isolated activities of a previous management team in a subsidiary business.
“As the CMA investigation has confirmed, Keltbray Limited did not benefit from the award of any contracts nor received any compensation payments arising from this infringement activity.
“Since 2019 Keltbray has transformed its organisational structure and corporate governance framework and has assured all stakeholders that these historic practices will not occur in the future.”
The 19 contracts affected by the suspected cartel activity were at the following sites:
- Bishop Centre
- Met Police Service training and operations centre, Hendon;
- Southbank, London
- Bow Street, London (on two separate occasions)
- Station Hill, Reading
- Lots Road Power Station, London
- Duke Street, London
- Lombard House, Redhill
- 18 Blackfriars Road, London
- Underground car park, High Wycombe
- 33 Grosvenor Place, London
- Wellington House, London
- Ilona Rose House, London
- 44 Lincoln’s Inn Field, London
- 57 Whitehall Old War Office, London
- 135 Bishopsgate, London
- Civic Centre Scheme, Coventry
- Tinbergen Building, Oxford.