ARTICLE
6 October 2009

Construction Firms Fined For Cover Pricing

AC
Anthony Collins Solicitors

Contributor

Anthony Collins Solicitors
Organisations subject to the EU procurement rules may be wondering how to respond to the high profile Office of Fair Trading (OFT) investigation into bid rigging in the construction industry.
UK Real Estate and Construction
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Organisations subject to the EU procurement rules may be wondering how to respond to the high profile Office of Fair Trading (OFT) investigation into bid rigging in the construction industry. Many will find that their tender lists include contractors who are on the list of firms found by the OFT to have been guilty of 'cover pricing'.

Cover pricing involves one tenderer giving an artificially high "cover" price to another tenderer for them to submit. This gives the client a misleading impression of the real extent of competition and may encourage the client to accept the bid from the tenderer who has given the cover price to the other tenderer(s).

There are two provisions in the EU procurement rules that are relevant to the decision whether to exclude a tenderer from a tender process for cover pricing or other bid rigging activities.

Regulation 23(1) says that a tenderer must be excluded where the tenderer has been convicted of certain offences such as:

  • "corruption within the meaning of section 1 of the Public Bodies Corrupt Practices Act 1989 or section 1 of the Prevention of Corruption Act 1906; or
  • "the offence of bribery".

The offences committed by the tenderers involved in cover pricing do not fall within this category of seriousness and therefore do not justify 'mandatory exclusion'.

Under Regulation 23(4) a tenderer may be excluded (but does not have to be) where they have:

  • been convicted of a criminal offence relating to the conduct of his "business or profession"; or
  • "committed an act of grave misconduct in the course of business or profession."

The offences committed by the contractors fined by the OFT for cover pricing would fall within both of these grounds.

European case law confirms that the decision to exclude a tenderer should not be taken lightly. The European Court1 has stated that a procurer:
"may exclude a bidder....as long as it is necessary and proportionate to ensure the fairness of the bidding process"

Any decision to exclude a tenderer must be proportionate to the seriousness of the circumstances leading to the exclusion. Care should be taken to ensure that all tenderers are treated equally so, if one tenderer on the list is excluded, all of them must be.

Guidance issued by the OFT in conjunction with the Office of Government Commerce (OGC) recommends that procurers should not exclude the infringing firms from future tenders. It says that the practice of cover pricing was widespread in the construction industry and those that have already faced investigation can now be expected to be particularly aware of the competition rules. This guidance is available at:

http://www.oft.gov.uk/shared_oft/business_leaflets/general/Information-Note2.pdf

The OFT/OGC guidance also states that, before excluding a tenderer the procuring authority should give the tenderer the chance to outline any remedial steps it has taken since the finding of an offence.

There are additional steps that procurers can take to protect themselves. Procurers should continue to watch out for evidence of collusion. Guidance is available at:
www.ogc.gov.uk/documents/CP0144MakingCompetitionWorkForYou.pdf
www.oecd.org/dataoecd/27/19/42851044.pdf

In addition, all tenderers should be required to sign a non-collusion certificate. This should include a clear statement that if they are found to have breached its terms they can be excluded from the procurement process. If such a certificate is signed fraudulently, the procurer may also be able to set aside any contract that has been entered into on the basis of the misrepresentation in the certificate.

Footnote

1 Michaniki AE v Ethniko Symvoulio Radiotileorasis a.o., case C-213/07

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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ARTICLE
6 October 2009

Construction Firms Fined For Cover Pricing

UK Real Estate and Construction

Contributor

Anthony Collins Solicitors
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