Latest News
Construction Industry Bodies Launch Competition Code of Practice
Published: 25th September 2009
The Office of Fair Trading (OFT) commenced one of the largest investigations in the office's history against the construction industry in April 2004. The OFT formally alleged the construction sector of 'bid rigging', and in particular "cover pricing", contrary to the Competition Act 1998. "Cover Pricing" is a practice where potential bidders collude during a tender process, whereby one or more bidders will tender an inflated bid with an intention not to win the contract. The client will be unaware of such contact between the bidders, leaving the impression of a certain level of competition. In April last year the OFT found 112 firms guilty of breaches of competition law. The OFT are due later this month to issue its final decision in the investigation.
In advance of the OFT's final decision, the UK Contractors Group and the National Federation of Builders have launched a Code of Conduct. The Code highlights the need for construction companies to have internal procedures to prevent anti-competitive practices.
The Code includes the following:-
1. The UK construction industry is committed to compliance with UK and EU competition law
2. The industry understands that the purpose of competition law is to preserve free, fair and efficient competition for the benefit of all companies operating in the industry and their clients
3. The industry agrees at all times to commit to ensuring the highest standards of competition law compliance within the sector by adhering in all of its business practices to the principle of fair competition and to ensure that construction companies do not engage in conduct which is anti-competitive
4. Construction companies must:
4.1 not restrain competition amongst themselves through agreements, arrangements or understandings that restrict competition
4.2 bid for contracts and tenders independently from and without any agreement or arrangement with their competitors
4.3 not exchange competitively sensitive information or engage in discussions that may lead to the co-ordination of competitive behaviour and, in particular, must not share information about current or future pricing intentions for tenders, or any element that might affect prices or pricing practices, including the exchange of cover prices
5. Construction companies understand that co-operation with a competitor is justified only under the exceptions permitted by the competition rules or where they have been expressly required to enter into such arrangements by the client, for example, certain joint ventures and framework agreements, in which case such arrangements will be fully disclosed to the client.
6. The industry understands that each individual construction company is responsible for its own compliance with competition law and that the consequences of breaching competition law are severe including possible penalties, director disqualification, criminal sanctions and damages actions.
6.1 Construction companies will therefore endeavour to:
6.1.1 ensure that competition law compliance will be achieved through implementing effective competition compliance policies and guidelines throughout their businesses; and
6.1.2 promote an understanding of and compliance with competition law throughout their supply chains, including with their sub-contractors.
The Code is designed to reassure the public and private sectors and to demonstrate to the regulator that the investigation has been taken seriously and that steps have been taken to prevent activities identified by the OFT, from continuing.
For the code to be successful, it must be implemented properly throughout the sector. Whether or not contract practices change or whether the impact of the code will only be temporary remains to be seen.
If this raises any questions for you or your organisation please contact Charles Tomlinson or Ken Salmon in our Construction and Dispute Resolution department on 0161 214 0500.
