Why we put in cover prices
The OFT has announced who’s being fined what for cover pricing and bid-rigging, but what was it like to be one of the firms involved? Well the finance director of a contractor that was fined told his story, on condition of anonymity
I just can’t see how the way the Office of Fair Trading dealt with this situation was right. Cover pricing has been used by companies all over the country for tens of years. Nobody in the construction industry even knew that it was illegal until 2005. This is when the OFT took the case to lawyers and we all had seminars and meetings with legal advisers who filled us in on the details.
What then happened was that the OFT’s case was backdated to 2000, before many decent building firms – who stopped the practice after those meetings in 2005 – knew the full picture. I know ignorance is no defence here – it certainly isn’t as far as the OFT is concerned – but I don’t think that’s fair. They have now been given carte blanche to penalise people who were not aware they were doing anything wrong.
In our case, we were found to have participated in cover pricing on three contracts out of 300. There would have been three reasons for doing this – if we didn’t have the resources to do the job, if we didn’t have the skills base to do the job or if we were initially lied to and told three or four people were going for the job, only to find out the number was nearer 10. When that happens and you realise you only have a one in 10 chance of winning – you often think, what’s the point? It costs a lot of money and takes up a lot of resources to put in a fully contracted price, so in these instances we would just ring up other people going for the job, ask what their bid was and put a higher price in.
Now, I don’t think this creates anti-competitiveness. It’s just using a mechanism to avoid winning a contract. I know there are some firms on the list who fully colluded and that is a different kettle of fish. It’s not cover pricing, it’s fraud, and the people who have been caught doing it totally and utterly deserve to be hauled over hot coals.
My other gripe is that the OFT knew it didn’t have the resources to find evidence to prove firms all over the country were cover pricing so they targeted northern England and the Midlands. How is that fair? One hundred businesses in one part of the country have had their reputations smeared and the rest have not. People must realise it goes on all over the place and there are companies who are much guiltier than us who have got away with it. And this will now give them an advantage. They’ll be able to say: “Don’t use Fred Bloggs & Co – it was fined by the OFT. We weren’t.â€
What the OFT should have done, as soon as it was decided that cover pricing was illegal, was warn everyone that in 12-18 months it would be doing spot checks and raids and that any company found cover pricing or bid-rigging would be severely fined. I think that would have pretty much stopped it dead.
For us, the legal fees and time spent on dealing with this issue have been massive. It’s been a nightmare. The legal costs have been almost as much as the fine, which I expect will be the same for most of the smaller firms on the list.
After you found out that you’d been targeted by the OFT you had two options: to plead guilty and ask for leniency or stick to your guns and risk paying double. We applied for this leniency, which was the best option for us, I think. We worked openly with the OFT, understood how the fine would work and decided to try to reduce it in the first instance. It would be very difficult for us to appeal the fine now – so we won’t.
I just think it’s immoral that the OFT has had been free to shaft everyone on that list and we have been left with no real way of defending ourselves. We now have an even worse reputation than we did before for being a bent, scamming industry and it’s just not true.