The UK Competition and Markets Authority (CMA) launched its “Cheating or Competing?” campaign this week, and specifically named the construction sector as one which needs to “get its house in order”.  The sector is no stranger to competition enforcement action by the CMA and its predecessor the Office of Fair Trading.

In 2009, construction businesses were the subject of perhaps the largest competition enforcement case by the UK competition authorities involving more than 100 businesses accused of cover bidding.

More recently, the CMA has taken action against a pre-cast concrete drainage cartel, cover bidding in the design construction and fit-out services sector, and is currently investigating suspected problematic arrangements in the supply of construction services, and in the supply of groundworks products to the construction industry.

Results of CMA Survey

Much to the concern of the CMA, a recent survey of 400 UK senior representatives from construction firms and other businesses that work in the sector found that:

• only 6% of firms in this sector were familiar with competition law and what it was designed to stop;
• 29% of those surveyed thought it was OK to attend meetings with competitors to agree prices;
• 32% thought agreeing not to supply each other’s customers was legal; and
• 25% saw no problem with discussing bids and agreeing who would get which tenders.

The CMA’s senior director of cartels said: “The CMA is cracking down on businesses that collude to rip off customers by fixing prices, sharing out markets amongst themselves or rigging bids. Our message to them is that we know cheating when we see it, even if you don’t. Pleading ignorance is no defence; it’s up to businesses to know what these unfair practices look like and avoid them.”

Further guidance from the CMA

In a swift follow-up to its “Cheating or Competing” campaign, the CMA has published guidance on avoiding collusion in construction: advice for project directors and managers. This guidance specifically mentions bid rotation, bid suppression, and cover bidding, which the CMA considers to be unacceptable forms of behaviour. The CMA’s website states: “Project directors and managers must be alert to the dangers of breaking competition law, and need to lead from the top down in promoting a culture of zero tolerance to illegal business practices.” If businesses are subsequently found to have engaged in any of these types of bid rigging activity, they can expect significant sanctions from the CMA.  The message the CMA has sent out is, “You have been Warned”.

Fines are not the only sanction - personal liability for directors

Apart from the fines imposed on construction sector businesses, the CMA has, in the last 12 months, obtained Competition Disqualification Undertakings from two directors involved in the pre-cast concrete drainage cartel and is pursuing Disqualification Orders in the Courts against a further two directors. It also obtained competition disqualification undertakings from six directors involved in cover bidding in the design, construction and fit-out services case. These prevent the directors from being involved in the management of any UK company for periods of up to a maximum of 15 years.

In addition to the sanctions mentioned above, a business found guilty of a competition law breach is going to find it more difficult to win work via formal competitive tenders and may be excluded from OJEU tender processes. The price of getting it wrong could prove very costly indeed.  

Commentary

The CMA does not publish guidance on a whim: it is likely to have been published because of a perception at the CMA that the construction sector is slipping back into “bad habits”. Pressures in the sector are no-doubt as great as they have always been. Having to deal with a CMA investigation is a pressure most construction businesses could do without.