A wall comes tumbling down

There were some very unhappy people in the Notts construction industry yesterday, seething with indignation at what they genuinely believe to be unfair finger-pointing by an industry regulator.
There are also a few who know already that the Office of Fair Trading is entitled to throw the book at them.
Just to clear up some of the fog that descended amid wall-to-wall coverage of the OFT’s bid-rigging probe, it concerns two allegations.
One is about the long-term custom of cover pricing – putting in an inflated bid for a building contract.
The other – which is more serious – is the allegation that companies who have won contracts have paid compensation to losers.
At best, this is foolish dismissal of the importance of a long-established principle of fair trade. At worst, it’s ripping off the public purse.
I spoke to a number of senior figures in the industry yesterday, and all were open in their admission that cover-pricing has been going on for years.
The way they tell it, the process works like this: having got on the list of approved contractors (i.e., firms the council/health authority knows have got the muscle to build that school or hospital), you receive a tender for a job.
In a construction firm this goes to the estimator, the man who estimates what resources are needed to do the job and how much, therefore, the firm should charge.
As it happens, the firm is already stacked out with business and the estimator knows they can’t do it. But they don’t want the customer to think they’re not interested.
So, they ring up a rival firm, ask them if they are bidding for it, and find out what kind of price will get a look-in, what kind of price is too much. They’re seen to compete, but the job goes to someone who wants it.
This sounds innocent enough, and I have no doubt that in some cases there was never any intention of ripping anyone off. It was a classic case of industrial custom-and-practice.
The problem with custom-and-practice is that it can get too commercially cosy. It was pretty obvious from the tone of the OFT’s comments yesterday that it believes some firms have been getting together and employing cover pricing as a convenient way of carving up the public sector budget between themselves.
That’s not custom and practice – that’s a flagrant breach of fair trade rules.
There are some anxious people in the construction industry right now. Some are worried that they may be hit by a fine that could cripple them, others fear that being tainted by an OFT probe means they’ll never get a look in on a council contract again.
And some – a minority, to be fair – are coming to terms with the fact that they’ve just been found out.