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Construction Industry – OFT Fines Cut

Anyone interested in construction insurance will be interested to learn that firms fined in the Office of Fair Trading’s largest investigation into the industry’s sales and tendering practices are having their penalties cut dramatically.

It will something of great interest to construction insurance executives, as the fines were a major drag on the various companies finances. Now observers are saying that the Office of Fair Trading is looking very embarrassed at being so publically corrected.

The fines imposed on the construction companies have been slashed by nearly 90%.

The companies have appealed against the Office of Fair Trading rulings and the Competition Appeal Tribunal has agreed, saying that the fines for bid fixing were: “…excessive given the nature of the infringement.” Six of the companies penalised have had their fines cut from just under £42 million to £4.4 million.

Kier, the publicly quoted firm which is listed on the FTSE250 and no doubt a big user of construction insurance, has had its fine slashed from a touch under £18 million to under £2 million.

The legal profession is saying the slashing of the fines by the Competition Appeal Tribunal raises doubts as to how the Office of Fair Trading actually calculates fines. The Office of Fair Trading set great store by its investigation into the building and construction industry and will see this effective reversal of its judgement as a kick in the teeth.

Any regulator which is so publically humiliated stands to lose all credibility if it’s not careful. So it’s no surprise that the Office of Fair Trading is considering appealing against the decision.

The investigation took nearly six years to complete and it was only in September 2009 that the Office of Fair Trading came to its decision: to fine a total of 103 companies in the construction sector a total of £129.5 million for allegations of collusion when it came to contract bidding. The contracts were placed between 2000 and 2006, and the collusion, said the Office of Fair Trading, actually pushed up the price of the individual jobs. This, they maintained, was wrong.

Its seemingly come down to how outsiders view the bidding practice. What usually happens is that when firms are asked to bid, they will do so even if they don’t the job. They do this because they don’t want to offend the client who’s kindly given them the chance of the business. But to ensure that they don’t win business they don’t want, alledgedly they collude with other companies on the tender list to ensure that their price won’t win (in other words, then make their price too high).

And whereas the Office of Fair Trading doesn’t approve of such methods, the Competition Appeal Tribunal see it as a normal and long standing practice.

Whoever is right, those buying construction insurance will be relieved that the fines have been dramatically reduced.

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