Competition law compliance risk in the construction sector

England and Wales

The construction sector has been a particular focus of the CMA for a number of years, but is firmly in the spotlight with a number of recent investigations. This is at a time of increasingly challenging market conditions, with inflation and financial instability putting pressure on firms and their employees. Any economist or historian will tell you that in these conditions there is a heightened risk of anti-competitive practices. Companies in the sector therefore need to be vigilant in ensuring their businesses have a good understanding of what is and is not acceptable practice under competition law, including an appropriate compliance policy with the full support of senior management. 

In its provisional findings last month, the CMA found evidence of “cover bidding” in relation to tenders for 19 contracts worth over £150 million (Link here). Otherwise known as “cover pricing” the practice involves firms (bidders) rigging the bidding process for competitively tendered contracts by agreeing to submit bids which they do not intend to be competitive. The CMA noted that such practices had the “deliberate intention of deceiving customers”, causing customers to pay higher prices than they would otherwise have paid for the work.

In some of the instances of covering pricing, the firms providing the cover pricing were paid a “compensation payment” by the winning firm. In one instance, the CMA claimed that the compensation payment was greater than £500,000. Of the ten firms concerned in the CMA’s investigation, seven have provisionally been found to be involved in such practices, with some firms alleged to have produced false receipts to account for the funds.

Of the ten firms, eight have so far come forward and admitted to being involved in the alleged bid rigging. The remaining two firms, Erith and Squibb, have thus far refused to make any admission of guilt. Those firms that have entered into a settlement agreement will have admitted to an identified infringement in return for a reduced financial penalty and a streamlined administrative procedure. They will also have had to provide assurances to the CMA that they have introduced or re-enforced competition law compliance training and taken steps to manage any risk of recurrence of similar practices happening in the future. 

Given the level of enforcement action in the industry, and the heightened compliance risk for businesses in the current marketplace, firms should ensure:

  • they have an appropriate competition law compliance policy in place;

  • that the policy is accessible and visible within the business, and has the full support of senior management;

  • that all senior managers understand the policy and communicate the key messages to their teams;

  • that all their key supply chain firms have a similarly vigilant approach to ensuing good working practices and compliance with competition law.

The CMS Competition & Trade team advises clients on managing competition law compliance risk, including providing compliance programmes and training, as well as compliance audits and 24/7 dawn raid support. In addition to advising on bidding practices in both the private and public sector segments of the market, we advise on consortia arrangements, joint ventures, supply and distribution agreement and other forms of commercial agreement. We also regularly represent companies on seeking leniency in relation to any identified compliance issues and on Competition Act investigations by the CMA. 

When considering any refresh on compliance, it is also worth highlighting the CMA’s own “Cheating or Competing” guidance for businesses in the construction sector: Cheating or Competing? Its your business to know the difference.