Supplementary memorandum submitted by
the Construction Confederation
I wrote to you on 15 June about this investigation
in the context of your inquiry into the activities of the OFT.
A copy is attached for ease of reference. I thought it might be
worthwhile updating you on the issues we raised because we believe
that the actions of OFT are likely to have some serious consequences
for the construction industry and these should also be relevant
to your current inquiry on construction.
Since we last wrote, we have had some limited
dialogue with the OFT. They have listened to our concerns but
have given very little away on how they intend to address these
in the context of the investigation. We understand that the "Statement
of Objections" is likely to be published after Easter. This
will set out the evidence on which the OFT intends to rely against
the companies under investigation.
In the context of your current inquiry, I wanted
you to be aware that we still have some real concerns that the
OFT's actions are going to damage the competitiveness of the construction
industry. In particular:
— The OFT's case against the companies
involved is mostly related to incidents of "cover pricing"
which were a technical infringement of competition law—no-one
was carving up markets for commercial gain nor did customers end
up paying higher prices. Yet the OFT continues to maintain that
there have been serious infringements of competition law that
justify high fines. High fines will almost certainly put some
companies out of business and have an impact on construction capacity;
— there has been no apparent willingness
by the OFT to look at a more holistic approach to stamping out
the industry-wide practice of cover pricing though we believe
it is a practice that has, in any event, already died out. They
only appear to see high fines as the solution to the problem.
We already have good evidence that single stage competitive tendering
is on the decline. A recent survey undertaken by the Construction
Confederation showed that, in 2002, 38% of respondents estimated
that over 80% of the value of their workload came from single-stage
competitive tender (SSCT). In 2007, this number had fallen to
26%. In addition, decisions are now predominantly taken on the
basis of "best value" criteria rather than lowest price.
The "opportunity" for cover pricing has therefore considerably
diminished. It would also be possible for the Office of Government
Commerce and Department for Communities and Local Government help
public sector clients to put mechanisms in place to help eliminate
it entirely;
— companies are getting letters from
public procurers saying they will be struck off preferred supplier
lists and framework contracts if they are fined by the OFT. We
are concerned that this will amount to a form of "double
jeopardy" for companies caught up in this investigation who
will already have been fined by the OFT and being "delisted"
may represent a greater threat to those companies' continued survival
than the fines themselves. This could also have an effect on capacity
and is also unfair given that it is widely accepted that the practice
of cover pricing was endemic throughout the industry but only
a limited number of companies have actually been investigated.
There is a case for sensible guidance, perhaps from the Office
of Government Commerce to central government departments and the
Department for Communities and Local Government for local authorities
and to encourage them not to "overreact". Unfortunately,
the OFT itself does not appear to be sensitive to or concerned
about this issue and is more interested in achieving large headline
fines; and
— The OFT's PR department needs reining
in—it co-operated with a sensationalist File on 4 programme
last year on BBC Radio 4 before the industry had had any chance
to challenge the evidence. It has also been criticised recently
by a judge of the High Court for its PR stance on the supermarkets
and dairies cartel case. We are concerned that the OFT will again
attempt to use the issuing of the Statement of Objections and
the eventual Decision as opportunities to exaggerate the seriousness
of the infringements and generally to sensationalise the case
in the media.
I hope therefore that in your report you could
make some reference to this problem. We accept that the industry
has been guilty of an unacceptable practice and that some action
needs to be taken to eliminate it in the future, but cover pricing
was not a practice so detrimental to the public good as to justify
disproportionate action by the OFT threatening the future competitiveness
of the construction sector. There needs to be joined-up action
involving other government agencies and the industry.
14 March 2008
|
