The Construction and Markets Authority (CMA) has posted some lessons from its successful £60m prosecution of 10 construction firms for cartel activity two years ago.
In 2023, 10 construction firms were found to have broken competition law by making illegal arrangements to rig bids for demolition and asbestos removal contracts.
The case also resulted in four directors personally held to account and disqualified from acting as directors for nearly 25 years in total.
The collusion took place between January 2013 and June 2018 and related to 19 contracts collectively worth more than £150m. Projects affected included the Metropolitan Police training college, the former Bow Street Magistrates Court, Selfridges and Oxford University.
What is cover bidding?
Cover bidding can result in customers paying higher prices, receiving lower-quality services, or slower delivery. Those involved in such wrongdoing manipulate the tender process at the expense of the client and end payer which, in the case of public sector projects, is the taxpayer. Fair dealing businesses are also denied a level playing field on which to compete.
The ‘winning’ supplier knows they don’t face genuine competition so there is less incentive to offer the best deal or true value for money. It is a serious form of illegal conduct. In this case, compensation payments were sometimes given by the ‘winners’ to the ‘losers’, and the real reasons for these payments were disguised.
The CMA said: “On at least one occasion each, the firms colluded to submit proposals that were designed to lose the tender by putting forward a bid that was deliberately high or offering a poorer service. This practice is known as ‘cover bidding’.”
The evidence in the case included emails, text messages and annotations found in notebooks, as well as explanations from individuals involved, showing illegal cover bidding and compensation payment agreements.
The CMA explained that in one instance a firm provided a rival with a copy of its tender pricing document, and instructed it to “go some 8% to 10% above this…” and “[go in] longer on your program – ours is 44 wks”. The same firm then also provided a different rival with its pricing document but with similar instructions, namely that it “go some 10% to 12% above this”.
In another example, one firm told another that its bid was “far too close” and that “in short your number needs to increase substantially and ours has to decrease”.
Compensation payments
Five of the firms, on at least one occasion each, were involved in arrangements by which the designated ‘losers’ of the contracts were set to be compensated by the winner, the CMA said. The value of this compensation, and how it was implemented, varied but was higher than £500,000 in one instance. Some firms produced false invoices to hide this part of the illegal behaviour.
Examples of evidence of compensation payments included an extract from a notebook belonging to one company director found on the hard drive of a rival director that set out a list of projects and noted certain monies ‘owed’, such as Lots Road Power Station with the note: ‘‘Lotts RD 100k owed.”
An extract from another notebook set out a list of projects with monetary figures and the names of contractors next to them. This was later described as a ‘scorecard’ or a ‘slate’ of agreements related to cover bidding, and compensation given by the ‘winning’ supplier to the agreed ‘losers’ in the cover bidding arrangement.
The CMA added: “Discussing and agreeing with competitors what price you will submit for a bid or what level of service or timeframe you will provide is illegal. So is giving and accepting compensation payments for the wrongdoing.
“The businesses did not operate independently of each other. Through regular contact they cooperated in relation to bids for their own advantage, instead of competing for the benefit of customers.”
CMA lessons from the case
- Never agree with a competitor to submit or alter a bid to lose a tender so a rival can ‘win’ and never accept a compensation payment for doing so.
- Never agree with rivals not to compete for customers or business.
- Company directors must lead by example. They have personal responsibility for ensuring that the companies they lead comply with the law, and director disqualification is a serious risk.
- The CMA secured the disqualification of four directors of firms involved in the unlawful conduct in this case.
- The CMA has sophisticated means of tracking illegality and capturing evidence of secret unlawful activity – this was an intelligence-led case.
- If a company is the first to report being part of a cartel before the CMA is investigating and fully cooperates with an investigation, it can benefit from immunity from fines and will not be excluded from public procurement or appear on the central debarment list for that cartel activity (a new risk following changes to the procurement regime in the UK that came into force in February 2025).
- A company’s cooperating employees and directors can avoid criminal prosecution and director disqualification. Even after an investigation has started, businesses can still benefit from reduced fines through our leniency programme. In this case, two of the businesses did this and benefited from a reduction in their fines.
- Individuals may also be eligible for immunity from prosecution and director disqualification if they come forward independently and cooperate with the investigation.
For more information, including how best to report, visit the CMA’s ‘Cheating or Competing?’ campaign page.
