OFT cover pricing fines slashed after appeal

18 March 2011

Around a quarter of the 103 construction firms facing Office of Fair Trading fines for cover pricing are likely to see their penalties slashed after six initial appeals saw penalties dramatically reduced,  Construction News reported.

Six firms received reductions in their fines of up to 94% from the Competition Appeals Tribunal (CAT). The subject of the biggest fine, Kier, had its penalty reduced from £17.9m to £1.7m, Building reported.

Construction lawyers said the nature of the decision, which stressed the commonality between the cases of most of the 25 firms that brought appeals, means there is little likelihood of 19 other pending cases receiving smaller reductions.

Alan Davis, partner at Pinsent Masons which acted for Galliford Try and Apollo, two of the 19 awaiting the tribunal's ruling, six said: “While the Tribunal accepted that cover pricing is illegal, it is not as serious an infringement of competition law as the OFT made out and this means that the penalties needed to be reduced. It’s clear the approach will be the same across all the appeals.”

The tribunal, led by the honourable Mr Justice Barling, concluded that the penalties imposed by the OFT for “simple” cover pricing were “excessive given the nature of the infringement, together with the harm it was likely to cause, together with … the fact that the practice was long-standing.”

The tribunal ruled that while “simple” cover pricing, where one or more bidders in a tender process obtains an artificially high price from a competitor was illegal, it was far from having the impact on clients of a price-fixing cartel.

As well as Kier, the CAT has already dramatically reduced the fines levied on Ballast Nedam, Bowmer & Kirkland, Haymills, Thomas Vale and John Sisk. Altogether, £41.8m in fines was reduced down to £4.4m, a reduction of 90%.

Davis of Pinsent Mason said the fact that the OFT appears to have lost on most of the appeal points so far means the OFT may have to shoulder the bulk of the appellants’ legal costs, which he said could be between £5m-£7m. Other sources said it could be higher.

Stephen Ratcliffe, director of the UK Contractors’ Group, said: “It looks like the OFT may have spent massively more than it is likely to recover in fines.”

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