Following a long-running investigation, the CMA has confirmed fines for 10 demolition firms totalling nearly £60m as part of an infringement decision that has also result in the disqualification of three directors of two of the firms involved. Issued on 23 March, the infringement decision sets out the detail of the investigation, how it was pursued against the 10 firms including the full range of leniency, settlement and enforcement powers at the CMA’s disposal when conducting these investigations.
Infringing conduct
The CMA found that each of the 10 firms were involved in at least one instance of bid rigging between January 2013 and June 2018. The firms were found to be “colluding on prices through illegal cartel agreements when submitting bids in competitive tenders for contract” and that the “bids were rigged, deceiving the customer that they were competitive when that was not the case.”[1] The manner of bid rigging involved one or more of the firms submitting bids which were intentionally designed to fail; this would ensure that the designated entity would win the contract. This practice is known as ‘cover bidding’.
Five of the ten firms were also found to have been involved in ‘compensation payments’. This involved the ‘winning bidder’ financially compensating the ‘losing bidder’ for placing their rigged bid. The value of the financial compensation varied, with the highest payment being greater than £500k. Some of the firms went as far as creating false invoices to disguise this illegal behaviour.
The CMA found that the 19 contracts implicated were for demolition work in London, the Southeast and the Midlands worth a combined total of over £150m. This included public and private sector contracts, including works undertaken on the Metropolitan Police training centre in Hendon, properties belonging to Oxford and Coventry Universities, and shopping centres in Reading and Taplow. It is stressed that not every contractor who submitted a bid for these contracts was involved in the illegal activities.
Fines and successor firm liability
Following the investigation, the CMA has fined the ten firms a total of £59.3m: Brown and Mason (£2.4m); Cantillon (£1.9m); Clifford Delvin (£423k); DSM (£1.4m); Erith (£17.5m); JF Hunt (£5.6m); Keltbray (£16m); McGee (£3.7m); Scudder (£8.2m); and Squibb (£2m).
The CMA decision was not deterred by a relevant entity no longer operating in the marketplace; decisions and the associated fines were addressed to the relevant successor or parent entity of the firm. This is a useful reminder for those engaged in M&A activity, and the importance of conducting appropriate competition due diligence (specifically in markets that may be vulnerable to anti-competitive practices).
Leniency and settlement
Under the CMA’s leniency policy, a business involved in a cartel may be granted immunity from penalties, or receive a more lenient penalty in return for assisting the CMA in an investigation and/or reporting cartel activity. To qualify for leniency, the entity must demonstrate a genuine intention to confess that it engaged in the cartel activity and provide information that adds significant value to the CMA’s investigation.
A party under investigation by the CMA may also receive a reduced fine if they enter into a settlement agreement with the CMA. This process results in a streamlined investigation procedure, with the party under investigation admitting to the relevant breach of competition law, and agreeing to pay a penalty for the infringement. In this instance, Scudder and McGee reported the illicit activity, admitted their involvement, and thereafter received a reduction on their fines. Brown and Mason, Cantillon, Clifford Devlin, DSM, John F Hunt, and Keltbray also admitted their involvement in the cartel activities and received reduced fines as a result. Erith and Squibb have not admitted to their involvement in any bid rigging over the investigation period.
Director disqualification
Under the Company Directors Disqualification Act 1986, the CMA has the power to apply to the court to disqualify a director. This means that the individual would be unable to hold a company directorship or perform certain roles in connection to a company for a specified period of time. The Act also allows the CMA to accept a disqualification undertaking from a director if the individual chooses to step down instead of the CMA bringing proceedings; an undertaking from a director to this effect will have the same legal effect as a disqualification order. In this case, three directors from two firms voluntarily agreed to disqualification, which enabled each director to benefit from a reduced period of disqualification. The disqualification periods varied from 4 years and six months to 7 years and 6 months.
Comment
The construction industry is no stranger to competition investigations, aspects of the sector having been subject to previous investigations. This is also not something unique to the UK market, competition investigations having been brought by competition authorities across a number of other countries in relation to similar practices.
Where bidding for contracts from public sector bodies (and certain utilities) the public procurement rules identify breaches of competition law as being a ground for excluding firms from participating in future procurement processes. All the firms involved in this case will have put in place competition law compliance procedures and training to ensure such conduct does not happen again. In most cases, this should provide public sector bodies with sufficient comfort not to disqualify them from future projects. The firms involved will however all face potentially significant reputational and other issues impacting on their businesses (despite some of them only being implicated in one of the instances of bid rigging). A harsh reminder of the importance of ensuring an appropriate awareness of competition compliance.
Article co-authored by Alanna Fockler, Trainee Solicitor at CMS.
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