Agenda No 14

AGENDA MANAGEMENT SHEET

Name of Committee Cabinet

Date of Committee 19 June 2008

Report Title Office of Fair Trading (OFT) Competitions Act Investigation into the Construction Sector Summary On the 17th April 2008 the Office of Fair Trading issued Statement of Objections against 112 construction companies alleging price fixing activities and in particular the practice of cover pricing. Of the 112 companies, 18 of these have completed projects for Warwickshire County Council. This paper provides Members with an overview of the investigation and the Councils exposure to risk from the investigation. The paper suggests a number of action areas for officers in response to the investigation.

For further information Steve Smith please contact: Head of Property Tel: 01926 412352 [email protected]

Would the recommended No. decision be contrary to the Budget and Policy Framework?

Background papers None

CONSULTATION ALREADY UNDERTAKEN:- Details to be specified

Other Committees ......

Local Member(s) X Not Applicable

Other Elected Members Councillor D Booth, Councillor G Atkinson, Councillor J Haynes, Councillor K Browne, Councillor Mrs E Goode, Councillor J Appleton

Cabinet Member X Councillor A Cockburn, Councillor M Heatley

Chief Executive ......

Legal X Barry Juckes, Property Projects & Contractors Team Leader

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Paul White, County Procurement Manager Tony Maione, Employment Company & Commercial Team, Leader

Finance X David Clarke, Reporting Officer

Other Chief Officers X Paul Galland, Strategic Director, Environment & Economy Directorate

District Councils ......

Health Authority ......

Police ......

Other Bodies/Individuals ......

FINAL DECISION NO

SUGGESTED NEXT STEPS: Details to be specified

Further consideration by ...... this Committee

To Council ......

To Cabinet ......

To an O & S Committee ......

To an Area Committee ......

Further Consultation ......

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Agenda No 14

Cabinet – 19 June 2008

Office of Fair Trading (OFT) Competitions Act Investigation

Joint Report of the Strategic Director of Resources and Environment and Economy

Recommendations

That Cabinet: 1. Supports the proposal not to exclude any named organisations from Warwickshire County Council tender lists. 2. Supports the proposal for officers to take additional vigilance in the preparation of tender reports 3. Supports the review of the Council’s Construction Property Procurement Strategy during 2008/09. 4. Supports the establishment of a sustainable supply chain that meets the needs of the Council going forward, delivering economic benefits to all parties and both the people of Warwickshire and their communities linked to the developing Sustainable Procurement Policy. 5. Awaits the outcome of the investigation by OFT prior to any further action. 6. That a further report is prepared when outcome of OFT Investigation is known

1. Background

1.1 On 17th April 2008 the Office of Fair Trading (OFT) issued Statement of Objections (SO) against 112 Construction Companies in England. A full listing can be found in Appendix A.

1.2 In the press notice 52/08 the OFT state:

“The OFT formally alleges that the construction companies named in the SO have engaged in bid rigging activities, and in particular cover pricing. Cover pricing describes a situation where one or more bidders collude with a competitor during a tender process to obtain a price or prices which are intended to be too high to win the contract. The tendering authority, for example a local council or other customer, is not made aware of the contacts between bidders, leaving it with a false impression of the level of competition and this may result in it paying inflated prices.

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Cover pricing arrangements have previously been found by the OFT and the Competition Appeal Tribunal to be illegal and in breach of the Competition Act 1998 due to the restrictions on competition that arise.

In addition, the SO formally alleges that a minority of the construction companies have variously entered into one or more arrangements whereby it was agreed that the successful tenderer would pay an agreed sum of money to the unsuccessful tenderer (known as a 'compensation payment'). These more serious forms of bid rigging are usually facilitated by false invoices.

The construction companies under investigation carry out general building work including construction of housing, as well as commercial and industrial construction both in the public and private sector. The SO allegations cover a diverse range of projects, including tenders for schools, universities and hospitals.

The OFT's investigation originated from a specific complaint in the East Midlands in 2004, but it quickly became clear from the evidence that the practice of cover pricing was widespread. The SO's formal allegations therefore cover neighboring areas including Yorkshire and Humberside and also elsewhere in England. The OFT has also received evidence of cover pricing implicating many more companies on thousands of tender processes, but has focused its investigation on approximately 240 alleged infringements which are being pursued in the SO.”

1.3 The objective of this report is to advise Members of implications, if any, for Warwickshire County Council and to identify any mitigating actions advised by officers

2. OFT Investigation

2.1 The OFT investigation started in 2004 where they were called in to investigate alleged contract irregularities relating to refurbishment works on projects at the Queen Elizabeth Medical Centre in Nottingham. The issuing of statements of objection is the next stage of the investigation that will not be concluded until early 2009 and some industry observers suggest that the formal legal arguments may well continue into 2012. The OFT contend that tender prices may have been inflated by as much as 10%, which when considering the public sector construction spend was worth over £14 billion for the years covered by the investigation is not an insignificant sum. Though in the same period total construction expenditure across the whole of the UK was in the region of £500 billion.

3. Explanation

3.1 Whilst the actual findings of the investigation are not known as the Statement of Objection is not in the public domain, most of the allegation refers to the practice of cover pricing with a smaller number of organisations (9) being accused of making compensation payments to losing bidders. Cover pricing is the practice of a company contacting a competing tenderer and asking what price they are submitting and then submitting a higher tender so that they do

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not make a nil return which might be viewed by the client as negative and not include the tenderer on future lists.

3.2 In the past some construction clients have viewed the non submission of a tender as a expression that the tenderer did not wish to work for them. When in reality the tenderer was fully committed and did not wish to alienate themselves from a client and not submit, so submitted a cover bid. In a recent procurement process for Planned Maintenance undertaken under EU Procurement rules 19 organisations expressed interest, pre qualification questionnaires were issued and received from all 19. All 19 met the Council’s criteria and were invited to tender, and prior to the closing date 4 organisations had advised the Council that they would not be submitting a tender, 2 of these are on the list of organisations covered by the statement of objections.

4. Impact on Warwickshire County Council

4.1 Table 1 below provides members with summary data on the organisations that have and are currently undertaking construction projects for the Council named in the Statement of Objection

TABLE 1 Building Works

Potential Value of Value of Named Contractors working Contracts future Current Activity for the Council over last 3 contracts years (3 years) 1 E. Manton Limited £487,000 £1,500,000 Tendering

2 GAJ Construction £5,480,000 £3,000,000 Tendering Limited

3 Greswolde £2,000,000 £0 Possibility for future Construction Limited contracts 4 Interclass plc £800,000 £0 Possibility for future contracts 5 Interserve Project £285,450 £1,000,000 Major Framework Services Limited Contractor 6 Morgan Ashurst plc £1,770,900 £3,000,000 Major Framework Contractor 7 Sol Construction £2,775,000 £6,000,000 Planned & Reactive Limited Maintenance Framework Contractor 8 Chase Norton £0 £0 Possibility for future Construction Limited contracts 9 Linford Group Limited £0 £0 Possibility for future contracts 10 Pearce Construction £0 £0 Possibility for future (Midlands) Limited contracts 11 Piper Construction £0 £0 Possibility for future Midlands Limited contracts

12 Thomas Vale £0 £0 Possibility for future

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Potential Value of Value of Named Contractors working Contracts future Current Activity for the Council over last 3 contracts years (3 years) Construction Plc contracts 13 Willmott Dixon £0 £2,500,000 Scape Framework Construction Limited Partner Contractor 14 InSpace Maintain £0 £4,000,000 Planned Framework (Willmot Dixon) Contractor 15 Balfour Beatty £13,900,000 £6,500,000 Major Framework Construction Limited Contractor (Mansell PLC) 16 Bodill & Sons £0 £0 Possibility for future (Contractors) Limited contracts

Total named organisations £27,498,350 £27,500,000 Approx Total Council Spend in £150m £150m period

4.2 Whilst 18 organisations have undertaken building projects for the Council, currently only 7 have live contracts and only 2 of these were traditionally tendered. This is due to the Council’s approach to construction procurement and the use of robust Framework agreements. It would be impossible to state for certain that the Council have not been subject to cover pricing.

Table 2 Civil Engineering works

Named Contractors working Current /Future Previous Activity for the Council activity 17 Bowmer & Kirkland Have tendered for work but Not on present Select Ltd have not been successful List *

18 Carillion JM Ltd Undertaken a number of Working as Highways contracts over recent years as Term Maintenance both Carillion and John Contract, Working on Mowlem (taken over by Rugby Western Relief Carillion) Road plus other contracts 19 Interserve Plc None On our Select List * 20 North Midlands None On our select List * Construction Plc 21 Morrison Have tendered and been On our Select List * (part of Galliford Try awarded a number of contracts Plc group) in recent years 22 William Sapcote & Have tendered for masonry Not on our Select List Sons Ltd repair works but have not been * successful

4.3 * Please note; at the meeting of 10 January 2008, the Cabinet approved a new Select List of Contractors for Highway and Bridge Construction Contracts for works from 2008 to 2013.

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5. Implications for Warwickshire County Council

5.1 In addition to the Statement of Objections the OFT issued an Information note to Local Authorities regarding the alleged anti competitive behaviour in the construction industry. The note makes it clear that procuring authorities should make no assumptions that there has actually been an infringement of Competition law by any of the 112 companies. The OFT are clear that the practice was widespread during the period of the investigation and WCC Officers are aware of this industry practice.

5.2 Clearly the OFT have only issued the Statement against 112 organisations, in the UK there are over 200,000 contracting organisations, employing over 2 million people with a total value in excess of £100 billion

5.3 In 2006/07 the Office of Government Commerce (OGC) issued a guide “Making competition work for you – a guide for Public Sector procurers of construction” This guide provides guidance using the following headings

i. Making sure you have enough credible suppliers ii. Capitalising on European Union (EU) procurement arrangements iii. Aggregating contracts iv. Working strategically with other public sector procurers v. Defining your requirements clearly vi. Choosing your selection criteria vii. Incentivising, measuring and rewarding good performance viii. Managing the supply chain ix. Mitigating the risks of anti-competitive behaviour

5.4 With the limited exposure and prior to the conclusion of the OFT investigation it would be inappropriate at the present time to exclude any named organisation from any Council tender list. However we will be contacting those companies that have been named to seek assurance that the company has not breached the Competitions Act with any tenders they have submitted to the Council.

Proposed Improvements to the Councils Building Construction Procurement

5.5 Property are currently working on a number of wide ranging activities supporting the improvements to the Councils Construction Supply Chain including a review of construction procurement strategy during the current financial year This has been prompted by structural changes within the Property service and the renewal of the major framework due in June 2009.

5.6 Officers are of the opinion and that current activities in delivering a leaner supply chain will provide significant opportunities for efficiency and improvements in project delivery.

Tender analysis

5.7 The recent updated contract standing orders provide significant support in ensuring that fair competition is delivered in the award of Council construction

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contracts. This is further supported by the routine engagement of consultant quantity surveyors to review Property tender submissions and provide tender reports advising on the most economically advantageous tender. We will be instructing these consultants to include within their tender reports a statement relating to the OFT investigation when assessing organisations named by the OFT.

5.8 Contract Standing Orders require that a review is undertaken of tenders that are submitted for each contract. These reviews analyse and compare the tenders that are submitted. This rigorous approach is undertaken prior to any award of contract.

6. Conclusion

6.1 It is not possible to guarantee that the Council has not been subject to bid rigging in the past, but the Council processes and procedures minimise the risk of this happening.

6.2 There has been no evidence that Council has suffered loss as a result of possible actions of certain contractors.

6.3 The final outcome of the OFT investigation will not be known until 2009 and the legal arguments could continue for a number of years beyond. It is recommended that members support Resources – Property to continue to implement Council policy and procedures and undertake Council construction procurement activities, mindful of the on going OFT investigation.

DAVID CLARKE PAUL GALLAND Strategic Director of Strategic Director of Resources Environment & Economy

Shire Hall Warwick

03 June 2008

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1. H. Willis & Sons Limited 13. Ballast Nedam N.V. as the ultimate parent company of its dissolved 2. ARG (Mansfield) Limited subsidiary Ballast plc

3. Ackroyd & Abbott Limited together 14. Beaufort Construction (S-in-A) with its subsidiary Ackroyd & Abbott Limited together with its ultimate Construction Limited parent company Beaufort Holdings U.K. Limited 4. Adam Eastwood & Sons Limited together with its controlling party 15. Bodill & Sons (Contractors) Limited the Sir John Eastwood Foundation 16. Bowmer & Kirkland Limited together 5. Admiral Construction Limited with its subsidiaries B & K Building together with (for alleged Services Limited and B & K infringements from 31 October Property Services Limited 2003) its ultimate parent company A C Holdings Limited 17. Bramall Construction Limited and Frank Haslam Milan & Company 6. Adonis Construction Limited Limited together with their current ultimate parent company Keepmoat 7. Allenbuild Limited and Bullock Limited, formerly known as Construction Limited together with Keepmoat plc their ultimate parent company Renew Holdings plc 18. J. Ellmore & Company Limited

8. Apollo Property Services Group 19. Caddick Construction Limited Limited formerly known as Apollo together with its ultimate parent London Limited together with its company Caddick Group plc former ultimate parent company Apollo Holdco Limited formerly 20. Carillion JM Limited known as Apollo Group Holdings Limited 21. Chase Norton Construction Limited together with its ultimate parent 9. Arthur M. Griffiths & Sons Limited company Chase Midland plc

10. B & A Construction (Leicester) 22. Clegg Construction Limited together Limited with its ultimate parent company Clegg Group Limited formerly 11. Baggaley & Jenkins Limited known as D E Clegg Holdings Limited 12. Balfour Beatty Construction Limited, Balfour Beatty Refurbishment 23. Connaught Partnerships Limited Limited, and Balfour Beatty Group together with its ultimate parent Limited (for alleged infringements company Connaught plc from 2000 onwards) and Mansell Construction Services Limited (for 24. 24.Crown Point Maintenance Group alleged infringements from 19 Limited as the ultimate parent December 2003), together with their company of its dissolved subsidiary current ultimate parent company Greenwood Building Contractors Balfour Beatty plc. For alleged (Mansfield) Limited, for infringements involving Mansell Greenwood's alleged infringements prior to 19 December 2003, Mansell after 11 June 2002 and its former ultimate parent company Mansell plc 25. Davlyn Construction Limited

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26. Derwent Valley Construction company GMI Construction Limited together with its ultimate Holdings plc parent company Chevin Holdings Limited 42. Geo Houlton & Sons Limited together with its ultimate parent 27. Dukeries Building Company Limited company Geo Houlton & Sons together with its ultimate parent (Holdings) Limited company Gavco 159 Limited 43. George Law Limited together with 28. Durkan Pudelek Limited together its ultimate parent company with its ultimate parent company Bosworth & Wakeford Limited Durkan Holdings Limited 44. Greswolde Construction Limited 29. E. G. Carter & Company Limited together with its ultimate parent company Mantisson Limited 30. E. Manton Limited 45. Hall Construction Group Limited 31. E. Taylor & Sons (Southwell) Limited, trading as Carmalor 46. Harlow & Milner Limited Construction 47. Harold Adkin & Sons (Sutton-In- 32. F. Parkinson Limited together with Ashfield) Limited its ultimate parent company Mowbray Holdings Limited 48. Harper Group Construction Limited and J. Harper & Sons (Leominster) 33. Francis Construction Limited Limited together with their ultimate together with its ultimate parent parent company Harper Group plc company Barrett Estates Services Limited 49. Haymills (Contractors) Limited together with (for alleged 34. Frank Galliers Limited together with infringements prior to 26 May 2004) its former ultimate parent company its former ultimate parent company Frank Galliers Holdings Limited Corringway Conclusions plc and (for alleged infringements after 26 35. Frudd Construction Limited May 2004) its current ultimate parent company Haymills Group 36. GAJ Construction Limited together Limited with its current ultimate parent company GAJ (Holdings) Limited 50. Henry Boot Construction (UK) Limited together with its ultimate 37. G Carter Construction Limited parent company Henry Boot plc

38. G. F. Tomlinson Building Limited 51. Herbert Baggaley Construction together with its ultimate parent Limited together with its ultimate company G. F. Tomlinson Group parent company Baggaley Group Limited Limited

39. G G Middleton and Sons Limited 52. Hill Bros. (Nottingham) Limited

40. G. & J. Seddon Limited together 53. Hobson & Porter Limited with its ultimate parent company Seddon Group Limited 54. Holroyd Construction Limited together with (for alleged 41. GMI Construction Group plc infringements prior to 30 March together with (for alleged 2005) its former ultimate parent infringements after 6 February company Holderness Investments 2005) its current ultimate parent Limited and (for alleged infringements after 30 March 2005)

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its current ultimate parent company 70. Lotus Construction Limited Holroyd Construction Group Limited 71. Milward Construction (Belper) 55. Interclass Public Limited Company Limited together with its ultimate parent company Interclass Holdings 72. Morgan Ashurt plc formerly known Limited as Bluestone Plc together with its ultimate parent company Morgan 56. Interserve Project Services Limited Sindall plc together with its ultimate parent company Interserve plc 73. North Midland Construction plc

57. Irwins Limited and Jack Lunn 74. P D H Developments Limited (Construction) Limited together with (formerly trading as G. Hurst & their ultimate parent company Jack Sons (Contractors) Limited) Lunn (Holdings) Limited together with its ultimate parent company G. Hurst & Sons Limited 58. J. Guest Limited 75. P. Casey & Co. Limited together 59. J H Hallam (Contracts) Limited with its current ultimate parent together with its ultimate parent company The Casey Group Limited company J H Hallam (R & J) Limited 76. P. Waller Limited

60. J. J. & A. R. Jackson Limited 77. Pearce Construction (Midlands) Limited together with its former 61. J. J. McGinley Limited, together ultimate parent company Crest with its former ultimate parent Nicholson plc company McGinley Holdings Limited 78. Peter Baines Limited

62. John Cawley Limited 79. Phoenix Contracts (Leicester) Limited 63. John Sisk & Son Limited together with its ultimate parent company 80. Piper Construction Midlands Sicon Limited Limited together with its ultimate parent company Piper Securities 64. K. J. Bryan (Builders) Limited Holdings Limited

65. Kier Regional Limited together with 81. Propencity Group Limited together its ultimate parent company Kier with its wholly owned subsidiary Group plc companies, ISG Jackson Limited, ISG Regions Limited formerly 66. Lemmeleg Limited together with its known as ISG Totty Limited, ISG ultimate parent company Rok plc Totty Building Limited and Propencity Limited 67. Lindum Construction Co. Limited and Lindum Homes Limited 82. Quarmby Construction Company together with their ultimate parent Limited together with its ultimate company Lindum Group Limited parent company St James Securities Holdings Limited 68. Linford Group Limited together with its ultimate parent company F. & E. 83. Quarmby Construction (Special V. Linford Limited Projects) Limited together with its ultimate parent company Justgrade 69. Loach Construction & Development Limited Limited

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84. R Durtnell & Sons Limited together company Thomas Vale Holdings with its ultimate parent company R Limited Durtnell & Sons (Holdings) Limited 102. Thorndyke Limited 85. R. G. Carter Limited, R. G. Carter Building Limited and R. G. Carter 103. Try Accord Limited and Galliford Construction Limited together with Try Construction Limited together their current ultimate parent with their ultimate parent company company R. G. Carter Holdings Galliford Try plc Limited 104. W. R. Bloodworth & Sons Limited 86. Richardson Projects Limited 105. Wiggett Bros & Co Limited 87. Robert Bruce Construction Limited 106. Wildgoose Construction Limited 88. Robert Woodhead Limited together with its ultimate parent company 107. William Sapcote and Sons Limited Robert Woodhead Holdings Limited together with its ultimate parent company Sapcote Holdings Limited 89. Robinson & Sawdon Limited 108. William Woodsend Limited 90. Shaylor Construction Limited 109. Willmott Dixon Construction Limited 91. Simons Construction Limited and together with its ultimate parent Wrights Construction (Lincoln) company Willmott Dixon Limited Limited together with their ultimate parent company Simons Group 110. Wright (Hull) Limited together with Limited its ultimate parent company T. Wright & Son (Holdings) Limited 92. Sol Construction Limited together with its ultimate parent company 111. Wygar Construction Co Limited Barkbury Limited together with its ultimate parent company Wygar (Holdings) Limited 93. Speller-Metcalfe Limited 112. York House Construction Limited 94. Spicers (Builders) Limited

95. Stainforth Construction Limited

96. Strata Construction Limited (formerly trading as Weaver)

97. T. & C. Williams (Builders) Limited

98. T. Denman & Sons (Melton Mowbray) Limited

99. Thomas Fish & Sons Limited together with its ultimate parent company Fish Holdings Limited

100. Thomas Long & Sons Limited together with its ultimate parent company Radford Holdings Limited

101. Thomas Vale Construction Plc together with its ultimate parent

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