Hope for other firms as fines in first six cases are reduced by up to 94%
Construction firms awaiting appeal decisions on multi-million pound bid-rigging fines imposed by the Office of Fair Trading are likely to see the bulk of the penalties wiped out, following last week鈥檚 decision on the first six appeals.
Six firms on Friday received reductions in their fines of up to 94% from the Competition Appeals Tribunal (CAT), with the subject of the biggest fine, Kier, having its penalty reduced from 拢17.9m to 拢1.7m.
Construction lawyers said the nature of the decision, which stressed the commonality between the cases of the bulk of the 25 appellants, means there is little likelihood of others receiving smaller reductions.
The news comes as:
- Sources said it will take the CAT 鈥渁t least a few weeks鈥� to deliver all of the verdicts
- Lawyers suggested the OFT may be liable for contractors鈥� appeal legal fees of at least 拢5-7m
- The OFT has 30 days to decide if it wants to launch a further appeal against the ruling.
Alan Davis, partner at Pinsent Masons which acted for Galliford Try and Apollo, said: 鈥淲hile 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鈥檚 clear the approach will be the same across all the appeals.鈥�
The tribunal accepted that cover pricing is not as serious as the oft made out
Alan davis, pinsent masons
As well as Kier, the CAT also dramatically reduced the amount levied on Ballast Nedam, Bowmer & Kirkland, Haymills, Thomas Vale and John Sisk. In total 拢41.8m of fines was taken down to 拢4.4m, a reduction of 90%.
The tribunal, led by the honourable Mr Justice Barling, concluded that the penalties imposed by the OFT for 鈥渟imple鈥� cover pricing were 鈥渆xcessive given the nature of the infringement, together with the harm it was likely to cause, together with 鈥� the fact that the practice was long-standing.鈥�
Barling found that the 5% of turnover the OFT decided to fine was too high and that it applied the turnover fine on the wrong year. It said these were 鈥渞ecurring issues鈥� across the appeals, meaning it is unlikely other contractors appealing the level of fines will see wildly different outcomes.
Of the firms appealing, 19 are questioning the value of the fines, with just six questioning liability. Friday鈥檚 decision gives little clue as to the outcome of these six.
Davis 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鈥� legal costs, which he said could be between 拢5m-拢7m. Other sources said it could be higher.
Stephen Ratcliffe, director of the UK Contractors鈥� Group, said: 鈥淚t looks like the OFT may have spent massively more than it is likely to recover in fines.鈥�
OFT could pay for being over-keen
By Alistair Stewart, UniCredit Research
So, in theory, luxury handbag makers on high double-digit margins can expect the same punishment as local building contractors that struggle to get north of 2% at best.
There seemed scant rationale in the ranking of fines. Kier - a company that most rivals would probably affirm is as white as this slightly off-white industry gets - received the heftiest fine, 拢17.9m. There was evidence that some bigger and smaller groups than Kier did seek 鈥渃ompensation鈥� from winning bidders - and chose not to appeal their much lighter fines.
OFT investigators are like referees who have whistles and cards and feel they have to use them
One of the shortcomings highlighted was that the turnover test was applied to the wrong year. In Kier鈥檚 case it was against the year of a record high. And there were inconsistencies over whether global or divisional turnover was the reference.
I shared a Chablis with Kier鈥檚 then-chief executive John Dodds on the evening in 2009 the fines were first announced. His mood was, initially, as dark as that of Arsenal manager Arsene Wenger鈥檚 after the red card shown to Robin van Persie in the Champions鈥� League last week. The Dutchman received a second yellow for time wasting, having kicked the ball wide of goal a second after the whistle went for offside. Like Kier, Wenger wouldn鈥檛 argue that the ref was following the letter of the law. He argued van Persie didn鈥檛 hear the whistle amid 95,000 baying fans.
OFT investigators may have acted a bit like referees who are over-keen to justify their employment. They鈥檝e got whistles and cards and feel they have to use them. When the watchdog鈥檚 findings emerge, cost-cutting apparatchiks in Whitehall might wave some red cards of their own.
For Alastair Stewart鈥檚 full article click .
Fines reduced in last Friday鈥檚 decision
Kier 拢17,894,438 reduced to 拢1,700,000
Ballast 拢8,333,116 reduced to 拢534,375
Bowmer and Kirkland 拢7,574,736 reduced to 拢1,524,00.
Corringway Conclusions (Haymills) 拢769,592 reduced to 拢119,344
Thomas Vale Holdings 拢1,020,473 reduced to 拢171,000
John Sisk and Sicon 拢6,191,627 reduced to 拢356,250
Remaining appellants
(figures are original OFT fines)
AH Willis and Sons* 拢120,018
Apollo Property Services 拢2,150,536
Barrett Estate Services and Francis Construction 拢530,238
Crest Nicholson* 拢5,188,846
Durkan and Concentra* 拢6,720,551
GAJ 拢109,683
Galliford Try 拢8,333,329
GF Tomlinson 拢1,269,270
G&J Seddon 拢1,516,646
GMI Construction* 拢1,752,584
Hobson and Porter 拢574,507
Interclass 拢464,406
ISG Pearce* 拢5,188,846
J H Hallam 拢359,588
North Midland Construction* 拢1,543,813
Quarmby Construction* 拢881,749
Renew and Allen Build 拢3,547,931
Robert Woodhead 拢411,595
Sol Construction 拢1,835,702
*These firms are disputing liability as well as the penalties
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