In September 2009, the Office of Fair Trading ("OFT") issued its decision in relation to an investigation in the Construction Industry. Following an investigation which had lasted over 5 years, 103 undertakings were found to have breached the Chapter I prohibition, principally through the giving or receiving of "Cover Prices", and penalties of £129m were imposed.
Of those 103 undertakings, 26 lodged appeals with the Competition Appeal Tribunal ("CAT"); 20 in relation to the level of the penalty and 6 in relation to both liability and the level of penalty.
In a decision of 11 March 2011, the CAT dealt with the six appeals on liability and quantum (please click here).
According to the CAT, "There is no doubt that "simple" cover pricing constitutes an infringement of the Chapter I prohibition, but in our view the practice is materially distinct from "bid rigging" as ordinarily understood." ... "cover pricing is certainly not an innocuous activity, as it was close to being portrayed in some of the submissions put before us. It is an unlawful practice which at the very least may deceive the customer about the source and extent of the competition which exists for the work in question, and which is capable of having anti-competitive effects on the particular tendering exercise and on future exercises."
However, the CAT believed that the OFT had overstressed the seriousness of cover pricing and that it had accordingly calculated the penalties incorrectly, both in relation to the starting point and the various mitigation and aggravation factors. The OFT had also wrongly selected the applicable dates for calculation of turnover and by dividing the market into 120 sub markets had shown a distorted position; the relatively low margin (suggested at 2%) in the construction industry had not been taken into consideration properly.
Much of the decision is concerned with the calculation of the penalties on the individual undertakings, but the important point for business is that "Cover Pricing" has again been confirmed as illegal (albeit, historically, in the construction industry, of a lower seriousness than the OFT had thought). The position is now clear(er) for the future and likely penalties – the CAT suggested here that 3.5% was a more appropriate starting point than the OFT's 5% - still significant.
Here, however, the six appellants had their penalties reduced substantially (by between 80% and 94%.)
The OFT has stated that it is considering whether or not to appeal the CAT decision.
Disclaimer
The material contained in this article is of the nature of general comment only and does not give advice on any particular matter. Recipients should not act on the basis of the information in this e-update without taking appropriate professional advice upon their own particular circumstances.
