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Builders Fined £130m Over Taxpayer Rip-off!

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http://news.sky.com/skynews/Home/Business/...ong_Those_Fined

Construction firms including building giant Balfour Beatty have been fined £130m for ripping off taxpayers in a £200m price-fixing scandal.

The 103 companies rigged the bids on projects such as hospitals, schools and universities, an investigation by the Office of Fair Trading (OFT) has found.

The firms were accused of "cover pricing", a scam in which bidders offer inflated prices for work.

Fooling local councils into believing projects cost more than they did also increased the risk of firms lining their pockets with the excess taxpayers' cash, the findings suggest.

The investigation, one of the biggest undertaken by the OFT, found six cases where bidders conspired to ensure the firm with the winning tender paid "compensation payments" to the losing bidders.

Simon Williams of the OFT said: "Bidding processes designed to ensure clients and in many cases taxpayers receive the best possible choice and price were distorted, creating a real risk of increased prices.

"This decision sends a strong message that anti-competitive and illegal practices, including cover pricing, must cease."

The UK Contractor's Group hit back at the fines, saying they would be hard for building firms to absorb and will cost jobs.

UKCG director Stephen Ratcliffe said: "These fines could not have come at a worse time for the industry and are unfair.

"The industry is going through its sharpest downturn on record with huge falls in demand, employment and profits and on current trends is expected to contract 20% by the end of 2011."

The firm fined the most is Kier, which was ordered to pay £18m.

Closely following it is the Midlands' Interserve Project Services on £12m and the stock-exchange listed housebuilder Galliford Try on £8m. Balfour Beatty was also fined £5m.

The OFT found the companies to be in breach of the Competition Act.

The investigation began after the OFT received complaints about the deal to build the Queens Medical Centre in Nottingham.

It then spread throughout the East Midlands, Yorkshire and Humberside taking in thousands of projects.

The number of firms involved allegedly accounted for 6% of the country's construction industry.

Balfour Beatty was involved in plea-bargaining deal with the OFT to reduce a fine. The company said it performed an internal review last year and is now confident it is fully compliant with the Competition Act.

The OFT investigated 112 firms. Of these 37 firms, including Balfour Beatty, applied for leniency while 40 unnamed companies admitted participation in bid-rigging actvities.

Although a few of the companies involved are multinationals, many are small firms.

Fire away!

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I work for one of the companies fined and this story is a load of nonsense. The taxpayer WAS not and WAS NEVER going to be ripped off by "cover pricing". A company will use a cover price as (for some reason) they do not WANT to win the work. This could be because they already have enough turnover and would be stretching themselves, the job is too risky, or it is not in their specialised field. The cover price simply ensures they are not the cheapest (ie are unlikely to win the contract).

So why not just tell the Client they don't want the work ?? Because they are then unlikely to be considered for future tenders for which they may wish to bid. (So a problem more with the tendering procedure than Contractors honesty?)

We regularly tender against 6-8 (sometimes more) companies to win work. So what if 2 of those companies have used covers !??? Is the taxpayer losing out ?? NO !

The cut-throat nature of the current market means that if anything, the taxpayer is getting a damn good deal for all current projects. (We often tender at 0% profit and still lose out - by big margins sometimes). Do not believe the spin that the world of construction is not flowing with milk and honey at the moment.

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don't believe everything you hear, this is more about getting the masses behind the government and agreeing with them robbing private firms.

a number of firms always tender for jobs. Some will put in high prices deliberately so that they are out of the running, either because the job has risks or won't make money or they have too much on. The way that government tender lists are run is the problem here because if a firm doesn't tender for a job then they are dropped from the list for 4 years - so they always tender, even for jobs they won't do.

If four firms put in a price of over 10 mill for a job and only one bid is for 9 mill, it doesn't matter that some government tool decides that the job is only worth 7 mill - the market has set the price that it will cost for anyone to accept the job. Try telling a plumber/electrician next time he is at your house that his quote is 50% to much and that the job is only worth half that, then after he leaves see how many you can get to do the job at your price. A job is worth what someone is prepared to do it for much like a house is only worth what someone is actually willing to pay.

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don't believe everything you hear, this is more about getting the masses behind the government and agreeing with them robbing private firms.

a number of firms always tender for jobs. Some will put in high prices deliberately so that they are out of the running, either because the job has risks or won't make money or they have too much on. The way that government tender lists are run is the problem here because if a firm doesn't tender for a job then they are dropped from the list for 4 years - so they always tender, even for jobs they won't do.

If four firms put in a price of over 10 mill for a job and only one bid is for 9 mill, it doesn't matter that some government tool decides that the job is only worth 7 mill - the market has set the price that it will cost for anyone to accept the job. Try telling a plumber/electrician next time he is at your house that his quote is 50% to much and that the job is only worth half that, then after he leaves see how many you can get to do the job at your price. A job is worth what someone is prepared to do it for much like a house is only worth what someone is actually willing to pay.

Spot on. Some people on here think construction contractors are vermin.

Complete ignorance.

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don't believe everything you hear, this is more about getting the masses behind the government and agreeing with them robbing private firms.

a number of firms always tender for jobs. Some will put in high prices deliberately so that they are out of the running, either because the job has risks or won't make money or they have too much on. The way that government tender lists are run is the problem here because if a firm doesn't tender for a job then they are dropped from the list for 4 years - so they always tender, even for jobs they won't do.

If four firms put in a price of over 10 mill for a job and only one bid is for 9 mill, it doesn't matter that some government tool decides that the job is only worth 7 mill - the market has set the price that it will cost for anyone to accept the job. Try telling a plumber/electrician next time he is at your house that his quote is 50% to much and that the job is only worth half that, then after he leaves see how many you can get to do the job at your price. A job is worth what someone is prepared to do it for much like a house is only worth what someone is actually willing to pay.

I didn't make a comment coz it was off a Murdoch site and I half suspected . . . . .

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I didn't make a comment coz it was off a Murdoch site and I half suspected . . . . .

I know but most don't understand. Markets set prices, not ministers, banks or opinion.

Edited by richyc

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don't believe everything you hear, this is more about getting the masses behind the government and agreeing with them robbing private firms.

a number of firms always tender for jobs. Some will put in high prices deliberately so that they are out of the running, either because the job has risks or won't make money or they have too much on. The way that government tender lists are run is the problem here because if a firm doesn't tender for a job then they are dropped from the list for 4 years - so they always tender, even for jobs they won't do.

If four firms put in a price of over 10 mill for a job and only one bid is for 9 mill, it doesn't matter that some government tool decides that the job is only worth 7 mill - the market has set the price that it will cost for anyone to accept the job. Try telling a plumber/electrician next time he is at your house that his quote is 50% to much and that the job is only worth half that, then after he leaves see how many you can get to do the job at your price. A job is worth what someone is prepared to do it for much like a house is only worth what someone is actually willing to pay.

You may well be right.

Any "overpayment" (if there was any) will largely have been by local authorities and show on Council Tax but the money from the fine goes to the Treasury.

So even if there was overpayment it has worked as a stealth tax on private citizens for the benefit of the Treasury (and we know where that goes).

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*yawn*

Fix the gaping holes in the Public Sector tendering process. But I suppose doing that would rob the government of a big stick to the beat evil capitalist swines in the construction industry with.

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I work for one of the companies fined and this story is a load of nonsense. The taxpayer WAS not and WAS NEVER going to be ripped off by "cover pricing". A company will use a cover price as (for some reason) they do not WANT to win the work. This could be because they already have enough turnover and would be stretching themselves, the job is too risky, or it is not in their specialised field. The cover price simply ensures they are not the cheapest (ie are unlikely to win the contract).

So why not just tell the Client they don't want the work ?? Because they are then unlikely to be considered for future tenders for which they may wish to bid. (So a problem more with the tendering procedure than Contractors honesty?)

We regularly tender against 6-8 (sometimes more) companies to win work. So what if 2 of those companies have used covers !??? Is the taxpayer losing out ?? NO !

The cut-throat nature of the current market means that if anything, the taxpayer is getting a damn good deal for all current projects. (We often tender at 0% profit and still lose out - by big margins sometimes). Do not believe the spin that the world of construction is not flowing with milk and honey at the moment.

I also work as a QS in the construction business and agree with the above 100%.

It is also worth pointing out that a tender costs thousands of pounds to prepare. If you don't want the job, but want to keep sweet with the Client, a cover price is the only way to go.

In actual fact if you invested the sums involved to price every contract, whether or not you actually wanted it, you would have to add the additional estimating costs to your tender price. Don't forget only aboout 1 in 6 bids are successful so each winning contract would have to have 5 unsuucessful bid costs built in.

Finally the reason that the Clients ( usually Local Authorities) believe that the winning bid is overinflated compared with their own estimate is that, in 27 years in the business I have never known one LA be able to budget estimate for sh*t.

Edited by johnycoldears

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I also work as a QS in the construction business and agree with the above 100%.

It is also worth pointing out that a tender costs thousands of pounds to prepare. If you don't want the job, but want to keep sweet with the Client, a cover price is the only way to go.

In actual fact if you invested the sums involved to price every contract, whether or not you actually wanted it, you would have to add the additional estimating costs to your tender price. Don't forget only aboout 1 in 6 bids are successful so each winning contract would have to have 5 unsuucessful bid costs built in.

Finally the reason that the Clients ( usually Local Authorities) believe that the winning bid is overinflated compared with their own estimate is that, in 27 years in the business I have never known one LA be able to budget estimate for sh*t.

Your common sense is not welcome here.

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I work for one of the companies fined and this story is a load of nonsense. The taxpayer WAS not and WAS NEVER going to be ripped off by "cover pricing".

Can you please explain how the "compensation payments" are consistent with this?

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I have personally never heard of "compensation payments" being made, and in this instance, it refers to a very small number of companies, given the proliferation of fines. However, as previously mentioned, the public should be aware how costly modern tendering has become. For a relatively moderate £10M scheme, you might have a team comprising estimators, bid manager, planner, QS's, contract staff, admin, and general office overheads (also possibly designers and other external consultants) for a period of several months. Don't forget the 20 copies of colour brochure / CD's etc printed off for submission. TO TRY AND WIN A JOB AT ODDS OF 1 IN 6 ! (I also know of framework schemes that have cost £500K to (unsuccessfully) bid).

And that presumes the Client is honest enough to score the tender without prejudice. We often see goalposts moved at the last minute to suit a preferred rival bidder ! If we talking about honesty here, then the public sector Clients need to get their house in order first before coming after cash-strapped building contractors

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The private sector regularly rip off the public sector

It's like taking candy from a baby

Plus all the back handers, graft and corruption doesn't help.

These fines are derisory and in no way a deterrent.

The only way this sort of thing will be stopped is if individuals are prosecuted and jailed for fraud and corruption.

But we all know that is never going to happen under a Labour Government.

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Public Sector - We want to build a new school.

Concrete Jungle - Ok how many tender documents would you like me to prepare?

PS - Er Dunno.

CJ - Who are the tenders to be sent out to?

PS - People on our approved tender list.

CJ - Ok can I see the approved tender list please?

PS - No it is top secret, policy and procedure you see.

CJ - Ok will you ring the companies on the tender list and ask if they are interested in tendering for the work?

PS - No, policy and procedure you see.

CJ - How do you vet the contractors and by what criteria is your approved tender list set out?

PS - Er Dunno, maybe by job size. I can't tell you, policy and procedure you see.

CJ - So how do you know the contractors are interested in tendering for the work, and have prior experience of building schools?

PS - Er we don't.

CJ - Perhaps someone should speak to them and ask?

PS - We don't, policy and procedure you see. We can't let you ring them either, policy and procedure you see.

CJ - Don't you think that is a pretty stupid way of going about things?

PS - Off record, yes but we don't like to kick up any fuss you see.

CJ - :rolleyes:

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The private sector regularly rip off the public sector

It's like taking candy from a baby

Plus all the back handers, graft and corruption doesn't help.

These fines are derisory and in no way a deterrent.

The only way this sort of thing will be stopped is if individuals are prosecuted and jailed for fraud and corruption.

But we all know that is never going to happen under a Labour Government.

Utterly clueless comment.

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