好色先生TV

By the time the Competition and Markets Authority went public with details about its investigation into the construction industry last week, it was pretty much an open secret which sector was under the spotlight, while the names of the firms at the centre of the probe had started to leak out.

Ahead of the CMA鈥檚 announcement, Careys, Keltbray and John F Hunt had all made reference in their most recent reports and accounts to allocating provisions for a 鈥渉istoric regulatory matter鈥� 鈥� in other words, the investigation. Still, it was big news when the CMA confirmed it was the demolition sector it had been looking at, and then listed the names of the companies it was accusing of malpractice.

Jobs under scrutiny included McGee鈥檚 work knocking down an old building to make way for a new LSE scheme at Lincoln鈥檚 Inn Fields in central London, Brown and Mason鈥檚 contract at the Lots Road Power Station in west London, Careys鈥� scheme at the Bow Street Magistrates redevelopment and the demolition of the Timbergen 好色先生TV at Oxford University completed by Erith. High-profile projects, one and all.

The investigation has taken a long time, with the probe beginning back in March 2019. 鈥淚t鈥檚 a big investigation,鈥� the CMA鈥檚 senior director of cartels Juliette Enser told 好色先生TV. 鈥淐artel investigations are pretty document-heavy. [Cartels are] some of the most serious infringements of competition law.鈥�

In short, 10 firms have been named as being involved in bid-rigging. Seven of those 10 have also been accused of making and receiving so-called 鈥渃ompensation payments鈥� whereby, the CMA says, 鈥渁rrangements by which the designated 鈥榣osers鈥� of the contracts were set to be compensated by the winner鈥�.

Eight of the 10 firms have admitted to bid-rigging. Two firms, Erith and Squibb, who are also accused of making compensation payments, have not admitted wrongdoing and are contesting the claims.

Cartel investigations are pretty document-heavy. [Cartels are] some of the most serious infringements of competition law

Juliette Enser, CMA

Enser told 好色先生TV that she was expecting the investigation to wrap up by the end of the year, with the amount firms have been penalised due to be made public in November. By then, it will have been more than three and a half years since investigators carried out a series of dawn raids on an initial six firms seizing computers, paperwork and other evidence.

The CMA has not said which six they were but 好色先生TV understands that, on the back of the initial raids in March 2019, the investigation was then expanded some months later to bring in four others, believed to include Keltbray and John F Hunt.

Since then, the inquiry has hung over the industry, with the CMA not even identifying which sector it was looking at 鈥� only saying that it was 鈥渋nvestigating suspected anti-competitive arrangements in the supply of construction services鈥�. By way of explanation, Enser said: 鈥淒etecting and enforcing against cartel behaviour is done in secret.鈥�

The time it has taken has meant the uncertainty over what took place, which firms were involved and the levels of fines set to be meted out has dragged on. 鈥淲ithout covid, we might have completed it a bit more quickly,鈥� she admits.

One consultant told 好色先生TV: 鈥淲e鈥檝e known about this for a while and, when we鈥檝e been speaking to the demolition firms, we鈥檝e asked two things: 鈥楢re you involved and how financially resilient are you?鈥欌�� This morning one of the firms, John F Hunt, pushed out its latest financial results months before they are usually filed at Companies House 鈥渢o evidence the liquidity and financial resilience of our core group鈥�.

Another contractor told a story of one of the 10 named by the CMA asking for an introduction to a client. 鈥淲e told them straight away: 鈥榊ou have to be upfront and say this thing is coming. If you don鈥檛 and they find out later, it won鈥檛 look good鈥�.鈥�

So far, four firms have publicly said what the investigation is expected to cost them in penalties. Careys has put the figure at 拢9m, Keltbray 拢6m while McGee, which along with Careys 鈥渞eported their involvement in the conduct under the CMA鈥檚 leniency policy鈥�, has said it expects the number to be no more than 拢2.4m.

John F Hunt has gone further, saying in its report and accounts filed at the end of May, that the 鈥�investigations have now been settled with the liability agreed at 拢5.6m鈥�.

That leaves four 鈥� DSM, Brown and Mason, Cantillon and Clifford Devlin 鈥� where the number is not known 鈥� plus Erith and Squibb.

One firm, speaking on condition of anonymity, said the initial figure the CMA presented it with was eye-wateringly high 鈥� at least four times more than what it expects to settle for. 鈥淭hey come out with a number to hit you hard. Then you get into settlement discussions about levels of culpability. It then becomes a to-ing and fro-ing process.鈥�

The CMA鈥檚 own guidance says it has the power to fine firms up to 10% of their global turnover, with the deadline to pay penalties specified when its 鈥渋nfringement鈥� decision is issued.

It usually asks firms to pay up within three months but it does have mechanisms to allow them more time to settle.

It says: 鈥淲here appropriate, the CMA may enter into an agreement with an undertaking providing for additional time to pay its penalty (鈥榯ime to pay agreement鈥�). The CMA will only reduce a penalty for financial hardship in circumstances where it considers that the undertaking merits such a reduction in addition to any time to pay agreement.鈥� It says it works out what penalty to impose using six criteria [see box].

Referencing previous investigations into the construction industry in recent years, which have seen a cumulative 拢60m handed out in fines, Enser said she hoped that 鈥渢he size of the penalties we鈥檝e been applying will have the required deterrent effect鈥�.

Asked whether the current investigation will see directors banned, she replied: 鈥淒irector disqualification does happen.鈥�

Our client base wants to know what has gone on and they want assurances it won鈥檛 happen again

Industry source

In the meantime, firms that have admitted wrongdoing have been quick to put out statements. Three firms 鈥� Erith, DSM and Clifford Devlin 鈥� have not commented but, for the six that have admitted to bid-rigging, the gist of their statements has been: we apologise, we have made changes and this won鈥檛 happen again.

One consultant said, dryly: 鈥淪ometimes, it鈥檚 convenient to blame a previous regime.鈥�

But firms involved are adamant that change has happened as a result. 鈥淥ur client base wants to know what has gone on and they want assurances it won鈥檛 happen again,鈥� said one.

Consultants, especially, who recommend demolition contractors to clients some time before a main contractor gets on board, want to know that firms are genuine about making change. One said: 鈥淔irms like ours have a lot of ethics and compliance rules to follow. We will get asked by the people above, so we are asking them [demolition contractors] about it and we want to see evidence they鈥檝e done something about it.鈥�

Since last week, discussion has turned to why two firms are contesting the findings 鈥� and the other eight are not. In a statement, one of those firms, Squibb, said: 鈥淲e have a high degree of confidence that the CMA will take Squibb鈥檚 submissions/concerns seriously.鈥�

Still, it has left people wondering. One main contractor said: 鈥淚 guess that, because a couple of firms are fighting it, what does that mean, what鈥檚 the reason?鈥� He adds: 鈥淓ight out of 10 have said, 鈥榳e鈥檙e bang to rights鈥� and two have said 鈥榥o鈥�. It does beg questions.鈥�

He is hoping that the CMA will be able to share the lessons it expects demolition firms to have learnt from this investigation. 鈥淭his can only be a hurdle to get over for the industry.鈥�

In going public, the CMA detailed some of the malpractice it found. Regarding compensation payments, it said: 鈥淭he value of this compensation varied but was higher than 拢500,000 in one instance. Some firms produced false invoices in an attempt to hide this part of the illegal behaviour.鈥�

There is a danger that the investigation simply reinforces stereotypes about the wider industry and that it needs to professionalise more in order to be attractive to a wider group of people, particularly when it is in the middle of a recruitment crisis.

Enser said companies could not carry on the way they were and that things have to change. She added: 鈥淕iven construction is a hugely important industry, it鈥檚 important that, where there is lingering poor practice, we stamp it out.鈥�