Crooks or idiots - either way we lose
Dodgy building contractors have always enjoyed a fruitful relationship with our local councils. Sometimes it's been out-and-out T Dan Smith (pic) corruption*, but more generally the problem has been our old friend the Simple Shopper.
Today, the Office of Fair Trading (OFT) announced the outcome of its long-running enquiry into bid rigging among contractors supplying councils and other public sector customers. It has fined "a total of 103 firms £129.5m for colluding with competitors on building contracts", mainly via a practice known as "cover pricing".
The fined companies include some very well known plc names, with big public sector contracts elsewhere - Balfour Beatty, Carillion, Kier, and a host of others (full list here). But despite the guilty verdicts, the fines are quite small, and none of the contractors has been blacklisted for future contracts.
We've blogged this enquiry before. As the OFT explained it then, cover pricing is:
"...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."
It has long been a widespread practice, known to all in the industry. Indeed, when the Chartered Institute of Building asked over 1,000 insiders for their views on industry corruption, it got the following response on cover pricing:
In other words, the practice is so widespread that nearly four in ten insiders reckon it's perfectly OK.
Now, if you're Tescos wanting to build a new store, you know all about this. So you employ guys who've been round the loops a few times, and who know pretty well what the work ought to cost. And when you send out your tender invitations you only send them to contractors that you trust to give you kosher bids. And just to make sure, you might phone them up and say "on no account should you quote if you do not want the work, and if you take the piss you will never get a crack at another contract with us ever again; plus, we will dock you 50,000 points from your Tesco Clubcard, and we will break your legs".
But in publicsectorland it doesn't work like that. In publicsectorland the emphasis is on ticking boxes, not getting good value. And the Simple Shopper in charge of tenders knows he can tick the required boxes simply by publishing an RFP in the European Journal, ensuring he receives and files at least three tenders, and stopping himself accepting too many douceurs. Job done.
So although these contractors have been very naughty - and they certainly deserve more than their pretty derisory punishments - once again, the real culprit is the Shopper. As we've blogged so often, the Shopper is simply not up to being trusted with our money.
And how much have we taxpayers lost?
As per, we don't know. All we do know is that the OFT enquiry was looking at £3bn's worth of contracts. So you'd have to guess our losses run into hundreds of millions.
*Footnote Not everyone thinks T Dan Smith was A Very Bad Man, a man who not only brought disgrace to his native Newcastle, but also inflicted a concrete brutalist hell on its citizens. Oh, no. Even today, the BBC clearly admires the cut of Big Dan's Big Government jib and tells us: "Smith's legacy still lives on in the streets of Newcastle. Today T. Dan is as much admired for his vision as for his concrete achievements. Smith remains an old-style 'city father' whose visions are now being reclaimed by a younger generation." Hmm, yes... and while we're back on the BBC, you should check out Newsnight's Classic Interviews. They reckon they've got six classics, four with media celebs, and two with politicos. And the two with politicos? Yup, you guessed it - the Paxo repeated question "interviews" with Michael Howard (1997) and William Hague (2007?). Not that Pax has never subjected Labour or LibDem politicos to such treatment. Oh no, no, no... there was that time when he... er... ummm... well, there was definitely that other time when... ahhh... well, last night he did humiliate poor old Vince over his half-baked "mansion tax". But then again, now that the entire world has started to scrutinise Vince's pronouncements properly and found them wanting, the poor chap has suddenly aged 20 years. Last night he looked like a confused old man at a bus stop being terrorised by a yob.
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