It ultimately took just over three years for the Competition and Markets Authority to make an infringement decision. Three years of wading through the sewage that lies just beneath the surface of the UK demolition industry. Three years of examining the soft underbelly of a sector that has fought long and hard for respectability but which now finds its reputation tainted.
During that time, the CMA conducted unannounced inspections of 15 business premises, interviewed 35 people, served over 120 notices requiring the provision of information or documents, and undertook a detailed review of emails, mobile phone communications and financial records.
When the announcement finally landed, it did so with the force of an asteroid. And like the asteroid that struck the Earth some 46 million years ago, the CMA asteroid could spark an ice age for the UK demolition sector.
The CMA investigation has laid bare the inner workings of the UK demolition sector. It has revealed to the world a sector in which unlawful activity is seen as a path to profit. It has shown that even some of the biggest names in the global demolition industry have not risen above the down and dirty approach that most of us hoped had been consigned to the industry’s history books.
And it has also shown that some would prefer to look the other way rather than actually confront the corruption staring them in the face.
The levels of fines levied against the 10 companies that were ultimately found guilty of wrongdoing are big. In one or two cases, they are massive.
The long running investigation culminated in fines totalling £59,334,957 for colluding on prices through illegal cartel agreements when submitting bids in competitive tenders for contracts.
These bids were rigged, deceiving the customer that they were competitive when that was not the case.
Each of the ten firms was involved in at least one instance of bid rigging between January 2013 and June 2018. All 10 firms were members of the National Federation of Demolition Contractors at the time of the offences.
Bids were rigged by one or more of the firms agreeing to submit bids that were deliberately priced to lose the tender. This practice of ‘cover bidding’ can result in customers paying higher prices or receiving lower quality services.
In addition, the CMA found that five of the firms, on at least one occasion each, were involved in arrangements by which the designated ‘losers’ of the contracts were set to be compensated by the winner. Those firms were Brown and Mason, Cantillon, McGee, Scudder and Erith.
The value of this compensation varied but was higher than £500,000 in one instance. Some firms produced false invoices to hide this part of the illegal behaviour.
The CMA found that the instances of illegal collusion took place over a five-year period and affected 19 contracts for demolition work in London, the Southeast, and the Midlands.
The public and private sector contracts included the development of Bow Street Magistrates Court and Police station, the Metropolitan Police training centre in Hendon, Selfridges (London), properties belonging to Oxford and Coventry Universities, shopping centres in Reading and Taplow, a large office block on London’s Southbank and other sites in central London.
In total, the bid rigging impacted 19 individual contracts valued at around £150 million. Several of those contracts were funded by the public purse.
Michael Grenfell, the CMA’s Executive Director for Enforcement, said: “The construction sector is key to our country’s prosperity, so we want to see a competitive marketplace delivering value, innovation, and quality.
Today’s significant fines show that the CMA continues to crack down on illegal cartel behaviour. It should serve as a clear warning: the CMA will not tolerate unlawful conduct which weakens competition and keeps prices up at the expense of businesses and taxpayers.
We have also secured the disqualification of certain company directors involved. Company directors must understand that they have personal responsibility for ensuring that their companies comply with competition law, and that disqualification may follow if they fail to do so.”
The disqualified directors are David Darsey (formerly a director of Erith) who has been disqualified for a period of 5 years and 10 months; Michael Cantillon (formerly a director of Cantillon) who is disqualified for 7 years and 6 months; and Paul Cluskey (a current director of Cantillon) who is disqualified for 4 years and 6 months.
Each of these directors benefited from reduced disqualification periods, having voluntarily agreed to the disqualification by way of undertakings to the CMA.
The latest and long overdue announcement from the CMA largely closes this chapter of the story, even though Keltbray has said that it plans to appeal what it describes as an excessive fine.
But this story is far from over.
Given the level of fines levied and the scale of the bid rigging uncovered by the Competition and Markets Authority, could we now see criminal prosecutions of the individuals involved.
And, even if we don’t, it is now clear to all those clients and contractors just where collusion took place and where they likely paid over the odds for demolition work that had been rigged. Could we now see those clients and contractors seeking to recoup the money they overpaid? If they do, the 10 firms caught up in the scandal could face further financial losses that might well include interest and court costs.
There is a twist in this tale, however.
For one thing, nine of the 10 companies that have been fined remain comfortably within the bosom of perceived respectability, their NFDC memberships intact.
It was, perhaps, naïve to expect the NFDC to kick out some of its biggest and best-known members. But the fact that the Federation has remained tight-lipped throughout the whole sorry business is to its detriment.
By standing by the guilty 10, the NFDC has tainted the reputation of its entire membership.
Then again, perhaps reputation counts for nothing these days. Even while these companies were under investigation and long after many of them had admitted their involvement, they continued to win work. Bizarrely, they will continue to do so.
Modern demolition work, particularly that taking place within London or as part of a framework, requires contractors to prove they have the financial clout to see a project through to completion.
The 10 companies handed fines by the CMA are among the firms with the greatest financial clout in the UK demolition industry. And so, some clients and some frameworks will have no choice but to employ the services of companies that have been proven to be unlawful because those companies have enough money in the bank. Some of which was obtained by unlawful means.
All those UK demolition companies that were not part of the cartel and who thought they might now get a shot at the big time, I am afraid will have to think again.
Apparently, that’s not how the modern construction industry works.
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