Pyramid Comment

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Thursday, October 23, 2008

Turner 'Contemptible' - Developments

Allegations have been made regarding the business behaviour of the contractor involved in the construction of the Turner 'Contemptible': R. Durtnell & Sons. It has to be recognised that the fact that a business has a 400 year history has absolutely no bearing on standards and possible behaviour in any current business practices. The Office of Fair Trading (OFT) has a list of 112 firms on its Statement of Objections (SO). The Statement of Objections is a normal step in an investigation that involves competition and does not of itself suggest impropriety by any particular business.

Note added: 15.10.09

Historic background does not define current attitudes to business. R. Durtnell & Sons is one of more than 100 construction companies to be fined for bid-rigging (anti-competitive practices). The company was ordered to pay a fine of £711,115 after colluding with other companies over tenders for public projects. The cover pricing process that could have pushed up the price of taxpayer-funded building developments has since been outlawed. Simon Williams was the senior director of the cartels and criminal enforcement division: "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."

As one of the main backers of the £17.4 million Turner Contemptible, Kent County Council say it does not think the practices investigated by the Office of Fair Trading would have increased the price of the art gallery.

Roger Gough (Corporate head) said: "KCC has very robust procurement processes in place to eliminate any possibility of collusion or cover pricing. Every tender is evaluated in detail by an independent quantity surveyor and benchmarked against previous projects and recognised market data in order to determine value for money rather than simple comparison of prices. With these measures in place we are extremely confident that any risk has significantly reduced any risk of collusion or price fixing on KCC building projects."

  • It's obvious that if competitors have agreed to inflate prices, the eventual lowest price will still be far above a proper and fair price. Such prices are simplistically arrived at by comparing tenders. Those charged with accepting tenders can only view the realistic costs from their own experience and knowledge. Complex and large projects can make this difficult if at all realistically possible or probable. The colluding businesses will then share the inflated (excess) cost raised.
A R. Durtnell & Sons spokesman: "We are disappointed to have received a penalty notice from the OFT (Office of Fair Trading) for participating in the practice of cover between 2003 and 2005. It was not until 2007 that cover pricing was determined contrary to the Competition Act 1998. Durtnell ceased participating in this arcane practice in 2005 having never gained any financial advantage, nor indeed had any client suffered any disadvantage. Durtnell consider the penalty wholly disproportionate to their transgression and are considering appealing to the Competition Act Tribunal.

Among the other 103 construction companies fined by the OFT were a number working on projects in Thanet. The Kier Group was fined the largest amount of any of the firms involved, nearly £18m (£17,894,438), currently working on Building Schools for the Future projects at Broadstairs St George's and Dane Court Schools. The company that built Westwood Cross shopping centre (Carillion) was also fined by the OFT. They also deny any wrong doing, claiming their massive £5m fine was actually levied against Mowlem, a company it bought after the anti-competitive practices took place.

A company spokesman said: The OFT's enquiries in relation to Mowlem related to certain matters that arose prior to Carillion's acquisition of the company and the Decision does not involve any other businesses within the Carillion group. Immediately following the acquisition of Mowlem, Carillion took steps to apply its own procedures within Mowlem to ensure that Mowlem complied with the requirements of the Competition Act 1998, to which Carillion attaches the highest importance.

  • Acquiring a company does not excuse previous practice regardless of what that new owner may or may not do in the future.
  • The consideration to accurate costs by a Labour government that instituted these school projects must be closely scrutinised as the record of this administration is terrible.

Construction progress

The allegation involves a cartel by rigging bids for construction projects and by definition this involves the £17.5m gallery that is scheduled to be started at end summer 2008 and opened (sometime) in 2011 (most recent published date) Turner Centre (19.06.2007).

The OFT:

  • "formerly alleges that the construction companies named in the statement have engaged in bid rigging activities and in particular cover pricing. Cover pricing describes a situation 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."
This in principle can mean that of the 112 firms, 110 of them may be victim to only 2 operating alleged collusion. This, however, could result in an inflated price being tendered by the ultimate winner of a contract if any party involved in actual collusion fails to win that contract. So, if collusion by a failed bidder is proven then the bid price must clearly be renegotiated with the fair-playing contract winner. Any winner cannot benefit, even by accident, as the result of the illegal dealings of another and, in the concept of Winners And Losers, any financial advantage to one (Winner) would mean a larger deficit to the other (Loser).


The listed companies are making representations (written and oral) to the Office of Fair Trading and results will be announced next year (2009). If a business is found to be a member of a cartel, it could be fined up to 10% of its annual turnover.