This case study explains how these companies, along with a sixth company, broke the law, and what the lessons are for other businesses.
Between 2006 and 2017, each company used ‘cover bidding’ at least once to avoid competing with one or more of the other companies when submitting bids.
The bids were to fit-out and refurbish offices in London and the Home Counties. The conduct affected 14 contracts and the companies’ clients included a low-cost airline, a City law firm, and a further education college in East London.
Cover bidding is where 2 or more companies secretly agree that at least one of them will submit a bid that is deliberately high or of poor quality during a competitive tender process.
They do this to try and make sure that a specific company can win the tender, with what appears to be the best offer or proposal.
This can lead to higher prices and reduced quality for the purchaser, and in turn their customers, or service users. This is because the company that wanted to win knew it did not face genuine competition from at least one of the other bidders.
As a result, the “winning” company had less incentive to compete on price or quality to win the bid, so the purchaser risked getting a worse deal.
Purchasers are also less likely to seek further bids from other companies, meaning that genuine bidders miss out on the opportunity to compete for the contract.
Cover bidding is one of the ways in which companies can get together as a ‘cartel’ and agree not to compete against each other.
How they broke the law
The companies’ cover bidding meant clients missed out on opportunities to get the best possible deal. This type of agreement is illegal under competition law.
On each of the 14 occasions, the evidence shows that one company who wished to win the contract arranged for one or more of the other companies to submit a cover bid. This gave the first company a higher chance of winning the work.
Once agreed, in almost all instances, the firm instigating the scheme told the company providing a cover bid what price it should submit. In most cases, the ‘instigator’ also provided the cover bidder with completed costs and/or design plans, with the intention that the cover bidder submit these as its own bid.
This plan was explained in emails sent between the companies’ directors, for example:
Attached is version to send to [company 1 director] …This is about (x)% over our base price … ask him to logo up and send with covering email
if [company 1 director] can put together a full proposal document, including costs, we can cut and paste this into a [company 2] document
…here are the numbers and scope of works for you to put into your format to submit as agreed…
…make sure you change order / words a bit so its looks like yours
The cover bids appeared genuine but were designed to lose, which meant there was less genuine competition for the contract.
Internal emails show the intention to make these cover bids deliberately overpriced in order to make the “winning” bid look better:
…he (the commercial property agent) wants us to quote this […] job, but do you want to do a [expletive] plan and exorbitant cost for us…
This is what we need another (bid) for. It needs to be rubbish and ultimately not work.
Actions taken by the CMA
The CMA fined 5 of the companies involved a total of over £7 million. In each case, the fine was increased because one or more directors of the company was directly involved in the cartel conduct.
The CMA also applied a penalty uplift where a company had led or instigated the cover bidding process.
The investigation was started after one of the companies contacted the CMA to admit its involvement. That company avoided a fine under the CMA’s leniency programme, because it brought the conduct to the CMA’s attention and cooperated with the CMA’s investigation.
Another company received a 25% discount in its penalty for coming forward with information about its participation in the cartel behaviour and co-operating with the CMA, also under the leniency programme.
The CMA has also secured the disqualification of 3 former directors of 2 of the companies involved in this case. Investigations are ongoing with respect to other directors.
Provided they continue to cooperate with the CMA, the directors and former directors of the 2 companies which qualified for leniency under the CMA’s leniency policy will avoid disqualification.
Lessons from this case
Agreeing with a competitor to submit a cover bid is illegal.
A cover bid is a fake bid that deceives customers into thinking they’re getting a genuinely competitive offer.
Never agree to submit a cover bid, even if you do not want to win the tender or take on the work. You should not submit a cover bid just to keep onside with customers or project managers.
Even if the cartel activity only happened once, or took place a long time ago, it can still have serious consequences for the businesses and individuals involved. Some of the companies fined by the CMA only took part in one or two instances of cover bidding, and some of this took place as far back as 2006.
Directors have a special responsibility to lead by example, to be clear on competition law rules and to promote a culture of compliance within the businesses they lead. Director or senior-management-level involvement in a cartel can result in a company paying higher fines.
Directors can also be disqualified from running a company for up to 15 years. The CMA now actively considers disqualification orders in every cartel case it investigates.
What you can do - advice for individuals and businesses
If you are approached to join a cartel or to get involved in anti-competitive arrangements, you should:
immediately reject the approach
leave the meeting or end the discussion and make it clear you refuse to take part in anything illegal
never disclose commercially sensitive information with competitors
Make sure you understand competition law rules and learn to recognise the kinds of behaviour that are illegal.
For more information about competition law and illegal behaviours, you can read:
Company directors should ensure that their companies have regular training on obeying competition law.
Seek independent legal advice if you are unclear whether an agreement or arrangement is anti-competitive or not.
If you think that you or your business may have been involved in illegal cartel activity, you may be able to benefit from lenient treatment and protection from disqualification for your current and former directors by coming forward and confessing to the CMA. Call our leniency number on 0203 738 6833.
If you have information about a cartel or wish to report cartel activity, you can contact the CMA by using our online form, calling the cartels hotline on 020 3738 6888 or emailing email@example.com.
This case study does not constitute legal advice and should not be relied upon as such.