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Price-fixing on government construction projects penalised

PM News
November 4, 2011

The Federal Court in Brisbane has fined three Queensland construction companies for illegal price controlling, also know as ‘cover pricing’, while tendering for at least one local and three state government construction projects.

JM Kelly (Project Builders), TF Woollam & Son, and Carmichael Builders will collectively pay more than $1.3 million in penalties over the next 24 months for false representation “about price or about a range of prices for a particular building works undertaking,” said Justice Logan.

According to the Australian Competition & Consumer Commission (ACCC), cover pricing is a practice used in situations where a construction company may not have the time, resources or inclination to prepare an accurate tender, but still wants to be seen as tendering for that project.

It involves collusion between two or more potential builders in a tender process where the tender price is fixed to favour a genuine tenderer but also for the participatory benefit of the non-genuine tenderer.

“This gives the client the impression that both companies are tendering competitively, but the exchange of the cover price actually ensures that company A’s tender price is higher than that of company B and therefore makes it unlikely that company A will be the successful tenderer,” stated the ACCC.

Justice Logan said cover pricing creates “an illusion both as to range of prices and as to the existence of a particular level of competition,” and that because the conduct occurred in relation to government projects, “the conduct also involved a betrayal of trust”.

ACCC chairman Rod Sims added that the result of this case was a warning to those companies intent on deceiving clients in this manner.

“This decision shows that cover pricing is illegal and building companies who continue with this practice can expect the ACCC to ensure that the law is enforced. Cover pricing is not a legitimate business strategy.”

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