Regulator tackling dodgy bids in construction sector

Photo / Hawkes Bay Today

The Commerce Commission is to launch an education campaign to target anti-competitive practices construction sector, after research found non-residential builders in Auckland, Christchurch and Wellington engaging in "cover pricing".

Cover pricing, which involves collusion among builders to come up with believable but false bids for jobs to favour a particular company, falls foul of the Commerce Act, the regulator said.

The research into cover pricing was initiated to test the sector's knowledge of competition provisions.

Examples of cover pricing include:

*A builder asking another builder to put in a tender because they are worried there may not be enough tenderers and the job will have to be re-tendered.

*Fear that if a builder does not put in a reasonable price, they will be dropped off the tender list for that client the next time a contract is tendered, so they put in a false bid.

"Our research indicates a low level of understanding of competition issues by those in the construction sector," said Kate Morrison, general manager of enforcement.

"In particular, the research indicates that a practice known as cover pricing is occurring."

The announcement comes a little over a month after a 7.1 magnitude earthquake devastated the Canterbury region, and caused $2 billion worth of damage to non-residential property, though the research was completed before the September 4 disaster.

The quake will help stoke a construction sector in the doldrums as the value of commercial property consents sank 23 per cent to $296 million in the 12 months ended Aug. 31. Fletcher Building Ltd, which recently won the contract to project manage Canterbury's rebuild for the Earthquake Commission, fell 0.4 per cent $8.25.

The commission said it won't launch an investigation into the sector, and will focus on raising awareness around fair competition practices. It will investigate specific complaints if tabled.

Under the Act, companies can be fined up to $10 million for each breach, or three times the value of any commercial gain or 10 per cent of annual turnover.

Morrison said the campaign would draw also attention to the commission's leniency policy, which encourages participants in anti-competitive arrangements to report misconduct in exchange for immunity.