Many construction companies are engaging in anti-competitive cover pricing practices, but may not be aware of competition law restrictions around the practice according to the Commerce Commission.
It has found many builders were talking to each other to concoct convincing but fake bids for job tenders to increase their chances of winning a desired tender and many did not understand competition laws.
“There are a variety of ways in which cover pricing happens, and reasons for the practice, however, the common feature is that the cover price is not intended to win the tender, but is meant to look like a legitimate bid,” the Commerce Commission said in a media release.
It had hired independent Research New Zealand to interview builders in the country’s main centres working on non-residential construction jobs.
“The purpose of this research was to test the sector’s awareness and understanding of the competition provisions of the Commerce Act. Commerce Commission general manager of enforcement Kate Morrison said.
“We will use this knowledge to begin a targeted education campaign to help builders and those seeking tenders for construction jobs to understand our competition laws, and the importance both to them and their clients of not breaching the Commerce Act.”
During research there were several examples given of how cover pricing is used in the building industry. A builder might put in overpriced bids for jobs they don’t want just to raise their profile by showing they are tendering, or a builder could ask a friend within the industry to place a high bid so their lower bid is more likely of being selected.
In other instances, an architect or project manager could be getting builders to bid high tender quotes so their preferred builder is accepted for a lower-priced bid.
Each breach in this manner could cost a company up to $10 million, but the Commerce Commission will not be investigating the incidences of price covering it came across during the research process.
“The information the commission received during this research was provided on the basis of complete confidentiality, and we have appreciated the candour of the research participants. We will not be launching an investigation as a result of the research,” Ms Morrison said.
The Commerce Commission has created a list on how project managers, architects and buyers can deter cover pricing.
Tue, 19 Oct 2010