JM Kelly gutted by price-fixing
ROCKHAMPTON-based building company JM Kelly is disappointed by yesterday's Federal Court ruling that found three Queensland companies engaged in bid rigging for government projects.
The court in Brisbane found JM Kelly, TF Woollam and Son and Carmichael Builders engaged in "cover pricing" - a form of bid rigging - in relation to four construction projects between 2004 and 2007, according to the Australian Competition and Consumer Commission.
"Yesterday's outcome is upsetting to me and our family of more than 400 staff who have worked tirelessly to build our reputation as one of Queensland's most trusted and experienced companies," JM Kelly construction manager Geoff Murphy said.
"We are a family owned and operated company, which has operated in the Queensland community for 50 years and our reputation means everything to us."
The court also found that TF Woollam and Son managing director George Bogiatzis and Mr Murphy, of JM Kelly, were parties to the contraventions.
Mr Murphy said allegations were made against the three building contractors which resulted in action being brought by the ACCC in the Federal Court.
"These allegations claimed our company was involved in a form of collusion through having participated in the widespread industry practice of 'cover pricing'," he said.
"'Cover pricing' is a term used to describe what was, prior to 2009, a widespread practice in the construction industry.
"It describes the practice where a builder, invited to tender on a project, was unable to calculate a competitive price or to perform the work (for example due to lack of resources or a sub-contractor's failure to provide a crucial quotation), and asked another builder for an indicative 'safe' price at which their tender could be submitted without winning the job.
"As JM Kelly understands it the process evolved due to concerns (and at least one known instance) that builders who failed to provide tender prices would be black-listed from the opportunity to participate in future tenders."
Both Woollam and Son and JM Kelly, which had built a number of projects in the Central Queensland region, issued statements to the Morning Bulletin yesterday, with both denying the allegations and would consider appealing the decision.
However, Carmichael Builders refused to comment.
Wollam said it had implemented a comprehensive Competition and Consumer Act Compliance Program.
The decision of the court was extremely important as it followed the ACCC's decision to pursue cover pricing as a form of cartel behaviour.
Cartels damage the Australian economy, raise prices for consumers, in this case taxpayers, and hurt businesses that play by the rules.
Cartel conduct includes price fixing, allocation of customers or territory, agreements on market share, or profit sharing.
Cover pricing is a form of "bid rigging" which involves a tender price being sought by construction company A from construction company B during a tender process. Both companies understand the cover price will be high enough to ensure that company A will not win the contract. Company A submits the cover price tender as a "genuine" tender.
Judge Logan adjourned the matter to a date to be fixed for the hearing of submissions on penalties and other orders.
The evidence given in the proceedings by participants in the building industry was that builders did not participate in cover pricing with the intention of securing any financial advantage, and that the ultimate tender price was not affected by cover-pricing.
Cover prices were generally given very close to the tenders, after the serious bidder's price was already determined.
A builder would never know all the other builders' bidding in a tender
The building industry is so highly competitive that even a tender between a small number of serious bidders would demand a very competitive price.
JM Kelly admitted seeking cover prices for four tenders and giving a cover price once. The company said its intention was to avoid being black-listed from submitting future tenders, and at the same time not to submit a tender for any job which it was unable to properly price or perform.