You are putting yourself at serious risk if you admit that at some time or another you have known someone who has discussions with competitors on quoting for a trade or house quote, where that person has been asked to put in a price but doesn't want the work because they are already over- committed.
However, since the client [or the contractor] really wants them to put in a price for competition or needs a check against other bids, they go to a mate who is also quoting and say "I don't want this work - give us a cover price that means you are cheaper". It saves all the hassle of working out a price that will be too high for a job they don't want anyway. And so, of course, it keeps everybody happy.
Well… everybody except the law!
Unfortunately, this is seriously risky behaviour as in some cases it will breach the anti-competitive provisions of New Zealand’s competition legislation (the Commerce Act 1986).
Even if there are three other people also quoting for the job, so it seems like there is still competition, there is no way of knowing if a competitor has pulled out or whether others may be in the same position in getting a cover price. It may well end up that only one person may be putting in a genuine price, so there is actually no competition!
This scenario has actually happened in a big cover pricing case in the construction industry that went before the courts in the UK recently, where it was found that for 11 tender rounds, there was only one genuine competitive bid, as the rest were all cover prices.
The Commerce Commission is now targeting the construction sector as being prone to anti- competitive conduct and is serious about investigating cover pricing if it receives complaints. Fines are hefty if -- up to $10 million for corporate per breach, and $500,000 for individuals.
At this stage, the Commission is speaking to construction groups trying to raise awareness about price-fixing and other unlawful collusion between competitors.
And there are more things that are unlawful, because they involve agreements between competitors to not compete with each other, like:
• Price fixing
• Bid rigging
• Market sharing
• Agreements to restrict output
Here's a lists of the type of information you can get:
• Avoiding illegal agreements pamphlet
• Hypothetical scenarios of unlawful acts
• Q & A results of research into the construction sector
• Guidelines for trade associations
• A list of Dos and Don'ts
• Details of relevant sections of the Commerce Act 1986
The most important thing to stress is that you must make your own independent decisions in relation to all your pricing at all times.
You need to decide whether you will quote or not. If you decide you will quote, you may chose to put in a high quote which you expect to not be successful. This is fine providing you have decided to do this independently and you have not reached any agreement that might affect your or your competitors’ pricing to that customer.
If you decide you will not quote for this job, you may be worried that if you don't submit a price you will be taken off their preferred user list. It may be some time before the Commission's awareness campaign about price fixing and other unlawful collusion between competitors is widely known by all those seeking quotes in the construction sector. You could write a letter explaining why you are not in a position to quote at present but emphasising that you are interested in being considered for any future work:
Thank you for the opportunity to submit a quote for ...............
Unfortunately, due to my company’s current programmed work commitments, I would not be able to complete this work to our high standard and efficiency in the time required and therefore will not be submitting a quote on this occasion.
However I remain interested in any to further work opportunities that become available, and I look forward to quoting again in the future.
Yours Sincerely etc