05 October 2009 | Jake Kanter
The hefty fines meted out to the construction industry for price-fixing are a 'wake-up call' for the purchasing profession.
By slapping heavy penalties on construction firms, the Office of Fair Trading (OFT) kicked an industry already on its knees in the recession.
The watchdog fined 103 building suppliers a total of £129.5 million for their part in colluding to fix high prices on 199 public and private sector contracts.
After the announcement, the construction industry repented and the companies involved insist their slates have been wiped clean. Critics bemoaned the loss to the public purse and opened the door for councils to seek damages.
Little has been said about purchasers, who should be at the forefront when it comes to detecting illegal activity among suppliers, according to the OFT.
Although the costly outcome was expected (the investigation rumbled on for nearly five years), purchasers described the climax as a "huge wake-up call" for the profession.
It could harm trusting partnerships with vendors, says Richard Jowers, supplier relationship manager at Essex County Council.
"It has such a damaging affect on relationships. When you find that suppliers have been colluding on pricing, trust goes out of the window."
David Harrison, director of sourcing and contracting at pharmaceutical firm UCB Celltech, believes the issue is a "timely reminder for constant vigilance and compliance with sourcing procedures in all sectors".
Bid-rigging or cover-pricing must be considered a consistent and serious threat to good procurement, argues Alan Day, managing director of supply chain change consultancy State of Flux. "It gets neglected. Risk encompasses much more than supplier finance and this is one area that must be considered."
Despite this, buyers were not short of advice on spotting and mitigating collusive behaviour.
Antony Faughnan, chair of the CIPS construction procurement group, called on buyers to update their sourcing manuals with policy and guidance on good business relationships. There is also an argument for going back to basics, he says, which could include training on risk awareness.
Jowers suggests running e-auctions as a means of exposing bid-rigging activity. Spotting signs of malpractice could also involve attending networking events with suppliers and observing how they interact, he adds.
Having a sound understanding of commodities, the marketplace and benchmarking costs can also uncover unusual bidding behaviour, a number of purchasers told SM.
Day says buyers should work with vendors that reflect their organisation's values and recommends researching the sales reps involved in a bid. This could mean checking their profile on business networking website LinkedIn, for example.
"You have to be alert to the fact that anything is possible," adds David Loseby, head of procurement and contract management for Westminster City Council. "Try to be fresh and objective in every scenario, because you can't predict the outcome of people's behaviour."