These days, Cartels and price fixing are illegal, or actually, are they? Try buying an Apple product from he many retailers out there, we all know different businesses have different cost, but blow me down, the products are all the same or very similar prices. Retailers don’t seem to be allowed to discount these products.

Then of course there is petrol, you used to get price wars when the supermarkets started to sell fuel, now they and the government (they are the ones that change the forecourt regulations) have squeezed many independent retailers out of business. Isn’t it strange that prices are so similar in the region you live in. Then you find the supermarket in your town sells it at one price, and fifteen miles away they are selling it cheaper. Of course, they argue rates and rents vary, but the price of baked beans or a loaf of bread in the store doesn’t.

What is a recommended retail price, and what is the point of it? Imagine you could only get an extension built on your house by a builder licensed and certified by government (what’s good idea you might think). Then imagine the price to build it was fixed at a recommended price of £2500/m2. Of course, now it gets tricky, who sets the price and how, since buildings are not made by one wholesaler. However, suppose all the components were sold by one retailer. There would be revolution on the streets, the government would fall and tractors would blockade the merchants. Or am I thinking about France?

Not quite fifty years ago, and more than forty I was a young estimator working for a well thought of local contractor. On many occasions an associate from another company would call, and the conversation would go something like this.

“We’ve had this job in from (could be a council, pub, or some other business), have you got this on your desk?”

Companies didn’t travel to the end of gods earth to carry out projects, we mostly directly employed local tradesmen, so there was a limited number of companies likely to be involved, but if the job was in and around Bristol it might have been twenty or thirty firms that could have been involved. We all had a list in our books.

“Yes, I would reply, its just arrived.”

“It’s a problem for us we are too busy, but I know if we send it back it will look bad for us, can you help us out” came the response

Helping out meant telling them what price to put in. Yes, we told them the price and they were expected to bid at this price. That way, when results were provided, we could see where we sat in the “real bids”

So now its illegal. Back in the day when the industry was not dominated by large multinationals, it was common practice, and no one got hurt, companies thrived, mainly because it really didn’t matter if you gave “cover” prices, since as long as two companies competed, then by definition the price would be “competitive”. The main reasons why companies did this were.

Ø  Clients sending out tenders with high degrees of risk placed upon the contractor

Ø  Not engaging with contractors first to see who might be interested and suitable

Ø  Sending out tenders far and wide hoping for a fool to put in a suicidal offer

I once received a tender to add a lift shaft to a block of flats, it wasn’t overly difficult, but the engineering was not fully designed, and later we found out the lift specified by the designers was not actually fit for the purpose. By the time the tenders were returned fourteen companies had called me for “help” Really, we should have just sent it back, but directors can be greedy, and afraid that if they do the client won’t came back for more. To be fair that would have been just as well, and no it wasn’t a profitable project.

Around this time government started using the building trade as a regulator for the economy, it became hard to plan, hard to keep the direct labour busy. Then it became easier to subcontract, so in reality it didn’t matter where you were based, you could just utilise local subcontractors. Companies merged, were bought out, or if they didn’t move with the times failed. Many construction contracts were enlarged into bigger parcels, because bigger is better and scale brings economy. (At least that was the idea).

So now when Acme Ltd was only one of four contractors able to undertake a multimillion-pound project, it became a problem if they discussed their bidding process with any other contractors. Sometimes that discussion could actually be something like.

“Look we’ve found on this D&B scheme this greenfield site was actually used as temporary storage for fuel in the second world war. We should insist on further site investigation”

That would be illegal you would have to ask that of the employer’s agent, and he would be quite entitled to hide behind a clause in the documents that said

“Contractors should satisfy themselves in respect of ground conditions”

This suggests four or six contractors go and do their own site investigation work, how is that sensible.

In truth though, multinationals are greedy and not to be trusted, at least as far as the Construction industry are concerned.  So why do we allow regional cartels who generate profit for shareholders to run our water companies?These days, Cartels and price fixing are illegal, or actually, are they? Try buying an Apple product from he many retailers out there, we all know different businesses have different cost, but blow me down, the products are all the same or very similar prices. Retailers don’t seem to be allowed to discount these products.

Then of course there is petrol, you used to get price wars when the supermarkets started to sell fuel, now they and the government (they are the ones that change the forecourt regulations) have squeezed many independent retailers out of business. Isn’t it strange that prices are so similar in the region you live in. Then you find the supermarket in your town sells it at one price, and fifteen miles away they are selling it cheaper. Of course, they argue rates and rents vary, but the price of baked beans or a loaf of bread in the store doesn’t.

What is a recommended retail price, and what is the point of it? Imagine you could only get an extension built on your house by a builder licensed and certified by government (what’s good idea you might think). Then imagine the price to build it was fixed at a recommended price of £2500/m2. Of course, now it gets tricky, who sets the price and how, since buildings are not made by one wholesaler. However, suppose all the components were sold by one retailer. There would be revolution on the streets, the government would fall and tractors would blockade the merchants. Or am I thinking about France?

Not quite fifty years ago, and more than forty I was a young estimator working for a well thought of local contractor. On many occasions an associate from another company would call, and the conversation would go something like this.

“We’ve had this job in from (could be a council, pub, or some other business), have you got this on your desk?”

Companies didn’t travel to the end of gods earth to carry out projects, we mostly directly employed local tradesmen, so there was a limited number of companies likely to be involved, but if the job was in and around Bristol it might have been twenty or thirty firms that could have been involved. We all had a list in our books.

“Yes, I would reply, its just arrived.”

“It’s a problem for us we are too busy, but I know if we send it back it will look bad for us, can you help us out” came the response

Helping out meant telling them what price to put in. Yes, we told them the price and they were expected to bid at this price. That way, when results were provided, we could see where we sat in the “real bids”

So now its illegal. Back in the day when the industry was not dominated by large multinationals, it was common practice, and no one got hurt, companies thrived, mainly because it really didn’t matter if you gave “cover” prices, since as long as two companies competed, then by definition the price would be “competitive”. The main reasons why companies did this were.

Ø  Clients sending out tenders with high degrees of risk placed upon the contractor

Ø  Not engaging with contractors first to see who might be interested and suitable

Ø  Sending out tenders far and wide hoping for a fool to put in a suicidal offer

I once received a tender to add a lift shaft to a block of flats, it wasn’t overly difficult, but the engineering was not fully designed, and later we found out the lift specified by the designers was not actually fit for the purpose. By the time the tenders were returned fourteen companies had called me for “help” Really, we should have just sent it back, but directors can be greedy, and afraid that if they do the client won’t came back for more. To be fair that would have been just as well, and no it wasn’t a profitable project.

Around this time government started using the building trade as a regulator for the economy, it became hard to plan, hard to keep the direct labour busy. Then it became easier to subcontract, so in reality it didn’t matter where you were based, you could just utilise local subcontractors. Companies merged, were bought out, or if they didn’t move with the times failed. Many construction contracts were enlarged into bigger parcels, because bigger is better and scale brings economy. (At least that was the idea).

So now when Acme Ltd was only one of four contractors able to undertake a multimillion-pound project, it became a problem if they discussed their bidding process with any other contractors. Sometimes that discussion could actually be something like.

“Look we’ve found on this D&B scheme this greenfield site was actually used as temporary storage for fuel in the second world war. We should insist on further site investigation”

That would be illegal you would have to ask that of the employer’s agent, and he would be quite entitled to hide behind a clause in the documents that said

“Contractors should satisfy themselves in respect of ground conditions”

This suggests four or six contractors go and do their own site investigation work, how is that sensible.

In truth though, multinationals are greedy and not to be trusted, at least as far as the Construction industry are concerned.  So why do we allow regional cartels who generate profit for shareholders to run our water companies?