Case Study 12.1 Cover Pricing in the UK Construction Industry
Adam Smith (1723–90) was a Scottish philosopher and one of the most famous economists who ever
lived. His work is often cited today as the place where many of the ideas of modern economics were
first clearly and comprehensively explained. Many important concepts to which we pay great attention
in this book, such as the concept of exchange value, and the principles of supply and demand that
underlie pricing decisions, were developed in the book for which Smith is best remembered – An Inquiry
into the Nature and Causes of the Wealth of Nations – usually shortened simply to The Wealth of
Nations (1776). In the very same book, Smith warned against the ever-present danger in market
economies that producers would strive to avoid full and fair competition in order to load the dice against
consumers, or, as Smith himself more elegantly put it: ‘People of the same trade seldom meet together,
even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in
some contrivance to raise prices’ (Butler, 2007: 7).
The evidence is that the tendency of producer groups to use ‘contrivances’ to raise prices has not
diminished since Smith’s day, and governments around the world put in place laws and regulations to
dissuade producers from any ‘conspiracy against the public’ and to ensure that competition is fair.
A prominent case from the UK illustrates why such laws and regulations are necessary. In September
2009, after a five-year investigation, the UK’s competition watchdog, the Office of Fair Trading (OFT),
announced that it had imposed fines totalling £129.5 million on 103 construction firms in England,
which had been found guilty of colluding with competitors on building contracts. Technically, the nature
of the offence was considered to be cover pricing, but the news media (and even the OFT itself) used a
variety of different and more colourful terms for the practice: illegal bid rigging, price rigging, price
fixing and scam. The Times newspaper proclaimed that ‘the scale of the offences is breathtaking … all
the signs are that bid-rigging was endemic across the industry’ (Wighton, 2009), while the Daily
Mail identified the UK’s favourite entrepreneur, Lord Alan Sugar, as a victim of the ‘price–rigging scam’
