The Federal Court in Brisbane has imposed penalties against three Queensland-based construction companies for engaging in illegal price controlling conduct known in the construction industry as cover pricing.

The conduct related to tenders for one Local Government and three State Government construction projects in Queensland.

Justice Logan said “This type of conduct sends to those in, materially, the State Government or a local government, false signals about price or about a range of prices for a particular building works undertaking. It creates an illusion both as to range of prices and as to the existence of a particular level of competition."

"In the particular context in which the conduct occurred in relation to the State Government projects, the conduct also involved a betrayal of trust."

Justice Logan imposed penalties against each company as follows:

  • JM Kelly (Project Builders) Pty Ltd — $600,000
  • TF Woollam & Son Pty Ltd — $450,000
  • Carmichael Builders Pty Ltd — $250,000

“This decision shows that cover-pricing is illegal and building companies who continue with this practice can expect the ACCC to ensure that the law is enforced,” ACCC Chairman Rod Sims said.

The ACCC alleges said that cover-pricing involves discussions between two potential suppliers (in this case builders) in a tender process. Company A does not want to win the contract for reasons identified above and so asks company B (who intends to make a genuine tender) to provide them with a ‘cover price’.

Both companies understand that this ‘cover price’ will be higher than company B’s tender price.

Once the cover price has been received from company B, company A (should it choose to tender) then submits its tender to the client at a price which is at or above the cover price. This gives the client the impression that both companies are tendering competitively, but the exchange of the cover price actually ensures that company A's tender price is higher than that of company B and therefore makes it unlikely that company A will be the successful tenderer.