Galliford, Rok Contacted in U.K. Construction Probe

Galliford Try Plc, a U.K. builder, has been contacted about contract tenders by the U.K. Office of Fair Trading as part of its biggest-ever construction cartel investigation. The shares fell as much as 4.5 percent.

Galliford said it received a letter relating to 17 bids submitted from 2000 to 2005 by its building division, the Uxbridge, England-based company said in a statement today. The company said it's cooperating with the probe and that the tenders accounted for a ``small proportion'' of the division's bidding during the period.

The Office of Fair Trading is investigating an estimated 3 billion pounds ($6 billion) of rigged contracts in a probe focused on the east Midlands and Yorkshire regions that has lasted more than two years and involved raids on 57 builders. Companies can be fined as much as 10 percent of their annual revenue if found guilty of price fixing.

``Investors are spooked because they don't know what's happening,'' said Colette Ord, an analyst at Numis Securities in London with a ``hold'' rating on Galliford and Kier. ``We don't know what the OFT will do or what the monetary impact may be and that's bound to have a negative impact on construction stocks.''

Shares of Galliford dropped 7.25 pence to 171 pence, their sharpest intraday decline since March 29. The stock has gained 17 percent in six months, giving a market value of 644 million pounds. Kier shares fell 48 pence, or 2.1 percent, to 2,222 pence.

Rok Contacted

Rok Plc, a U.K. builder and developer, said separately it also received a letter from the OFT related to ``a small number of tenders.'' Kier Group Plc said May 25 it has been contacted in relation to 20 tenders.

A spokesman for the regulator, Nick Spears, said there's an ongoing investigation into bid rigging in the construction industry and the office doesn't comment on which companies are involved. There will be an announcement in due course he said.

The OFT said March 22 it has uncovered evidence of so-called cover pricing, where bids are submitted that are not designed to win but intended to give the appearance of competition. The regulator accelerated the probe, citing the extent and quality of the evidence obtained. The U.K. building industry is valued at about 100 billion pounds annually, according to the London-based Construction Confederation.

A total of 37 companies applied for leniency in exchange for assisting with the probe and the regulator said in March that no further submissions will be accepted.

Some builders paid each other ``bungs,'' or payments compensating rivals for submitting an overpriced bid, the OFT said. For the first time in a cartel investigation, officials used forensic practices to gather digital evidence from computers.

The investigation involves companies carrying out general building work, housing and commercial building including repair and maintenance projects. It doesn't cover highway construction and civil engineering such as bridges and railways.

To contact the reporter for this story: Sophie Kernon in London at skernon@bloomberg.net.

To contact the editor responsible for this story: Chris Jasper cjasper@bloomberg.net.

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