The Office of Fair Trading’s report on its decision in September to fine six construction recruiters a total of £39.27m makes unpalatable reading for an industry trying to raise its standards and levels of professionalism.

The OFT concluded that recruiters had entered into a collective agreement not to supply Parc, a neutral vendor operating in the construction sector and price fixing, in contravention of the Competition Act 1998.

Among the details uncovered by the OFT were:

• The creation of a cartel, the ‘Construction Recruitment Forum’ (CRT) that met on 2 November 2004, 24 February 2005, 18 May 2005, 22 August 2005, and 8 May 2005.
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  Among regular attendees were John Petersen, managing director of Anders Elite; Simon Cheshire, director South-East at Hays; Mark Bull, operations director at Hill McGlynn until May 2005 and subsequently joint managing director; and Stephen Ware, also from Hill McGlynn.

A close reading of the OFT report suggests that aside from all the other reasons, a good reason for not entering into a cartel is pragmatic — they don’t work

Ian Wolter, chairman and chief executive of Eden Brown, who attended two meetings, says this was in his capacity as a director of the Recruitment and Employment Confederation, even though the OFT investigation disagrees. “That’s their view, it’s a matter of public record,” he says.

Oblivious to the need to cover its tracks, agendas were sent out and minutes taken by Kate Harris, Mark Bull’s PA.

The OFT report concluded that Hill McGlynn initiated the forum in September 2004, when “it decided it would contact certain other recruitment agencies”.

According to the OFT, internal minutes reveal how on 15 September 2004, Hill McGlynn board members discussed how the company would ‘instigate cartel meeting to counter neutral vendor (PARC) margin erosion’.

Subsequently, according to the minutes of the CRF meeting of 12 November 2004, ‘All parties agreed not to operate below a 12.5% permanent fee rate’ in future. So could it happen again? With the recession, and the emergence of managed service providers, such as Matrix (a sister company to Eden Brown), Comensura and de Poel, who promise clients cost savings, such margin pressure is probably even more intense
today than it was in 2004. But what of the deterence effect of loss of reputation, and business?

Ian Wolter admits that Eden Brown has had “a lot of communication” with its clients about the issue. However, he says: “I don’t think we have lost business” though he adds, “it’s hard to quantify what business you might have got”.

He says that generally clients “have been very understanding about our response, namely, to introduce training for all our staff on competition law and practice”.

Gareth Osborne, managing director of the Recruitment and Employment Confederation during the period the cartel operated, adds: “Companies like Hays work for years to build their reputation and can have a huge chunk of it taken away by one stupid mistake.”

That said, he doubts whether Hays will lose much business, claiming that it will be the smaller recruitment agencies who stand to lose most. One of the consortium, A Warwick Associates, subsequently went into administration.

As to the deterrence effect of the OFT’s penalties, Wolter says the aspect of the affair that hit the business hardest was not the £1.072m fine, but the breach itself. “It is terrible to find out that your business, however unwittingly, has breached the law in this way,” he says.

That said, Wolter describes the fines imposed on Hays (£30.4m) and AndersElite (£7.6m) “as just a vast amount of money”. Eden Brown is appealing against the size of its own fine, he adds.

Wolter dismisses the idea any construction industry sector group would ever allow itself to have the sort of discussions in the future that led to the OFT investigation, arguing that “lessons have clearly been learned”.

The success of the OFT’s investigation hinged on Hill McGlynn, which was part of Vedior before its acquisition by Randstad, blowing the histle on the group’s activities. Consequently, despite Hill McGlynn instigating the cartel, under the OFT’s leniency policy, Randstad was let off its whopping £116,849,686 penalty

It is difficult to disagree with the OFT spokesperson who told Recruiter that this policy has a major deterrence effect.

A close reading of the OFT report suggests that aside from all the other reasons, a good reason for not entering into a cartel is pragmatic — they don’t work. As minutes from a CRF meeting indicate: “Parc will work with or without us and in reality don’t need the business of the group to survive. There are too many second tier suppliers working at lower fees.”

Continuing margin pressure may tempt a few rogue recruiters to stray into anti-competitive behaviour. However, following this high-profile action by the OFT, no recruiter can be in any doubt about of seriousness with which the authorities take this issue, nor the potential consequences.