By Julian O'Halloran
BBC File On 4
An OFT inspector believes bid rigging is endemic
It began as an investigation into irregularities at one hospital in the East Midlands.
But it has unravelled into the biggest investigation the Office of Fair Trading (OFT) has ever conducted into cartels and price-fixing in the construction industry.
A senior OFT investigator has told BBC Radio 4's File On 4 that the practice is endemic and widespread in the industry, as nearly 100 companies - including some very big names - are under investigation.
No fewer than 38 companies, a figure "unprecedented" in any OFT probe, have admitted breaching the law in the hope of obtaining lenient treatment.
In many cases a group of companies agrees beforehand who should win a contract and the losers agree to submit inflated bids, a process which will usually to raise the price for the winning bidder.
Some analysts argue fraud and corruption are often linked to this practice.
In five previous regional investigations into building contracts which ended last year, the OFT imposed fines totalling more than £2.5 million.
But it is an investigation which started at Queens Medical Centre in Nottingham in 2004 which is now dominating the OFT's agenda.
It was at that teaching hospital, one of the busiest in Britain, that an internal audit uncovered serious irregularities in building projects commissioned by the Nottingham University Hospital NHS Trust.
The precise details are still to be revealed, but a trust statement said the total value of the contracts investigated there was £30m for major capital building projects.
It said the trust's system for awarding contracts was rigorously audited and actions had been taken to address weaknesses that could have allowed the corrupt award of contracts.
At the hospital, a Serious Fraud Office investigation concluded there was not enough evidence to bring a prosecution.
An architect who worked in the estates department is still suspended on full pay.
But the OFT investigation which began there has since spread across England.
"The investigation started in a pretty limited way into a set of contracts for one particular purchaser the Queen's Medical Centre," said Sean McNabb, senior investigator with the OFT.
"As we conducted these visits we found that the type of activity we were investigating involved other companies, involved other contracts and spread into other areas."
He said 57 companies had been visited so far under the Competition Act, but confirmed the final number of companies investigated could be nearer 100.
Mc McNabb added: "We have also received a total of 38 applications for leniency - which is unprecedented - where companies admit their involvement in bid rigging in return for a reduction in any financial penalty which the OFT may impose."
He said the OFT suspected thousands of contracts have been the subject for bid rigging.
Contracts worth more than £3bn are currently under scrutiny. At one stage, teams of investigators were raiding several companies at once.
Mr McNabb admitted the growth of the investigation was unexpected and he did not rule out criminal prosecutions.
Despite this OFT action, George McKillop - the managing director of a firm which investigates malpractice in the building trade, Haymarket Management Services - thinks many bid-rigging cases will never come to light.
"I think it's probably the tip of the iceberg," he says. "Our experience is that fraud in the construction industry is widespread and this covers all sorts of new-build contracts, refurbishment contracts, and maintenance contracts, where overcharging can be disguised within invoices."
Labour MP Gordon Banks, who runs his own building supplies company, said he is shocked at what the OFT has uncovered.
"I've worked in the construction industry all my life and I take no pride in the fact that the industry I worked in prior to coming to the House of Commons has proven to have areas of it which are, quite frankly, rotten," he said.
Dr Will Hughes, professor of construction management at Reading University, says there are many pressures on building firms.
He said sometimes over-stretched contractors submit bogus bids on the unfounded fear they may not be considered for future contracts.
But Mr Banks has no sympathy for builders that use this excuse.
"I really do not think it is tolerable of the construction industry to say 'Sorry, we're too busy, we couldn't price the job properly so we've just carved up a deal with the company next door'. That does the construction industry no good and it does UK plc no good."
The Construction Confederation, which represents about 4,000 companies, would not comment until the OFT investigation was completed and published and it could take an informed view.
Learn more about this story on File on 4, broadcast on BBC Radio 4 on Tuesday 10 July 2007 at 2000 BST and again on Sunday 15 July 2007 at 1700 BST.