Whether to buy or not to buy – that is the question… – Market Matters

Over the years I’ve organized a fair few building contracts to refurbish or redevelop markets, so the recent OFT inquiry into the alleged price-fixing of Council contracts was a bit close to home. I’m pleased to say it has taken the Office of Fair Trading four years to find out the system of bidding for Council contracts is working but they still fined 103 contractors for ‘anti-competitive practices’. Given the seriousness of the original allegations, I think that’s a pretty good result for Council Project Managers so I’m rewarding myself with the afternoon off. 

The myth is that building contractors sit around in smoke-filled rooms deciding who will get the next juicy Council contract for a new school or market hall etc. My experience is that in reality they’re too busy cutting each others throats to do as much. Council bidding rules and good old-fashioned competitive pressure does keep prices down for the taxpayer so the OFT had to redefine so-called ‘cover pricing’ as anti-competitive to produce a headline result. I can’t say I agree with the OFT as cover pricing is inevitable, but you may at least be relieved to know your stall rent is going up for some other reason.

‘Buying’ a building contract to deliver a project can be a tricky business. The Project Manager needs to balance the tender bid against the contractor’s competency and whether there’s enough profit left in the bid for the builder to stay in business. The last thing any Project Manager wants is the contractor going pop halfway through the job. But Council contracts don’t come along every day so contractors are keen to stay on the tender list to be offered all opportunities to bid – and that is where the problem starts.

If they’re too busy to do the work this time they’ll still want to submit a bid to show they’re keen, but they’ll pitch it deliberately too high to win the job. That represents a ‘Cover Price’, which according to the OFT is an anti-competitive practice. I would call it human nature and can’t think of a way round it, but a decent Project Manager can of course sniff it out and substitute a genuinely competitive bid. Which just goes to show that Project Managers should be running the country and not politicians. So there.

But of course different people buy different things for different reasons. Take Tesco’s purchase of the former Co-op store in Slough for instance.

In 2003 the Competition Commission launched an investigation into Tesco’s purchase of the former Co-op store – less than a mile down the road from one of the largest Tesco stores in the country – after allegations they were ‘landbanking’ the site to prevent competition. Following the probe Tesco agreed to sell the site, but only after it had used it as a temporary location throughout 2004 whilst it redeveloped its existing site. After that temporary use finished in 2005 the former Co-op store remained derelict until it’s demolition in 2007.

To counter growing criticism, Tesco then drew up plans for a new store on the empty site – smaller than the original Co-op and only a quarter of the size of

their shiny new Extra outlet – before offering the site for sale. Under pressure from local campaigners, the site has now been sold to J. Sainsbury, which might put an end to the estimated £200,000 per week additional sales Tesco has enjoyed for the last few years. A Tesco spokesman said, “We are pleased that after this long process the sale has finally been agreed. It was always our intention to sell the site. We will continue to work with the Commission to ensure the deal is completed as soon as possible.” Sainsbury tactfully declined to comment.

And finally, talking of buying the wrong things…

In a recent moment of weakness, I bought a drink for a long- suffering Assistant Supermarket Manager who hates Christmas and the pressure it brings from his psychotic Manager. His latest problem is finding floorspace amongst his Christmas goods for 5- litre containers of 15W-40 engine oil snapped-up by some buying genius at Head Office. Somehow Motor oil doesn’t sit well alongside the Christmas turkeys in ‘Market Street’.

As the beer flowed the conversation turned to more interesting topics like ‘Power Aisles’, ‘BOGOF’s’, and ‘Bait and Switch’. I already knew about Buy One, Get One Free but Bait and Switch sounded exciting – a bit like switching from salmon fly to prawn bait once the river bailiff is out of sight. Sadly, this was not so. His Manager is skilled at arranging for one product to be available at a low price (the ‘bait’) amongst a shelf stuffed with higher cost alternatives (the ‘switch’) but this time he had overreached himself. I felt quite sorry for my new friend, as engine oil can’t be high on anyone’s list of Christmas presents. Maybe I’ll nip down to his store on Christmas Eve for an impulse purchase of engine oil. But it’s more likely I’ll just BOGOF.

Happy Christmas!

Jonathan Owen is a director of Quarterbridge Project Management – a specialist consultancy providing business advice and design services to market owners and trade associations. He has a keen interest in the politics of retailing, growing vegetables and eating well.

Market Matters, published in Market Trade News magazine