Finances & Real Estate Widespread price-fixing alleged in Toronto home construction

Widespread price-fixing alleged in Toronto home construction

Competition Bureau accuses concrete contractors of colluding since 1997
By Zach Dubinsky, CBC News
Posted: Jan 31, 2013

http://www.cbc.ca/news/canada/toron...petition-bureau-price-fixing-allegations.html

A construction-industry conspiracy to inflate the price of building foundations for houses has been operating for nearly 15 years in the Toronto area, Canada's Competition Bureau maintains in a 120-page search-warrant application obtained by CBC News.

The bureau says some of the biggest companies that pour concrete basement foundations for new homes have:

• Agreed to fix prices.
• Established agreements not to compete.
• Attempted to stifle smaller competitors.

With more than 330,000 new houses built in the Greater Toronto Area since 1997, the alleged price-fixing could have added hundreds of millions of dollars to the total tab for home construction — or several thousand dollars per house.
McGill University competition-law expert Richard Janda says the case has some similarities to the Quebec construction industry, where a public inquiry has unearthed pervasive collusion. McGill University competition-law expert Richard Janda says the case has some similarities to the Quebec construction industry, where a public inquiry has unearthed pervasive collusion. (CBC)

"It's pretty striking," McGill University law professor Richard Janda, an expert in competition law, said after reviewing the documents obtained by CBC News. "It's fairly weighty evidence."

Those documents allege that up to 10 companies in the concrete-forming business — those who assemble the moulds for basement foundation walls, pour concrete into them, then dismantle the frames — either orchestrated or abided by the price-fixing scheme. They supposedly crafted their arrangements through the Residential Low Rise Forming Contractors Association of Metropolitan Toronto and Vicinity and pressured rivals who tried to undercut their fees.

"The alleged co-conspirators allegedly participated in, and may be continuing to participate in, meetings, telephone conversations and other forms of communication among themselves and/or with their competitors for the purpose of exchanging competitively sensitive information, fixing prices and allocating customers," the warrant application reads.

An Ontario Superior Court judge granted the application last March, allowing Competition Bureau officers to raid the offices of three of the companies and the industry association and to cart away financial records and thousands of paper and computer files.

So far, no charges have been laid and none of the allegations in the search warrant application has been tested in court.

CBC News contacted the companies named in the warrants, and all refused to comment. Their association would only answer questions by email, saying "we expect to be exonerated once the facts are known."

'The way business is done'

Several industry insiders told CBC News it's "common" that concrete forming companies discuss their prices with each other.

"It's the way business is done. This is very common," said a veteran construction manager at a Toronto-area homebuilder, who asked to remain anonymous, citing concerns about compromising his business relationships. "They have a coffee … they talk about suppliers — and eventually there's a typical consensus of where prices should be."
Homeowners possibly stung

The Competition Bureau court documents suggest the cost of pouring the foundation of a new home in the Toronto area might have been inflated as much as 20 per cent in most cases. CBC News crunched the numbers and determined that represents between $1,500 and $4,000 per house, depending on the size and height of basement walls. The total tab to all affected homeowners would be between $363 million and $969 million.

"We're talking some really big numbers here," said Steve Silverberg, a forensic accountant who verified CBC's calculations.

He also said that in cases where a contractor has an established relationship with a homebuilder, rival formwork companies will rarely try to snatch away that work. "They'll say, 'Either you're going to get the contract or I'm going to get the contract, but at the end of the day, you know, we have to help each other out and we shouldn't price below this level.' "

But the construction manager said he doesn't believe that the consumer suffers. "I don't think that it has enough of a bearing on the end price," he said, adding that he would rather companies talk among themselves about their prices than have one bid so low that it ends up losing money.

Competition-law expert Janda, however, said the whole idea of a free market that yields better service and prices "disappears" when companies collude.

"Who loses is the public," he said. "It's pretty similar to theft, in the sense that rather than having prices that are set according to who can offer the best service and who can do so most cheaply, prices are set according to, basically, a monopolist.

"When allegations of this kind started to emerge in Quebec in the construction industry, people started paying attention to the possibility that the entire structure of the industry was problematic."
Decade-old concerns

Concerns about concrete formwork in the Toronto area first surfaced more than a decade ago, according to the Competition Bureau warrants and other documents obtained by CBC News. In 2000, the warrant application shows, the owner of a concrete-forming company wrote to the industry association worried about measures he thought were "illegally restricting competition." Two years later, a letter from another concrete-forming contractor cited "what I seen and heard at the meetings … fixing prices to $32/foot."

n both instances, the documentation shows the Low-Rise Forming Association replied rejecting the accusations.

The two contractors finally took their complaints to the Competition Bureau in 2010, it says in its warrant application, sparking the current investigation. The bureau's application says one of them — Lou Rocca, also a Toronto restaurateur — became its main informant, providing years of documents from Low-Rise Forming Association meetings.

The most explicit of those is a "standard contract" form that, Rocca is quoted telling bureau officers, the conspiring companies would use to set their prices. A copy of the boilerplate contract submitted as part of the Competition Bureau's court filing has prices already printed in it for certain types of concrete-forming work, and Rocca told officers the companies would circulate it at the association's spring meetings and agree on what to charge for that year.

Another document, minutes from an association meeting, contains a reference to an investigation into "underpricing." Rocca told the Competition Bureau that was an instance when rivals wanted to challenge him because he refused to go along with their scheme.

Yet another file, notes supposedly taken by Rocca's lawyer at an association meeting, quotes a frustrated forming-company owner sarcastically saying, "I have to go back to the cartel and ask permission" before signing any new contracts with home builders.

The bureau's court filing says Rocca told officers that his competitors also repeatedly spoke at those meetings of "an agreement between all of us," of having to "stick to the LRFA prices as we asked you to" and of a need "to control this."

Further documents detail trips that executives from different companies took together to Las Vegas and the Bahamas, trips that Rocca says were pitched as occasions for ostensible business rivals to sow the camaraderie required for them to collude.
Industry infighting

Others in the construction industry say Rocca's accusations are just the latest salvo in a still-simmering spat between him, his competitors and the labour union representing all their workers.

"Allegations by Halton Forming should be taken with a large grain of salt," the Low-Rise Forming Association's lawyers wrote last June in a letter to Toronto-area homebuilders.

The Competition Bureau investigation is still underway. Once complete, the bureau will decide whether to forward the file to federal prosecutors, who would in turn weigh whether to lay criminal charges under the Competition Act. The maximum penalty for price-fixing is 14 years in prison and a $25-million fine.

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