LONDON BUILDERS' CONFERENCE (Hansard, 7 November 1952)

§ Mr. Percy Wells (Faversham)
The matter of the London Builders' Conference, which I now bring to the attention of the House, is of considerable importance to all who are concerned with building charges, whether as individuals, as taxpayers or as ratepayers. I say at the outset that this is no party matter. The debate might very well have been initiated by a Member on the other side of the House who was in possession of the information which I now propose to place before the House some time before it came into my hands. Had the hon. Member chosen to do so, I should, of course, have supported him.
The London Builders' Conference has been in existence for a number of years. I hope to show that behind this innocent sounding title there exists an organisation with very wide ramifications and which exercises a control over building tenders that not only makes a farce of competitive tendering, but extracts large sums of money from those for whom the work is performed, without performing any service whatever to the building owner.
The activities of this organisation are not, as the name implies, confined to London only; they are nation-wide. There are regional conferences up and down the country and these operate in conjunction with the London Builders' Conference. The brain behind these conferences, both in London and the regions, belongs to a most industrious and high grade ex-civil servant who is reputed to receive a salary on a par with that of the Prime Minister.
The London and regional conferences are concerned with contracts of from £3,000 to £250,000. Above that sum interest is transferred to another conference called the "Major Contractors' Conference" which covers contracts anywhere in the United Kingdom, has the same 557 chairman as the London Builders' Conference, and operates from the same offices at 32, Portland Place, W.1.
Membership of the conference is open to any firm without entrance fee or annual subscription. They are allowed to quit at any time upon giving three months' notice. Should a firm not desire to enter into membership of the conference, it can become what is known in the constitution of the London Builders' Conference as a "co-operative nonmember." Although the membership of the conference is easy and cheap, it carries a certain number of obligations.
For instance, every co-operating nonmember or member, as soon as he has decided to tender for a job, must immediately inform the conference chairman, Sir Alfred Hurst, of his intention so to do. The reason for this is made perfectly plain in a letter which has come into my possession addressed from the conference head office on 24th January, 1951, to certain tenderers, in the following terms: DEAR SIRS. The following contract has been reported to this office as a Competitive Conference job under the Rules of the Conference: Employer, Kent County Council. Description: Adaptation to form Old People's Home, Court Royal, Tunbridge Wells, and according to our information the under-noted firms are competing for it … Then follows a list of 16 firms who are about to tender for this contract. This has been checked and found to be correct.
This allows tenderers to know exactly with whom they are competing, and it also enables them to get together and fix upon a minimum price for this contract. This obligation to report—I now quote from the London Builders' Conference constitution and rules, paragraph 15: should extend to all building or civil engineering work anywhere in the United Kingdom estimated to cost more than £2,500. Members must also report: information coming to their knowledge in regard to the competition of non-members. The next and fundamental obligation of members and their co-operating nonmembers to the Conference is—and here I quote again from paragraph 18 of the Conference constitution—to report in confidence to the chairman the preliminary price at which he would propose to tender. The House will appreciate that this information is forwarded to the chairman 558 of the London Builders' Conference or the regional conference, whichever it may be, before any tender has been sent to the person for whom the work is to be done.
What happens to these prices when they reach the offices of the Conference? Are they checked by a body of experts? Not at all. The highest one-third, when more than five tenders are received, and the highest in excess of three when five or less tenders are received, are eliminated. The average of the remaining two-thirds or the last three, as the case may be, is taken as the fair price. To this is then added £5, plus 2s. per £100 of the balance up to £50,000, plus 1s. per £100 in respect of cases over £50,000, for each person tendering. As "The Builder," the trade journal, stated in a leading article on 29th August this year, this could make a difference of £550 on a £15,000 contract if 10 firms tendered.
If I may, I will give an example to the House in order to show the way in which this works out in practice. We will suppose that 12 firms submit preliminary tender prices for a school to the London Builders' Conference. The highest four are eliminated, it being a common practice in the building industry that firms which do not wish to have a particular job, but who wish to be kept alive on the list of tenders, are eliminated. That leaves the remaining eight firms, and they tender as follows: £50,100; £49,600; £49,450; £49,300; £49,250; £49,100; £48,700, and the last, which, of course, is the one that is of importance to us, £48,200.
Assuming that the lowest tender might otherwise have been accepted, the job would be done for £48,200, which is the lowest tender price. Because of the London Builders' Conference scheme, however, the average of the lowest eight prices will be taken, and this works out at £49,212. To that is added the £5 for each tender, and then the 2s. per £100 to which I have referred, which adds a further £550 on the lowest price, making it £49,762, or £1,562 more than it was originally. Incidentally, this is equal to the product of a 3½d. rate in the largest local authority area in my constituency.
This latter sum is then called the fair price, and becomes the lowest tender price from members of the London 559 Builders' Conference and their co-operating non-members. The other prices are adjusted in order that the person who sent in the lowest price would still be the lowest tenderer from amongst the membership of the London Builders' Conference.
If successful he would be expected to hand the £1,562 that he had received in excess of his lowest price to the Conference. This £1,562 is then shared equally between the 12 firms that tendered, less a deduction of 25 per cent. in the case of a member and of 33⅓ per cent. in the case of a co-operating nonmember. It will be seen that not only is the owner paying £1,562 more for the job than he would do otherwise, £1,562 from which he derives no benefit, but that 11 firms receive payment for no service to him whatever.
Further if a member or a co-operating non-member loses a contract owing to having carried out the chairman's instruction to increase its price—and I now quote from paragraph 28 (3) of the London Builders' Conference objects and rules— Compensation will be paid at the rate of 1 per cent. of member's preliminary price up to £100,000 and of half per cent. on any excess over £100,000. This has been described in many quarters as a racket. To what extent it has increased the cost of building it is not possible to tell, but the sum must be tremendous. It is an impudent and unjust extraction for which the owner receives no benefit.
That the activities of the London Builders' Conference are open to condemnation is agreed by the Royal Institute of British Architects, the Chartered Surveyors' Institute and that very reputable trade journal "The Builder."
A letter to over 500 members of the London Builders' Conference, dated 21st July, 1952, sent out by Sir Alfred Hurst states: As a result of a semi-official discussion I had with leading officers of the Ministry of Works, that Department has in no case insisted on the signature of the Declaration and no firm has been penalised on that account. I have already received from the Minister of Works the assurance, which I accept unreservedly, that this statement is not correct. I mention it now to show the lengths to which the chairman of the London Builders' Conference is prepared 560 to go in order—and I quote from the concluding paragraph of the letter to which I have referred—to continue the solid front that has hitherto proved so successful. So successful in what? The fleecing of building owners. This letter was sent out because the Building Committee of Kent County Council had informed all firms on their list of tenderers that for all work exceeding the estimated cost of £3,000 they would be required in future to sign a declaration similar to that drawn up by the Ministry of Works in March last year.
We have been told that these additions to prices are not very frequent. Nobody but the chairman of the London Builders' Conference knows that. As far back as 6th October he was invited by the Kent county architect in a letter which appeared in "The Builder" to state the number of jobs dealt with since the war by the L.B.C.; the number of jobs where the preliminary prices have been adjusted to a "fair price"; the sum total of adjustments so made, and whether the office records of the London Builders' Conference would be open for inspection to justify any of the figures given.
There has been no reply. So far as I have been able to ascertain, all responsible people in the building industry who do not benefit directly from the L.B.C. scheme condemn it. When a responsible and large-spending local authority such as Kent County Council find it necessary to seek protection from such a body, surely there is something seriously wrong. I know that the right hon. Gentleman's powers are limited, but I ask him to endeavour to persuade his right hon. Friend the President of the Board of Trade to refer this matter to the Monopolies Commission, and meantime to see that the declaration drawn up by his own Department is strictly implemented in Government and local government contracts.
The Royal Institute of British Architects in their Journal reported on 5th August, 1951, that the R.I.B.A. Council had met and re-affirmed its strong disapproval expressed by the Council in 1939 of the methods of the Conference in regard to price-fixing arrangements. The Council deprecated particularly the procedure which has the effect of adding an amount to the contract price for which the building owner receives no visible or tangible return. 561 In view of such general condemnation by those who are so closely connected with the building industry, and in view of the present tremendously high cost of building, I beg the Minister, with some confidence, to take whatever steps are open to him to remove this parasitical organism from one of our fundamental industries.

§ The Minister of Works (Mr. David Eccles)
The hon. Member for Faversham (Mr. P. Wells) has certainly done the House a service in raising a very serious matter. He made a generous reference to my hon. Friend the Member for Maidstone (Mr. Bossom), whom we are sorry is not with us today.
This certainly is a matter in which both sides of the House are interested. It is quite clear from the constitution of the London Builders' Conference that it contemplates arrangements which must limit competition and raise the price of building. These arrangements were firmly condemned in the Report of the Simon Committee in 1944, but I will not read the passage as my time is short.
No Government can remain indifferent to practices which have the result that the hon. Gentleman has described. It might be thought that the obvious thing to do is for me to ask my right hon. Friend the President of the Board of Trade to refer this Conference to the Monopolies Commission. Against that, it is a very long and cumbrous proceeding, and I want results quicker if I can get them. I should like, first of all, to try to persuade the builders in these Conferences to look very closely again at their arrangements and to end them in the national interest and, I may say, in their own.
This Conference was set up before the war, and there were many restrictive practices introduced in those inter-war years for which there is no excuse today. It has been argued, as I think the hon. Gentleman said, that since the war the powers to knock out the lowest tenders and to raise the cost by these adjustments have not been very much used. In this House we have often heard arguments of that kind from Ministers on the Government Front Bench. Ministers are apt to say that their powers are not dangerous because they are so seldom used, but I think any House of Commons man, who 562 is a friend of liberty, knows the answer to that, which is "If you do not need the powers you ought to drop them."
Today there is plenty of work in the building industry. We are going to have more steel for building next year, and so there will be more licences and more work to do with our present labour force. It is, therefore, of the highest importance that any arrangements which add to prices should not be accepted.
As the hon. Member said, the Ministry of Works has taken some steps already. Our duty as a building Department is to protect the taxpayer whose money is involved when we place contracts, and my predecessor, who was alarmed at the actions of the London Builders' Conference, quite rightly, decided to require every firm which tenders for a Ministry contract to sign or to refuse to sign a certificate which asks for three assurances.
The certificate reads: We declare that we are not parties to any scheme or arrangement under which:

(a) we communicate the amount of our tender to any other person or body before the contract is let;

(b) any other tenderer for the works, the subject of our tender, is reimbursed any part of his tendering costs;

(c) our tender prices are adjusted by reference directly or indirectly to the prices of any other tenderer for the works."

We ask all our tenderers to sign or to refuse to sign that, and it is a measure of protection. But I am not sure that we have gone far enough.

§ Mr. C. W. Gibson (Clapham)
Has the right hon. Gentleman asked local authorities to do the same?

§ Mr. Eccles
I am going to do so—I think it would be a good thing—but I want to suggest some other lines of action.
The R.I.B.A. have endorsed the use of that certificate. That is significant, because the architect is the man whose professional responsibility it is to see that the client does not pay too much for a building. I am afraid that all architects have not insisted upon this certificate. If they had, I do not see how these Conferences could have continued in existence.
The House may think it reprehensible that the Ministry of Works and the architectural profession have not between 563 them been able entirely to deal with the Conferences. The reason may be that our whole system of tendering leaves much to be desired. In these days, when a licence is a long-awaited signal to go ahead, the building owner is often unwisely impatient to start directly the licence arrives, although the architect may not have prepared the plan in detail and the quantity surveyor may not have got out his bill of quantities. The building owner may, nevertheless, press for a start, and thus the contractor very often has to tender on insufficient information. The result is that there is a very strong temptation among many builders to protect themselves against after-thoughts, modifications and increases in the cost which are not apparent from the original document which the architect sends in.
That is all very bad, but it does not mean that we should simply drop the Conference methods to cure the situation. We must go to the root of the matter and improve the combined operation of architect, quantity surveyor and contractor which is unsatisfactory. I believe the lead here should come from the profession. It should come from the R.I.B.A. The Minister of Works will give all the help it can.
I want these Conference methods to go quietly, and I propose to conclude by saying two things to my friends in the building trade who are members of these Conferences. I would point out that some of the very best firms in the country are members. First, I want them to help me to get rid of all restrictive practices in the building industry. The national interest demands that we do so. We have a very great challenge to meet in building quicker, cheaper and without loss of standards. The country wants more investment, and we really must not let it down, but restrictive practices stand in the way of doing the maximum amount of work at the lowest reasonable cost. How can I ask the building trade unions to consider abandoning any restrictive practice if it is known that employers are making use of these Conference arrangements?
Secondly, I am against nationalisation and State control, but what more serious argument for nationalisation and State control can be found than arrangements between the employers for fixing prices 564 and limiting competition? The consumer's interest can be safeguarded, however, either by a free choice of supplier or by State-control of prices. I do not believe in State-control of prices. Therefore, I wish to see the consumer satisfied that he is safeguarded by free and fair competition. I would say to my friends in the building industry, who are doing a very good job, that they need have no fear either of unemployment or of nationalisation if they will keep their costs down and do good work at competitive prices, and he seen by the public to be doing so.
There is here a very deep interest for them concerning their own future, and I hope that they will not overlook the importance of freedom and the price which we all have to pay for freedom, that is, fair dealing and good service to the public. I wish to ask them to take note of the arguments which the hon. Member for Faversham has put forward and of the remarks which I have just made. The hon. Member has done a service, and if we can get a quick settlement of this matter I think it would be to the satisfaction of the House and of the country.

§ Lieut.-Colonel Marcus Lipton (Brixton)
Will the right hon. Gentleman do his best with the Minister of Housing and Local Government to protect local authorities, or at least encourage them to require the same condition from contractors as he, as Minister of Works, requires from people who tender for Government contracts?

§ Mr. Eccles
Yes, I will. I am under the impression that quite a number of local authorities do not really know of the existence of the Conference.

§ Mr. C. W. Gibson
Will the Minister, in the event of this attempt to settle the matter in a friendly way behind the scenes failing, ask the Monopolies Commission to have a look at this matter urgently and give him some strong recommendations on it?

§ Mr. Eccles
I have already put that possibility to my right hon. Friend, and we shall certainly keep it in mind.