BUILDING firms in Hampshire face being hit in the pocket if they pitch for contracts in cyberspace.

According to a regional legal expert in the construction industry, the growth of electronic tendering could drive down profits and even promote illegal price-fixing cartels.

E-tendering, which is said to be on the rise because it's cheaper and quicker than throwing your hat in the ring by mail or fax, means rivals can see their competitors' bids online. That could lead to companies quoting unrealistically low prices in order to secure a project.

The trend could even result in unscrupulous firms forming cartels to submit inflated prices to keep the price artificially high - and their bosses face jail if caught out.

Simon Bradley, a partner within the construction and engineering team of national law firm Shoosmiths, which has a regional office at Whiteley, near Fareham, spelled out the potential for problems.

He said: "The construction industry has been transformed by the Internet over the last ten years, with the rise of controversial electronic tendering leading many purchasers to focus on getting the cheapest price for the job, rather than the best value or quality.

"In many cases, the lowest quote will win the contract, and it is a danger that many construction firms - which generally work on low profit margins anyway - will be forced to reduce their prices further in order to compete.

"As a result, some companies will seek to abuse the system by manipulating the process and colluding with their competitors to put in high quotes - which is illegal under competition law.

"The Office of Fair Trading has already made it clear that price-fixing by collusive tendering is one of the most serious breaches of the Competition Act, which holds heavy penalties, including fines of up to ten times a firm's UK turnover, and prison sentences of up to five years.

"Companies which infringe competition law can also be sued by those who have suffered a financial loss as a result. Simply agreeing to take part in a cartel, without actually doing so, is also a major offence."

However, e-tendering is set to become more widespread. The Office of Government Commerce says that, from the end of this year, all government departments will be expected to consider the use of electronic auctions.