BDO chief reveals cost of pricing wars

Jeremy Newman’s comments in his online blog over how BDO Stoy Hayward was
muscled out of a contract by a Big Four firm have raised questions about whether
the top firms frequently lower their prices to steal contracts from under the
noses of smaller firms.

Newman asked whether this practice could be seen as ‘unfair competition’
after a Big Four firm, which initially pitched its fee at over £600,000, brought
it down to just £220,000 and won the contract even though it was still £20,000
higher than BDO’s quoted price.

Newman told Accountancy Age that it was an indication of the extent
to which some companies would go to have a Big Four firm do their audit work.

It is a point worth considering especially since Newman’s blog suggests that
it was the European parent company that pushed for its UK subsidiary to obtain
the work from the Big Four.

If true, it could be seen as institutional prejudice – and certainly the
point Newman wished to bring out into the open.

The issue it raises is that BDO may have to deal with institutional prejudice
against its foreign firms, and not just at home.

Newman further asked whether this could be a case of ‘predatory pricing’ by a
Big Four firm.

However, legal experts have poured cold water on the story, saying it is an
isolated incident.

Kathryn Cearns, consultant accountant at law firm Herbert Smith, said there
was no evidence that such incidents happened widely in practice.

‘It’s very difficult to take an isolated example out of context and draw
conclusions that there is unfair competition or predatory pricing. One would
need to look more systematically across the market. We’ve not seen any evidence
of predatory pricing by the Big Four,’ she said.

Hardeep Nahal, also of Herbert Smith, said that cases of predatory pricing
usually began as a result of a company trying to drive down audit costs.

‘This would happen when someone has sustained a campaign to drive down prices
across the board. But this is an isolated example and therefore difficult to
draw too many conclusions from,’ Nahal said.

Cearns pointed out that the Competition Commission had undertaken studies
into predatory pricing in the accounting market and found no evidence of it.

‘One can’t restrain companies from choosing whose services they will opt
for,’ said Cearns.