Illegal cartels and price-fixing rings will find life difficult with the introduction of the Competition Act 1998, which comes into force on March 1 this year. This new Act introduces prohibitions, modelled upon the existing EU regime, for restrictive agreements and for abuse of market power. It will apply to any agreements or conduct which affect competition in the UK or any part of the UK. The new Act will be enforced by the Director General of Fair Trading (DGFT) and by regulators in the utility sectors. The DGFT will have sweeping new powers to investigate businesses suspected of engaging in anti-competitive activity and will also have powers to impose large fines on offenders.This new regime is much harsher than the old UK regime, and many business sectors have yet to come to terms with the implications of the changes. In this Briefing we explain changes and what they mean for construction.
The Competition Act 1998 contains two basic prohibitions forbidding:
agreements which have as their object or effect the prevention, restriction or distortion of competition in the UK. This is based upon Article 81 of the EC Treaty (formerly Article 85); and
abusive conduct by one or more companies which enjoy a dominant position in the whole or a substantial part of the UK. This is based upon Article 82 (formerly Article 86).
It is important to remember that an agreement does not have to be written down.
Whether in a written contract (possibly including the partnering agreements now familiar to the construction industry) or even a casual conversation, it is always potentially illegal for competitors to reach such agreements as:
Price-fixing - never agree prices or minimum price levels.
Bid-rigging - don't take it in turns to bid for work or agree a minimum floor price across all bids.
Market sharing - developers or suppliers must not allocate territories between themselves. Don't agree to keep off each other's turf.
Customer allocation - avoid agreements of the 'you stick to hospitals and I'll stick to schools' type.
Information exchange - be careful about swapping data about contracts or market practices with competitors.
Abusing the rules
Whether or not the rules are broken hinges on whether or not you (or a group of you) are dominant. Do you have the leading position in the market for your product or service?
There is nothing wrong with a dominant position itself, but you must not abuse it. There are many examples of abuse, but the most frequent are:
Aggressive pricing - unfair, discriminatory or even predatory (to eliminate a competitor).
Loyalty rebates - a dominant supplier can only grant rebates which are based on quantity.
Tying-in - when a dominant company forces a customer to accept a second product too.
Refusal to supply - this can include reducing supplies.
Paying the price in infringement
Deep pockets will be needed for companies infringing the rules. The new regime is based on European law, and so is the policy on penalties. The European Commission has long been able to impose hefty fines (anything up to 10 per cent of a company's worldwide group turnover). It recently fined cement and concrete company RMC £34 million for market-rigging activities in Germany, and has fined a car manufacturer £102 million for similar offences.The UK competition authorities have joined the race and can now fine up to 10 per cent of UK turnover. There is every indication that they are champing at the bit to find a test case to show off their new powers. To make matters even worse for offenders, disgruntled third parties might even take an offending company to court.
In the UK, construction has had a poor record with the competition authorities.
The old UK regime, however, was longwinded and ineffective. The UK ready- mixed concrete cartel involved a nine-year investigation and it was in the context of this construction cartel that a frustrated John Bridgeman, the DGFT, declared in October 1997 his eagerness to usher in the new regime: 'It is of some satisfaction that the case against the companies involved in the ready-mixed concrete cartels has been concluded.
'But it has taken nine years to reach this point.
'We look forward to being able to speed up the whole process of dealing with cartels when new competition legislation is in place.'
Remember: there need only be an impact on trade in a part of the UK - this will bring many construction agreements or trade association practices under the potential scrutiny of the UK authorities.
An inspector calls
The Competition Act 1998 introduces far-reaching powers of investigation for the DGFT. These include the power to demand the production of documents and to make unannounced searches or dawn raids. When under a warrant, the DGFT can also use force to enter premises and search for documents
It is a criminal offence to intentionally obstruct an investigation.
Investigations bring in their wake not only fines but other costs including: lawyers' fees; the diversion of management and employee resource; and adverse publicity and effects on morale.
For more information
To find out more about the new Competition Act, you need to contact the Office of Fair Trading. It has published two short booklets giving general advice on the Act, entitled, What your Business Needs to Know, and How Your Business Can Achieve Compliance.
Also available from OFT is a series of booklets giving technical guidance on specific aspects of the Act.
All publications are available free of charge by calling the OFT's mailing house on Tel: 0870 6060321. The OFT also has a helpline for on-the-spot information. Tel: 0207 211 8989.
Detailed information is also available on the OFT's website at: www.oft.gov.uk/html/comp- act/index.html
Some do's and don'ts
make sure all your staff are aware of your rights and duties under the new law - compliance training should only take a morning;
co-operate with the authorities if you are involved in any investigation - traditionally, whistleblowers and co-operative companies have been given favourable treatment;
know when to leave meetings if any 'sensitive' topics are discussed; and
know when to seek legal advice - have your key legal documents audited for competition problems.
discuss with your competitors price, discounts, terms or conditions of sale, profit, distribution practices, bids or intents to bid, sales territories or customer selection;
forget that a meeting or an agreement does not have to be formal. Even on a golf course, or at your local pub, it is possible to breach the competition rules; and use overly aggressive language on commercial topics in any documents - including on computer.
What are Briefings?
Briefings is a regular feature which provides a concise guide to some of the most pressing current issues to affect your business or job. Comments and suggestions for future Briefings topics are welcome. Please contact Kristina Smith, features editor. Tel: 0171 505 6848 or e-mail: kristinas@construct. emap.co.uk