Charles Livingstone and Adam McCabe from Brodies discuss the Competition and Markets Authority’s plans to tackle anti-competition cartels in the construction sector.
In the past two years the UK Competition and Markets Authority (CMA) has fined businesses over £150 million. With an increase in tip-offs in 2017, an expanded enforcement budget and plans to open a new operational office in Edinburgh, Scottish construction businesses must be alert to the increased risk of cartels being uncovered and punished.
The CMA has now launched a new “Be safe, not sorry” campaign to encourage more whistle-blowing about anti-competitive behaviour. The CMA is specifically targeting the construction and manufacturing sectors, which have “either a history of reported cartel activity or characteristics that make them vulnerable to cartels”.
The penalties for rival businesses that agree to coordinate their behaviour rather than compete with each other include severe fines, imprisonment and director disqualification. The most serious infringements (known as cartels) involve fixing prices, sharing customers or markets, and rigging bids. Sharing commercially sensitive information is also illegal. The impact on customers and competitors can be significant, with prices kept artificially high and choice, quality and innovation all suffering.
The construction sector is a long-standing target for competition regulators. The Organisation for Economic Co-operation and Development (OECD) named it a global “serial offender” for “endemic collusion”, alongside concrete and cement.
In 2009 the Office of Fair Trading (the CMA’s predecessor) famously fined over 100 construction firms a total of £63.6million for widespread bid-rigging spanning some 200 projects. This predominantly took the form of “cover pricing” where bidders ‘took turns’ to win contracts, the designated ‘losing’ bidders submitting inflated prices to ensure the chosen ‘winner’ got the contract. In the same year, six construction-focused recruitment agencies were fined almost £8 million for fixing the prices charged to construction firms and forcing a rival company (an intermediary between the agencies and construction firms) out of the market by agreeing to boycott its services. Construction companies therefore have a history as both perpetrators and victims of cartels.
The CMA’s new campaign encourages businesses to come clean on cartel activity. Under the CMA’s ‘leniency’ policy, the first cartel participant to confess to the CMA will usually get full immunity from fines, imprisonment and disqualification. It is therefore vital to act fast if you think you have been involved in a breach. However, you should also get specialist legal advice and support to ensure your interests are protected and the CMA is approached in the right way.
Proactive competition law compliance is also extremely important. The CMA expects businesses to know the rules and ensure they are followed. Appropriate measures can include written policies and staff training that explain competition law and the steps necessary to mitigate the key risks. This is particularly important for high-risk sectors such as construction.
- Charles Livingstone and Adam McCabe are partner and senior solicitor at Brodies LLP respectively