Background
In 2019, the UK Competition and Markets Authority (the 'CMA') continued to crack down on anti-competitive behaviour in the construction sector and entered into 2020 with three open investigations in the sector.
Research carried out for the CMA in 2018 revealed that 79 per cent of the 145 businesses surveyed in the construction sector had come into contact with other businesses in the sector. However, only 19 per cent of those firms considered themselves to have a good awareness of competition law and only 32% were aware of the financial sanctions that can follow an infringement of competition law.
During its investigations in the sector, the CMA has considered whether there has been an infringement of Chapter I of the Competition Act 1998, which prohibits anti-competitive agreements (the 'Chapter I Prohibition'). Sanctions for infringing the Chapter I Prohibition include fines of up to 10 per cent of a company’s turnover, and disqualification of directors for up to 15 years.
What were the key cases in 2019?
1. Galvanised Steel Tanks
In February 2019, the Court of Appeal handed down a ruling which upheld the CMA’s findings in the Galvanised Steel Tanks decision. The CMA’s decision was issued in 2016, and concerned a ‘one-off’ information exchange at a meeting whereby the appellant was asked by certain parties to join them in a customer allocation and price fixing arrangement. Although the appellant refused to join what the CMA considered as a cartel arrangement (which was subject to a separate fine and decision in the same case), the parties exchanged competitively sensitive information, such as pricing intentions, during that meeting. This one-off exchange was sufficient for the CMA to conclude that the parties to that meeting had breached the Chapter I Prohibition and the CMA fined the appellant £130,000.
2. Roofing materials
In March 2019, the CMA issued a statement of objections to three rolled lead suppliers in which it provisionally found that the suppliers breached competition law by agreeing to allocate customers, collude on prices and exchange competitively sensitive information. The CMA also alleged that the suppliers collectively refused to supply another company whose business threatened the stability of the cartel. The suppliers allegedly account for approximately 90 per cent of the market for the supply of rolled lead in the UK and the CMA is due to provide an update on the investigation in February 2020.
3. Groundworks product supplies
The CMA issued a statement of objections to three groundworks products suppliers in April 2019. The CMA provisionally found that the suppliers in question had agreed to coordinate their commercial behaviour (particularly in relation to pricing), including through the sharing of competitively sensitive, confidential pricing and strategic information. The CMA was made aware of the alleged anti-competitive conduct after one of the suppliers informed the CMA of the conduct under the CMA’s leniency programme. Under the CMA’s leniency programme, companies can receive immunity from or a reduction in fines if they provide the CMA with information about the cartel, subject to certain conditions.
4. Design, construction and fit-out services
In April 2019, the CMA issued an infringement decision against six companies in the design, construction and fit-out services sector. Five of the six companies agreed to pay fines totalling approximately £7 million for cover bidding conduct, which included a 20% settlement discount, and one of the companies received a 25 per cent discount under the CMA’s leniency programme. The sixth company was granted immunity from fines for having brought the conduct to the CMA’s attention under the CMA’s leniency programme. In addition, the CMA secured director disqualification undertakings from six directors of some of the companies involved for a duration of between two years and five years.
5. Pre-cast concrete drainage products
In October 2019, the CMA issued an infringement decision against three suppliers of pre-cast concrete drainage products. The companies were fined a total of approximately £36 million for agreeing to fix or coordinate their prices, share the market by allocating customers and exchanging competitively sensitive information. The CMA considered that senior executives of each of the undertakings engaged in meetings for nearly seven years in which they decided to continue to implement the anti-competitive conduct. The CMA also secured director disqualification undertakings from two directors of some of the companies involved for a period of seven years and six months and six years and six months respectively. In 2017, a third director pleaded guilty to the cartel offence under the Enterprise Act 2002 and was also disqualified from acting as a director for 7 years. Under the cartel offence, individuals can be held criminally liable for the most serious types of competition law infringements (including bid rigging, market sharing and price fixing) and can be imprisoned for up to five years. In this case, the director in question was sentenced to two years’ imprisonment, suspended for two years.
In December 2019, one of the parties fined by the CMA filed an appeal in the Competition Appeal Tribunal against the CMA’s findings and the penalty imposed.
Looking ahead
The cases above illustrate the CMA’s continued focus on cartels in the construction sector and show that the consequences of infringement can be significant for the companies and individuals involved. In the pre-cast concrete drainage products case, the CMA stated that it will not hesitate to issue appropriately large fines where necessary and will crack down on cartels in the construction sector and in other industries.
In 2020, we can expect that the CMA will progress its ongoing investigation in the roofing materials sector, the next update for which is expected from the CMA by the end of February 2020. We also expect the CMA to progress its investigation into the groundworks product sector, following the CMA’s statement of objections in April 2019 on which written and oral representations were due by December 2019 (following two deadline extensions giving the parties additional time to respond).
The CMA is also currently investigating suspected anti-competitive conduct relating to the supply of construction services. However, the investigation is still in its early stages and details of the suspected conduct and specific construction services involved have not yet been published as at the date of this article.
The CMA has also recently commenced director disqualification proceedings against two additional directors involved in the pre-cast concrete drainage products case.
Given the number of construction cases in 2019 and the CMA’s ongoing focus on the sector in 2020, businesses operating in the sector would be well advised to put in place a competition law compliance programme or otherwise ensure that their current compliance programme is fully up to date, bearing in mind the following points:
- Conduct in question – The CMA’s recent cases shed some light on the most common anti-competitive conduct that takes place in the construction sector, such as collusion on pricing, cover bidding, customer allocation, and the exchange of competitively sensitive information. Any interaction with competitors should be treated with caution, including one-off exchanges or even just the receipt of competitively sensitive information from a competitor.
- Senior management responsibility – The cases also highlight the serious consequences for directors for competition law infringements. In two of the cases, eight directors were disqualified from acting as directors. In addition to civil liability, directors can also be held criminally liable under the cartel offence. The threat of director disqualification, as well as individual criminal liability necessitates the need for competition law compliance from the top down.
- Competition law awareness – As mentioned above, only 19 per cent of the construction firms surveyed as part of the research for the CMA in 2018 considered themselves to have good awareness of competition law. It is possible that some of the CMA investigations could have been avoided if the relevant individuals had better awareness of competition law. As such, businesses operating in this sector should ensure that they provide competition law training to the relevant individuals as well as competition law guidelines so as to increase competition law awareness and help reduce the risk of infringement.
Burges Salmon has significant experience advising clients on competition law investigations including in the construction sector, and offers expert advice in relation to conducting competition law audits, putting in place or updating competition law compliance programmes, providing tailored competition law training, and on internal investigations and leniency applications. If you have any questions on the issues raised in this article, please contact Chris Worrall or your usual Burges Salmon contact.
Written by Sandra Mapara and Paschalis Lois.