CMA investigation into anti-competitive practices within construction industry

The Competition and Markets Authority launched an investigation into suspected anti-competitive practices within the construction industry

On 19 March 2019 the Competition and Markets Authority (CMA) announced that it was investigating suspected anti-competitive behaviour in the supply of construction services in the UK.

On 8 March 2019 the CMA was granted a series of warrants by the High Court to conduct dawn raids at commercial premises in London and the South East to seize information and documentation likely to assist the investigation.

The focus of the investigation appears to be the provision of demolition and related services in the construction industry, including asbestos removal and scrap processing.

The Competition Act 1998

Anti-competitive behaviour is illegal.

Chapter 1 of the Competition Act 1998 prohibits companies or parties from entering into agreements, decisions, or concerted practices which have as their object or effect, the prevention, restriction or distortion of competition within the UK.

The Competition Act is wide ranging and broadly applied and will capture informal arrangements and agreements that are not in writing or even legally binding.  Agreements between competitors to restrict competition are illegal.

The CMA considers the three most damaging types of anti-competitive behaviour to be:

1. 1. price fixing,
   2. market sharing, and
   3. ‘bid-rigging’ or collusive tendering.

Price-Fixing

Price fixing occurs where competitors agree to coordinate prices or to set minimum re-sale prices to avoid having to compete with one another.

Market Sharing

Market sharing occurs where competitors agree not to go after one another’s customers or to divide territories geographically so as not to compete with one another. Market sharing reduces choice and increase prices and is illegal.

Bid-Rigging and Collusive Tendering

Bid-Rigging occurs where competitors coordinate prices and agree how much to bid in a competitive tendering process. Competitors cooperate and agree which of them will have the lowest bid in order to win a particular contract whilst the others provide inflated tenders or ‘cover prices’.  Bid-rigging creates an illusion of competition, deceiving buyers into believing they have secured a good price when in fact the winning price would have been much lower if businesses had genuinely tendered in the absence of cooperation.

Penalties for Infringement

The penalties for anti-competitive behaviour are extremely serious.

Aside from the reputational damage and loss of customer trust, businesses found to have acted anti-competitively can be fined up to 10% of their worldwide turnover for the financial year immediately preceding the infringement. They can also face claims for damages from third parties who have fallen victim to anti-competitive practices.

Individuals themselves involved in price fixing, market sharing or bid-rigging can face personal prosecution for the cartel offence under the Enterprise Act 2002.

Individuals found to have engaged in price fixing, market sharing or bid-rigging can themselves face unlimited fines, prison sentences of up to 5 years and up to 15 years disqualification as a company director. These sanctions are in addition to any fines faced by businesses for falling foul of the Competition Act.

The investigation by the CMA is at an initial information gathering stage scheduled to complete in September.  The ramifications of the investigation are likely to be far reaching and the fines that could be imposed have the potential to send shockwaves through the industry.

Competition Law is a complex area of law and any business that is unsure as to whether an activity would fall foul of the Competition Act should seek independent legal advice. Contact George Crofton-Martin for further information on 01227 763939.