Ignorance is bliss: but it’s no defence

The continuing investigation by the Office of Fair Trading into cover pricing in the construction sector has brought the issue of compliance with the competition rules into sharp relief.

The enforcement policy of the OFT is now more concerned with the nuanced area of “concerted practices”, which arise where market players overstep the mark and remove the uncertainty between one another as to their intended commercial conduct.

This brief summary highlights the grey areas, where market players are not being dishonest, but are merely ignorant. The consequences of such ignorance can be as serious as a wilful disregard for the rules.

The basic rules

A company must determine its own prices for any project or job on which it is asked to tender. If putting in a joint tender with a competitor, any information exchange should be limited to that needed for the tender.

Companies should not share information with competitors that enables the co-ordination of market behaviour and negates the uncertainty of the market. Employees should not exchange with competitors, directly or indirectly, information that may:

• influence the market conduct of competitors
• disclose to competitors the course of conduct the company has decided to adopt or is considering adopting in relation to such matters as customers, sales, orders, pricing, production volumes, capacity utilisation and market shares.

Companies must not be involved in depriving the market of competing offers, to the detriment of the customer. Unless a specific request is made by the customer, the company should enter into consortiums with competitors only when neither party is able to carry out the work individually. This would be the case if:

• neither party had the resources or expertise to implement the project alone
• neither party could raise the necessary funding
• or even if either party could technically fund the project, it was felt the risk involved would be too great to bear alone.

If any of the above factors were present, the company would be working with a competitor for the purpose of that project, because neither company alone could have submitted a bid.

If that were not the case, it would be necessary to seek legal advice as to whether an exemption from the competition rules is available.

Companies should not share information with competitors that
negates the uncertainty of the market

When in a consortium with competitors, a company should be sure its co-operation does not spill over into areas outside the scope of the project and thus into inappropriate information exchanges.

Documents should have a clear purpose. Full and adequate records should be kept. If there are blanks, regulatory officials will assume that documents have been removed intentionally.

Assume every document dealing with competitors will be inspected by officials.

Personnel should identify the source of any information about competitive conditions. This is to dispel any suspicion that it was acquired as a result of any discussion with a competitor.

Personnel must be encouraged to approach their line supervisor if they are unsure whether their, or another’s, conduct is likely to breach competition law.

Benchmarking – the process of learning from best practices in other organisations – can help to enhance performance. You may:

• exchange qualitative information such as good HR practices and health and safety procedures
• exchange historic, aggregated and anonymised information as long as it does not influence future competitive behaviour. The risk is lowered if the information is collected and disseminated by an independent source.

The following should not be exchanged:

• quantitative information, such as salaries, raw material or component prices
• confidential and commercially sensitive business information.