Tarred with the same brush

Have you been using any bitumen lately? How well do you get on with your competitors? How angry is construction firm Ballast Nedam about being hit with a £3.3m fine? And how angry are 13 other enterprises who were fined a total of £185m after the European commission declared that they had all taken part in a bitumen cartel?

The story is about what happened in the Dutch road-building business. A group of contractors and bitumen makers found themselves at the sticky end of EU competition law. Seemingly, eight suppliers and six contractors in the road bitumen game participated in a cartel over a period of eight years.

Our old friend the Treaty of Rome prohibits price fixing, market sharing, predatory pricing or tying, meaning abuse of dominant market position. In short, distort the market and get caught, and you will be walloped by the European commission. Then you will become a prime target for damages claims from all those you’ve taken for a ride.

In those eight years there were meetings over Edam cheese and brandewijn between the six biggest road contractors. Apparently, during these meetings, participants fixed the gross price of road bitumen to be invoiced to the asphalt production plants and they fixed rebates for the construction companies that own these plants.

Neatly, there was a minimum rebate for those in the cartel and a lower maximum rebate for road construction companies outside the cartel. These folk had to pay higher prices. The net effect was the price of bitumen gradually rose. There was even a system for monitoring the rebates given and penalties imposed if too high a rebate was given to smaller road-builders.

Then the oil giant BP bought out one of the participating suppliers and discovered what had been going on. It blew the whistle on the whole affair. Good move. And BP had the fine for its company reduced from£21.5m to nothing at all. BP got full immunity.

The EU put the behaviour of the subsidiaries at the door of the parent. That’s like making me responsible for what my children do

In contrast, the fines levied on the road contractors ranged from £19m down to £3.3m, making up that total of £185m. Interestingly, the commission addressed its formal decision and fines to the parent companies when the cartel activity was carried out by subsidiaries. These fascinating European competition rules apply to “undertakings”. That word is wide enough to include all the legal entities within a group of companies that together form the functions of an economic operator.

Put shortly, the EU brings the commercial behaviour of a parent’s subsidiaries to the door of the parent. Wow! That’s as bad as making me responsible for the behaviour of my five daughters and four sons. I bet Total Oil and Shell hadn’t a clue about any cartel activity.

In this country, the Competition Act 1998 brings into effect EU competition law. The Enterprise Act 2002 introduces criminal penalties including disqualifying directors. The “compensation commission” is the UK investigator. The prison sentence is up to five years for directors, as well as an unlimited fine. Companies face fines of up to 10% of worldwide turnover.

As for what constitutes distorting competition, how about directly or indirectly fixing purchase markets, sharing markets or sources of supply? Even applying dissimilar conditions to equivalent transactions with other trading parties places some at a competitive disadvantage and is therefore a no-no.

The only mitigation is when the device is to improve production or distribution or give consumers a fair share. In other words, you must not be eliminating competition.