Fair game

The construction sector has been in the news again recently – and for all the wrong reasons.

In March the Office of Fair Trading, the UK’s enforcer of competition law, published its annual plan and highlighted the construction and housing markets as one of the key areas in which it will be cracking down on anti-competitive behaviour over the next 12 months.

That policy statement follows the OFT’s success in a number of bid-rigging cases involving roofing contractors. In March the OFT fined 10 roofing contractors in Scotland and North-east England, imposing fines totalling nearly £830,000. And as highlighted in Martin Salt’s article (BSj 10/04), the OFT was successful in another case involving roofing contractors in the West Midlands in 2004, leading to fines of £330,000.

An important message from the recent cases is that all firms are potentially at risk from action by the OFT, even very small ones. For example, one roofing contractor, essentially a father and son team, was fined £18,000 (reduced to £9000 on appeal), even though its profit last year was said to be only £12,000: that’s 75% of its total profit going to pay a fine for anti-competitive behaviour. And don’t forget that the OFT has the power to fine companies up to 10% of total turnover.

Relatively recent changes in UK competition law also mean that directors of companies found to have infringed competition law can now be disqualified for up to 15 years – or, to put it another way, for a large chunk of the rest of their working lives. Furthermore, certain types of anticompetitive behaviour, such as bid-rigging or market sharing, can now land individuals in prison and lead to unlimited personal fines. So the stakes have never been higher, whether you are a roofing contractor, an M&E contractor, a building services engineer or anyone else involved in the construction sector.

But don’t despair – it’s not all bad news. As Salt pointed out, if you discover that your company has been involved in behaviour which may infringe the rules, you can escape civil and criminal penalties by acting as a whistleblower and telling the OFT about anticompetitive practices. However, for obvious reasons, this is not a desirable position to find yourself in in the first place: much better to take action to protect both your and your business’s position.

A good way to start is to carry out an audit to identify those areas and people within your business that are most at risk from competition law infringements. These will usually be those who are in direct contact on a day-to-day level with customers and competitors – for example at industry events or trade fairs.

Competition law can be used as a means of attack – a competition argument could just solve a sticky negotiating point

Once you have identified these areas, implement an effective competition compliance programme to ensure that individuals know what they can and cannot do (especially as regards agreements or discussions on price), and put reporting procedures in place so that any queries can be checked appropriately.

That done, you can be sure that you have your own house in order, but what should you do if you suspect that you have come across a case of anticompetitive practice – for example, the prices you are being quoted by a range of contractors are curiously similar?

It is often forgotten that competition law can be used as a means of attack. In this case, you could go to the OFT about it, or alternatively you could raise the question with the contractors directly. Either way, given the potential penalties involved, it’s likely that you will achieve the desired result. This is particularly the case if you are dealing with an entity with a significant market share: if a company can be shown to be in a dominant position – which is usually the case if they have 40% or more of a particular market – it is under an enhanced duty to act fairly and treat like customers alike.

So the message is one of both warning and opportunity. Make sure your business practices are compliant to avoid exposure for you and your company, and don’t forget to consider whether those around you are acting anticompetitively – after all a competition argument could just solve a sticky negotiating point and win you that contract.

Marc Israel is a partner and Martin Ballantyne a solicitor at City law firm Macfarlanes