October saw the Competition and Markets Authority (CMA) issue fines totalling over £36 million to three construction firms for offences under the Competition Act 1998.
The firms, supplying concrete drainage products, took part in cartel activity (for almost seven years) by creating an artificial market in which they fixed/coordinated prices, allocated customers and exchanged competitively sensitive information with senior executive consent.
The scale of the total fines issued is a potent reminder of the power that the CMA has to enforce Competition Act 1998 offences. In calculating financial penalties, the CMA will take into account:
(b) Duration of the offence;
(c) The offender’s turnover; and
(d) Any mitigating and/or aggravating factors
The CMA’s leniency policy means that firms that self-report and assist with investigations can be granted significant reductions in penalties or even complete immunity. The fines, in this case, once broken down by each recipient, are a great example of how this works in practice and how much bearing the leniency policy can affect the final penalty. In this case, (a) proactive reporting and (b) admission of the offence saw two firms receive fines of between £4m and £7.5m. The third company received a fine of £25.5m – a significant percentage of the total fines.
The CMA investigates and enforces breaches of the Competition Act 1998 including, in particular (i) price-fixing; (ii) market sharing; and (iii) bid-rigging/collusive tendering. As this case makes clear, the fines for breaches can be huge (up to 10% of a businesses turnover for the year before the infringement), but the non-financial costs can also be severe: a business can suffer significant damage to its professional reputation and its customer trust. Individuals may also be prosecuted under the Enterprise Act 2002 and face unlimited fines, prison sentences of up to 5 years and up to 15 years disqualification as a company director.
The structure of the construction industry means that it has always been at a risk of these anti-competitive arrangements being formed, sometimes unintentionally. In March 2019, the CMA announced a separate investigation focused on the supply of construction services (a further update is due in April 2020). With the industry under the CMA’s microscope, all construction sector participants should keep their trading agreements and market practices under constant review, and create/maintain visible, robust compliance policies.
If you would like to learn more about competition laws and how your business can ensure compliance with them, you can get in touch with the Greenwoods GRM team here.