The main competition issues affecting construction are collusive tendering for contracts; and price-fixing/market-sharing in the supply of materials. Collusive tendering has been condemned by the UK authorities since the 1950s. The European Commission also takes a dim view of it. In the early 1990s, Dutch contractors were fined 22.5m ecus after falling foul of the rules. Price-fixing and market-sharing in the supply of construction materials has also been a problem. In the UK, cartels have been uncovered in the glass and ready-mixed concrete sectors.
Section 2 of the act prohibits "agreements between undertakings, decisions by associations of undertakings or concerted practices". The term "undertaking" covers all entities engaged in economic activity, whether profit-making or not. In practice, a wide range of commercial arrangements could potentially be caught by this section, including price-fixing, market-sharing and, less obviously, certain joint ventures and the establishment of trade associations.
The prohibition also includes informal collaboration. Construction firms should take care to ensure that the closer co-operation and partnering envisaged by Sir John Egan does not infringe the act. Entering into long-term supply arrangements for goods or services and exchanging information with competitors could breach Section 2.
However, only arrangements capable of affecting trade within the UK and having as their object or effect the prevention, restriction or distortion of competition will be prohibited under Section 2.
Price fixing and market sharing fall foul of section 2 Failure to comply with an investigation could lead to jail sentences and unlimited fines
The act lists agreements that are specifically exempted. These include the power for the secretary of state to exclude restrictions ancillary to agreements creating or transferring interests in land. Professional rules are also excluded, including those governing surveyors, architects and consulting engineers. It will also sometimes be possible to obtain exemption for agreements that would otherwise be caught if the director-general of the Office of Fair Trading considers them to be beneficial overall.
The act's second main innovation prohibits the abuse of a dominant position. Assessing this involves defining a relevant market for goods or services and its geographical extent to see whether a firm is dominant. If so, it is necessary to consider if any of a dominant firm's business practices amount to abuse of that position. Section 18 provides a non-exhaustive blacklist of practices to be avoided by firms that think they might hold such a dominant position.
Activities that will interest the DGFT include excessive/predatory pricing, charging different prices for equivalent transactions or vice-versa, refusal to supply customers and rebate/discount schemes connected to a long-term commercial relationship.
The consequences of ignorance or non-compliance could be severe. If the DGFT has reasonable grounds for suspecting that the prohibitions have been infringed, he may instigate an investigation using enhanced powers. Failure to comply with, or obstruction of these inquiries could result in conviction for criminal offences that could lead to jail sentences and unlimited fines. When the prohibition has been breached, the director-general may levy a penalty to a maximum level of 10% of a firm's UK turnover.
Frank Doran is a partner at solicitor McGrigor Donald. His co-author David McGowan is a trainee solictor