Two construction businesses will be fined by the Competition and Markets Authority (CMA) after admitting to breaching competition law between 2006 and 2013.
The CMA has provisionally found that three suppliers of pre-cast concrete drainage products, used in large infrastructure projects such as road and rail works, met regularly to fix or coordinate prices and share markets for certain products, with the aim of increasing prices and reducing competition. Stanton Bonna Concrete Limited ("Stanton"), CPM Group Limited ("CPM") and FP McCann Limited had a combined UK market share of over 50% throughout the period in question, rising to 90% from 2010 onwards.
Price fixing and market sharing are among the most serious infringements of competition law, and the CMA takes them very seriously.
Stanton and CPM agreed a settlement with the CMA under which they admitted to the illegal activity and in return will receive discounted fines, the final amount of which will be decided at the end of the investigation. Stanton also appears to have reported its infringement under the CMA's leniency policy and so will receive a further discount (though apparently not full immunity from fines, which is available only to the first party to blow the whistle on a cartel the CMA is not already investigating).
FP McCann Limited remains under investigation and has not admitted any breach of competition law (the CMA's 'statement of objections' is an allegation of a breach rather than a decision that there was one, and that question remains to be finally decided).
The former Chief Executive of Stanton Bonna had previously pled guilty to the offence of participating in a cartel, and in September 2017 was sentenced to a two-year suspended prison sentence and a six-month 6pm-to-6am curfew order. He was also disqualified from being a company director for seven years.
This case demonstrates the full range of regulatory consequences for breaching competition law _ fines for the business (up to a maximum of 10% of its worldwide group turnover), criminal sanctions for individuals and disqualification for company directors. Businesses that breach competition law can also suffer reputational damage, be excluded from public tenders and be sued by customers and competitors for any damage or loss caused by their anti-competitive behaviour (in October ABB was ordered to pay £13m in the first "follow-on" damages case to reach judgment in England, and earlier in 2018 MasterCard was ordered to pay Sainsbury's £68m). These consequences demonstrate the importance of understanding and complying with competition law.
Proactive competition compliance is particularly important in the construction sector, which is a regular target for enforcement activity by the CMA and other competition regulators worldwide. Indeed, construction and concrete & cement have previously been identified by the OECD as two of four "serial offender" sectors prone to "endemic collusion" (the others being chemicals and food processing).
Awareness an issue
Unfortunately, however, a research survey recently published by the CMA indicated that in recent years construction businesses have gone backwards in their understanding of competition law and have a weaker understanding than various other sectors, and indeed that Scottish business as a whole lags behind the UK average.
Only 19% of construction businesses told the survey that they knew competition law either very or fairly well, down from 26% in the four years since the CMA's previous study. This figure also compares unfavourably with other sectors, particularly manufacturing (another sector with a history of competition law problems) where a healthy 33% of respondents reported a good level of awareness compared to just 18% in 2014.
This is despite 47% of survey respondents from the construction sector saying their activities had 'at least a medium risk' of breaching competition law, a full 10% higher than the second-placed sector. There therefore appears to be a mismatch between the level of competition law risk that construction businesses perceive in their own sector and their willingness to take action to deal with it.
Only 21% of respondents in Scotland reported that they knew competition law very or fairly well, less than the UK average of 23% and far below the 28% and 26% shown by businesses in Northern Ireland and the South East respectively. Taken together these figures might suggest that Scottish construction businesses could be at particular risk of unintentionally breaching competition law.
Risky business
The CMA asked businesses 14 "true or false" questions about competition law. Respondents in the construction industry got six questions correct, on average, slightly below the all-sector mean figure of 6.1. While sector-specific answers are not available, the figures for UK businesses as a whole in relation to the most significant competition law issues included:
- 35% of businesses wrongly said that it was legal for companies to agree not to pursue each other's customers (i.e. market sharing _ this was actually up 4% on the last survey);
- 25% wrongly said it was legal to discuss bids in tendering exercises with competitors (i.e. bid-rigging _ up from 23% in 2014);
- 20% wrongly said it's OK for competitors to agree prices to avoid losing money (i.e. price-fixing _ up from 18% in 2014); and
- 19% failed to identify that it can be illegal to attend a meeting at which competitors agree prices with each other (up from 16% in 2014).
While the percentages answering these key questions correctly either also increased or stayed the same from 2014, the fact that such large percentages of businesses do not understand these basic competition law issues indicates a serious risk of the law being breached unintentionally.
The CMA's survey also indicated that businesses are not generally aware of the serious penalties for breaching competition law, with 68% saying their knowledge of penalties was poor or very poor. Across UK businesses as a whole, when asked to volunteer what sanctions applied to non-compliance:
- Only 28% volunteered that the company could be fined for breaking competition law;
- 21% were aware that individuals could face prison (for up to five years);
- 17% knew individuals can be fined personally (with the level of fine unlimited); and
- Only 1% could volunteer that anti-competitive contracts are void or that the business could face damages claims.
The figures for the construction sector showed another decline in awareness, with 32% identifying either company or individual fines as a possible penalty. While several other sectors produced a similar figure, the construction figure was down 7% against 2014.
The study also suggests that businesses may significantly underestimate the risk of anti-competitive behaviour being uncovered, with only 18% and 17% (respectively) of businesses correctly identifying that companies can obtain immunity from penalties by confessing their involvement in a cartel to the CMA and that third parties who report cartel activity can be eligible for a reward. Indeed, 41% of businesses actually thought these statements were false. Given that many if not most competition investigations are prompted by a leniency application or a 'whistle-blow', businesses may not appreciate how likely it is that a breach of competition law will come to the CMA's attention.
What should businesses do?
One of the major competition law risks for a business is a lack of internal awareness, particularly among key staff in 'at-risk' areas of activity such as sales, price-setting, bidding for contracts and interviewing competitor employees (though each individual business will have a different risk profile).
The CMA's survey found that only 6% of firms had conducted training sessions on competition law in the preceding 12 months, lower than any of the other compliance areas covered (46% of businesses had trained their staff on health and safety, 19% on employment law, 15% on fraud and 11% on anti-bribery and corruption).
The story was similar for "senior level discussions" held in the preceding 12 months on those compliance issues, with 77% of firms discussing health and safety, 61% employment law, 43% fraud and 30% anti-bribery and corruption, but only 18% discussing competition law.
Many firms only become aware of what their staff are doing when they take proactive compliance steps, including introducing a written compliance policy and staff training. A number of competition breaches have been uncovered when an employee suddenly realised they had been breaking the law, allowing the business to avoid potentially significant liability by blowing the whistle to the regulator.
There is a significant disconnect between the risks involved in breaching competition law, particularly the severity of the sanctions, and the awareness of the law's requirements and penalties. This is particularly stark in the construction sector, where awareness of competition law has declined despite the external and internal recognition that it is a high-risk sector. Many construction businesses could be running significant competition law risks without even knowing it, and without being aware of the potentially significant consequences. Proactive compliance steps are essential to managing these risks.
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