CIC Blog

| Filed in Blog
Cartels and construction – what you need to know

David Harper

Director of Investigations and Intelligence

Competition and Markets Authority 

Industry networking and socialising is a normal, everyday thing to do. And for most it’s a perfectly innocent and necessary part of business life.  But, if you find yourself talking shop with a direct competitor, are you sure you know what is and isn’t safe to discuss? 

 

Now consider where you are.  You could be down the pub with a former colleague who is also a close friend.  You’re chatting freely over a couple of drinks and talk turns to a big contract you’re working on, you might be frustrated with the direction your firm is going in and want to have a moan about a pricing strategy you’re not happy about.  Did you know this sort of conversation could put you in danger of breaking competition law? 

According to our latest research with UK businesses, understanding of competition law is low, with the majority (77%) still not understanding it well and very few (6%) running any training on it. This lack of knowledge, combined with the growing number of businesses that regularly meet with rivals in social situations (79%), means that the risk of crossing the legal line is high. 

What’s more – the construction sector has form for cartels. This is where businesses get together and agree not to compete against each other for mutual benefit e.g. by fixing prices, dividing up markets or rigging bids for contracts. Activity such as this reduces the competitive pressure on those involved to lower their prices or strive to offer a better quality service for their customers.

In 2009, 103 construction firms were fined £129.2m in total (later reduced to £63m after appeal) for engaging in cartel behaviour known as cover pricing. The same year, six construction recruitment agencies were fined a total of £7.9m for collusion and price fixing. More recently, in 2016, four suppliers of water tanks used in construction projects for schools and hospitals were fined £2.6m for dividing up customers and rigging bids.

Right now, the CMA is working on a number of construction cases, including an investigation into the roofing materials market.  The supply of precast concrete drainage products also remains under scrutiny, with an ongoing civil investigation.

Yet when it comes to understanding cartel behaviours - our research reveals some dangerous misunderstandings:

  • 41% don’t know attending a meeting where rivals agree prices is illegal
  • Over half (59%) don’t know that agreeing to split up and share customers with competitors is illegal 
  • Just under half (48%) don’t know that bid-rigging – where competing bidders secretly agree who will win a contract and submit over-priced bids – is illegal.

These misconceptions should ring alarm bells because the consequences of breaking the law are serious, damaging businesses as well as an individual’s personal career.

  • Businesses can be fined up to 10% of their annual worldwide turnover
  • Individuals can face personal fines
  • Directors can be disqualified from acting as directors
  • In the most serious criminal cases you can face prison

Cartels aren’t worth the gamble.

So, what should you do if you spot one?

Simple answer. Tell us.

If you think you may have been involved in a cartel then it’s better to Be Safe, Not Sorry and report it to us first, as you may benefit from immunity from fines and prosecution if you report before others do.

If you think you’ve witnessed others breaking the law, Do What’s Right and report it to us in confidence, you may benefit from a financial reward.

Go to: www.gov.uk/stopcartels where you’ll find

  • Short videos that explain what cartels are and how to report them
  • Case studies of other businesses who broke the law
  • An online quiz: test how much you know about competition law and cartels
  • A cartel checker so you can understand whether the information you have does relate to a cartel and should be reported

Contributor: David Harper is the Director of Investigations and Intelligence at the Competition and Markets Authority

Tags: