Authors
A key area of focus for the Competition and Markets Authority (CMA) in its most recent Annual Plan is to “Deter anti-competitive behaviour, including cartels in public procurement” (emphasis added). Recent changes to procurement law also add to the competition law related risks faced by those seeking to win public contracts, making them genuinely existential.
Contracting authorities may also need to make potentially difficult competition related assessments.
Most UK cartels have been found in the construction sector, many in relation to public procurements. However, that does not mean other sectors should be complacent. For example, the pharmaceuticals sector is also one where numerous competition issues have arisen, and, at European level, cartels have been found across a range of other sectors.
The CMA has emphasised that it will not just be relying on its traditional information gathering from leniency applications, complaints and whistleblowers to initiate investigations, but it is also proactively collecting market data from procurers and using technology (including AI) to try to spot trends which might suggest anti-competitive behaviour patterns.
Competition Law
Broadly speaking, the Competition Act 1998 and Enterprise Act 2002 contain the following relevant provisions:
- Chapter I prohibition: prohibits agreements (in the widest possible sense) between undertakings (businesses) that prevent, restrict or distort competition, a subset of the most serious of these are ‘cartels’ (price fixing, market sharing, bid rigging, etc.). Note that this includes the exchange of competitively sensitive information (including the unsolicited receipt of competitively sensitive information where this is not rejected appropriately);
- Cartel Offence: makes it a criminal offence to engage in the most economically harmful cartel behaviours including fixing prices, sharing markets or bid rigging; and
- Chapter II prohibition: prohibits the abuse of a dominant position, particularly through exploitative behaviour (e.g. excessive prices) or exclusionary abusive behaviour which restricts the growth of competitors.
Penalties imposed by the CMA, or other concurrent sector regulators, for infringement of the Chapter I and Chapter II prohibitions can amount to up to 10% of total group turnover and Directors can be disqualified for their involvement (or if they should have known and prevented the infringement). They can also lead to private actions, including for damages, brought by anyone who has suffered loss.
Convictions for the Cartel Offence can lead to fines and/or imprisonment of up to five years for the individuals involved.
Procurement Law – Exclusion and Debarment
The relevant provisions of the Procurement Act 2023 (PA23) are complex and involved. Put simply, suppliers who have committed competition law infringements – among many other offences – may be excluded or excludable from bidding for future public contracts and placed on a public list of suppliers who are debarred for up to five years.
Suppliers who have been found to be in cartels will be subject to mandatory exclusion, whereas lesser competition law infringements will lead to the potential for discretionary exclusion.
Points to keep in mind include:
- This extends to equivalent infringements committed in other jurisdictions, as well as UK offences
- Suppliers can be debarred where ‘connected persons’ infringe competition law. In this context, the net is cast widely, so connected persons include group companies, directors/officers of the supplier (as well as shadow directors) and those who have effective control of the supplier.
- Suppliers and their connected persons who have benefited from an immunity notice from the CMA (for example, consequent on blowing the whistle on a cartel) are excepted from the risk of debarment in relation to the Chapter I prohibition and cartel offences.
Suppliers may also be excluded even if there is no infringement finding but contracting authorities believe a supplier to be involved in a competition law infringement.
Suppliers can seek to ‘self-clean’, and thereby avoid exclusion or escape from debarment, by:
- paying compensation to those harmed by the infringement;
- changing staff or management or putting procedures and training in place;
- providing information or access to allow verification or monitoring of such steps;
- the amount of time since the infringement in question; and
- providing any other evidence, explanation or factor that is considered to be relevant to assessing whether the supplier is likely to infringe again.
PA23 sets out the approach expected of public bodies and utilities when exercising discretion to exclude, whether that’s in response to self-cleaning measures or more generally in relation to the grounds for discretionary debarment. We are expecting, sooner or later, that the courts will have to put more flesh on the bones of PA23, in relation to debarment decisions. That could arise either because of the potential existential consequences for suppliers who rely heavily on public contracts; and/or because businesses are aggrieved that errant competitors have not been kicked out.
Conclusion
The combination of the CMA’s particular focus on procurement processes and the additional consequences of infringement under the Procurement Act 2023, significantly increase the already substantial competition law risks for businesses focussed on supplying the public sector and utilities subject to procurement rules.
In addition, the Procurement Act 2023 provisions put a significant additional onus on procurers to carry out assessments of suppliers and their conduct, which increases the process risks from the purchaser perspective. In turn, suppliers should consider their own due diligence and monitoring processes in relation to related companies, officers and their own suppliers.
If you would like to discuss the implications of any of these complex issues further, please contact Noel Beale (noel.beale@michelmores.com), Ian Holyoak (ian.holyoak@michelmores.com) or your usual Michelmores contact.
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