UK: Cartel-Busters Hit The Roof Again

It's annoying when builders keep coming back to do more work on something you thought was finished. But it must be more than a little worrying for members of the construction industry when the Office of Fair Trading does the same to them. For the second time in three months the OFT has targeted the industry in Scotland, fining five felt roofing contractors a total of GBP259,000 for bid rigging - and bringing its tally from these Scottish raids to over GBP490,000.

This underlines that, when the watchdog gets its teeth into an industry in which anti-competitive practices are perceived to be endemic, it will clamp on and keep shaking.

There is no doubt that this second haul of construction businesses will not be the last. What is more significant, however, is the extent to which the OFT's leniency programme can reduce the penalties for those caught in a cartel who assist the OFT with its enquiries. These total fines of GBP490,000 for instance were in fact reduced to an actual GBP225,000 under the leniency programme.

In the most recent investigation one of the felt roofing contractors, Pirie Limited, received 100 per cent leniency. That cut its GBP85,774 penalty to zero which, coming after a 55 per cent reduction in the previous investigation into mastic asphalt roofing contractors, meant a total saving of almost GBP150,000 in penalties. Another contractor, WG Walker, also received leniency in both investigations to reduce its total fine from GBP106,000 to GBP58,000. As with so much else in life, the earlier a business recants the greater - in financial terms at least - the forgiveness.

The management which uncovers cartel activity within its business and goes straight to the OFT with the evidence is almost certain of full and automatic absolution. The same goes where the business involved in a cartel applies for leniency at a time when the OFT has a sniff of something untoward but has not started raiding offices yet. That may or may not be the case when the investigators are coming through your door.

If you are the first to apply for leniency at this stage, you stand to get a much higher reduction than someone who offers to co-operate at a later stage. If you are the first to come forward then full immunity may still be available, failing which you may be entitled to a maximum reduction of up to 50% and on a sliding scale thereafter. So if you are not quick there may be no leniency left and, with a potential fine of up to 10 per cent of the company's worldwide turnover, that could make quite a difference to your bottom line.

It's also worth bearing in mind that an individual who is involved in a cartel can now face imprisonment of up to five years. In England and Wales, individuals who co-operate may be able to secure immunity from prosecution but cartel members north of the border do not have this luxury. The Lord Advocate will take an individual's co-operation into account when deciding whether or not to prosecute - but this is not quite as re-assuring as the words full immunity.

Businesses can seize the opportunity to come clean by contacting the OFT direct but should seek specialist advice prior to doing so, as Pirie did from MacRoberts to secure its fines reduction. This is important not only for the business to secure its rightful degree of leniency but also to ensure that its role in the anti-competitive wrongdoing is accurately represented.

But what about those businesses which operate in a sector where such practices do take place, but they themselves are not involved?

In some respects it was surprising that, according to the results of a survey recently published by the OFT, only a fifth of small and medium-sized enterprises would report price-fixing agreements between competitors and only 9 per cent would report a large competitor trying to push them out of the market by cutting its prices to below cost.

This was despite a third of them saying they were aware of anti-competitive practices in their industries and a fifth admitting they had suffered from them. There may be a reluctance to get involved and a determination just to soldier on. There may also be a belief that if a complaint is made to the OFT, the matter might not be perceived as sufficiently important for investigation.

The competition rules however aim to ensure that everyone competes on a level playing field and the rules do provide a remedy for businesses which are affected by anti-competitive conduct.

Expert advice can help to put the complaint and supporting evidence into its full legal and economic context for consideration by the authorities - as well as to establish the innocence of the complainer from the start and ensure it remains unimpeached.

Those teetering on making the move need only remind themselves that price-fixing and similar practices by their competitors is bound to be costing them money, not to mention tarnishing their reputation by association.

The machinery is ready and waiting to rectify that - and to absolve those who come clean quickest about their own involvement.

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© MacRoberts 2005