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Understanding competition law

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This guidance is intended to support voluntary sector organisations that seek to share information or work collaboratively, and need to ensure that such activities do not breach competition law, either intentionally or inadvertently.

Step by step guide

Below is a simplified step by step guide for determining whether your collaborative working is likely to breach competition law. In partnership with Bates Wells Braithwaite we have also produced more detailed guidance (PDF, 670KB). If you are uncertain whether your activities breach competition law then we would recommend seeking specific legal advice.

 

Is this an exclusively social activity?

Only ‘economic activities’ are subject to competition law. An economic activity is defined as the offering of goods or services on a given market which could, at least in principle, be carried out by a private entity in order to make profits.

If an activity is exclusively social – ie the private sector is unlikely to ever undertake it due to the socially focused nature of the activities – then no market exists and the activity is unlikely to breach competition law.

See section 4 of the full guidance for further information.

Is your collaboration vertical or horizontal?

A horizontal agreement will be between two or more organisations at the same level of the supply chain. A vertical agreement will be between organisations at different levels of the supply chain. If your organisation is collaborating vertically then it is less likely that this could be seen as anti-competitive.

See sections 2.8 and 2.10 of the full guidance for further information.

Are you in a consortium?

Collaborating as part of a consortium is unlikely to breach competition law if all of the following criteria are met.

  • Doing so leads to service improvement or efficiencies
  • It is done openly and transparently
  • Members of the consortium are able to bid independently against the consortium and other members
  • There are a number of competitors in the relevant market
  • Together, the consortium does not dominate the market (ie the consortium persistently holds over 50%)
  • Necessary strategic data (see below) is only shared for the purposes of a specific bid between those members that have agreed to work collectively on that specific bid (this will be data, the sharing of which is unlikely to harm competition between the parties now or in the future)

See section 6 of the guidance for further information.

Are you sharing strategic data?

Sharing of strategic information is more likely to be considered anti-competitive. Strategic information can include prices and pricing strategy, terms and conditions, market strategy, geographic data and research intentions. By contrast, the sharing of aggregated data, historic information or publicly available information is unlikely to breach competition law.

See section 5 of the guidance for further information.

Do you qualify for an exemption?

In general the activity will be not breach competition law if it:

  • promotes technical or economic progress or contributes to improving the production or distribution of a particular good or service (the latter could include the delivery of a wider social benefit).

While also:

  • allowing consumers a fair share of the resulting benefit.

But only if it does not:

  • impose unnecessary restrictions or eliminate competition.

In practice, these factors are usually interlinked and whether an activity qualifies for an exemption will depend on the particular elements of the case. See section 2.9 of the guidance for further information.

Examples of anti-competitive practices

The following practices have the intention of stifling competition or manipulating a market, and are therefore illegal.

  • Bid rigging – sharing of information that leads to reduced competition when tendering for contracts, such as agreeing not to compete with each other on a particular bid or not to bid below a certain price.
  • Cover pricing – a form of bid rigging where an organisation, after colluding with other bidders, deliberately bids with an artificially high price. This is to engineer a higher price for the competitors it has colluded with, with the expectation that the favour will be returned by that competitor, or competitors, in the future.
  • Price fixing – suppliers agree not to compete and to set prices artificially at a certain rate.
  • Limit pricing – suppliers colluding to set prices artificially low in order to prevent new entrants to the market.
  • Sharing of markets – suppliers agree to operate in certain areas in order to reduce competition in those areas, such as allocating each other areas where they agree not to compete with each other

See sections 2.16-2.19 of the guidance for further information.

Case study

Independent schools unlawfully sharing commercially sensitive information on student fees. See sections 2.20-2.25 of guidance for further information.

What happens if you breach the law?

The ramifications of breaching competition laws – whether intentionally or unintentionally – are serious. These could include financial penalties, criminal prosecutions against individuals and disqualification of directors involved in competition law breaches.

See section 2.31 of the guidance for further information.

Precautionary steps

Organisations wishing to collaborate can take the following precautionary steps.

  • Appoint an individual with whom information is shared in the first instance.
  • Adopt a competition law compliance policy and guidelines.
  • Provide training to staff engaged in collaboration conversations.

See section 5.11 of the guidance for further information.

Case studies – legal or illegal?

Case

Legal or illegal?

A charity invites four others who deliver the same kind of service (paid for by statutory organisations) in neighbouring authorities to work on a bid together, but does not invite another three organisations because they have acted uncooperatively in the past. 

Provided the five charities are not doing anything like fixing prices or sharing commercially sensitive information this would likely be lawful.

However there could be a competition law issue if together they dominate the relevant market (eg collective dominance if together they persistently hold over 50% of the market) and deliberately did not invite other parties in an attempt to exclude competition.

Commissioners from a local authority public health department decide to put all of their smoking cessation services out to tender. They advertise a meeting for any interested parties to discuss best practice in this field of work and to design the outcomes for the eventual service that is to be commissioned. During the meeting they encourage partnership bids from providers.

This is well within the law. In fact, this is an example of good commissioning as it involves current and prospective providers in the early stages of the commissioning cycle.

Care should still be taken not to share commercially sensitive information and to enter into anti-competitive agreements.

Four organisations meet together to discuss collaborating on a tender and agree at the first meeting that they will not compete as individual organisations.

It will often be perfectly acceptable for competing organisations to agree to bid together on a tender (and agree to work exclusively on that particular tender where it’s reasonable to do so) provided they do so openly/publicly and where there are advantages in jointly bidding, such as being able to provide a better service together or achieving economies of scale.

However, it would be illegal if competing organisations came together and agreed not to compete generally or to share sensitive commercial information, which could mean they agree to fix higher prices than they would if they had competed, or make less effort to improve services – both of which would be harmful to consumers.

A county-wide health and social care forum meeting is convened to discuss approaches to dealing with the growing number of elderly local residents presenting at A&E. During the course of the meeting it is revealed that home-care services are charged to residents at roughly £13-16 per hour.

This is likely to be unlawful as the parties are sharing commercially sensitive pricing information which could lead to the parties coordinating their prices rather than trying to beat the competition by lowering prices.

Two organisations delivering the same type of service in neighbouring boroughs/districts agree that they will only operate in their area, and will not bid for contracts in each other’s ‘patch’

This is illegal as they are agreeing not to compete which could mean they are free to charge higher fees or deliver poorer services than if they had to compete with each other.

A group of organisations form a consortium (a new legal entity) and the new consortium organisation bids for a contract on behalf of its members. Those members would otherwise have competed to deliver that contract. This leaves only one competitor on the marketplace.

Whether a consortium will be legal will depend on an assessment of the specific facts of any one case. Most often consortia will be legal and will be considered a good thing as the parties coming together actually helps improve a service – whether by improving service quality (the parties might bring different types of expertise to the table which could improve services to how they are currently delivered) or making efficiency savings that consumers/customers can benefit from (for example the parties may be able to benefit from economies of scale allowing them to charge lower prices for consumers).

However, a consortium could be problematic in certain circumstances (covered in section 6 of the main guidance document), where it can be viewed that the intention of the consortium is to distort the market or fix prices.

 

Page last edited Jun 07, 2016

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