Enterprise Bill 2002 – a roadmap to the competition law provisions

Competition is an area that construction industry players may not think relevant to their business. The UK's competition law regime is in the process of being overhauled once again, with several matters that will be of some interest to the construction industry. The Enterprise Bill (the "Bill" as introduced in the Commons on 26 March 2002) links consumer interests and competition policy in a similar way to the USA. The decision-making and penalty powers of UK competition regulators will be strengthened significantly.

The Enterprise Bill is lengthy – we have set out a roadmap at the end of this article of the 11 parts, 269 clauses and 26 Schedules.

We discuss several features of particular interest to the construction industry below.

Three things the construction industry cannot afford to ignore:

"Cartel offence"

It will be an offence for an individual to dishonestly engage in a cartel with competitors to engage in price fixing, market or customer sharing, limiting production or bid rigging.

Although dishonesty is required, bid rigging is the only case where for all practical purposes the carrying out of the activity will in itself invariably indicate a dishonest intention and amount to the commission of the cartel offence.

Agreements do not need to be implemented in order for the parties to be found to have committed an offence. Agreements reached overseas may only be prosecuted if subsequent action is taken in the UK to further the agreement (such as a telephone call or email message) - readers familiar with the US law may note the similarities here.

The Bill gives the OFT increased powers to investigate the "cartel offence". These include:

• taking IT experts along on "dawn raids" so that they can access electronically- stored information, such as deleted emails;
• seizing material without verifying whether the material is protected by certain safeguards;
• new surveillance powers (enabling the OFT, for instance, to record a cartel meeting in a hotel room), and
• powers to gain access to private property to undertake intrusive surveillance.

Something that gives these powers added bite is that the OFT has indicated it will have recourse to the experience of other public authorities which already have access to these powers and practical experience of exercising them.

Penalties for cartel participation include a maximum prison sentence of five years, with fines imposed in addition or as an alternative. In addition, the cartel offence will be grounds for extradition (for example of overseas executives) to the UK.

The cartel offence is to exist alongside the regime of civil sanctions imposed by the Competition Act 1998. As the OFT may issue 'no-action' letters to protect informants from prosecution, companies may find that there are divergent interests between the company and members of their staff who may have engaged in a cartel and now wish to seek such immunity.

Market investigation

The Bill will make the investigation of markets system less open to political influence, by transferring more power to the OFT and sector regulators, and more emphasis on consumers is also expected. Specific changes include the following:

• In contrast to the current regime where markets are investigated, and the Secretary of State has discretion as to any remedial action taken, under the Bill's new regime, the Competition Commission will be under a duty to take remedial steps if competition problems are identified.
• The CC must take account of 'customer benefits' (such as lower prices and increased choice) when considering the implications of its duty to remedy. Companies that fail to cooperate with the investigation can expect to be fined.

Market investigation provisions allow the OFT to enquire into markets where it is clear that competition is not working effectively, but there has been no obvious breach of either UK or EC competition law provisions.

Disclosure of information

Public authorities holding relevant competition information will be allowed to disclose this information to other regulators both in the UK and overseas, on certain grounds. Disclosure to overseas authorities will be permitted for criminal or competition law matters. Competition authorities worldwide are now focusing on increased coordination with their competition investigations. As a result of this coordination, individuals and companies will find themselves at greater risk of being investigated and of falling foul of UK competition rules, regardless of where the anti-competitive activity is carried out.

In addition, the Bill provides:

• A new OFT power to seek disqualification of a director of a company involved in serious breaches of competition law for up to 15 years.
• A new civil claim right - allowing persons harmed by a breach of competition law to bring claims for damages before a specialist competition body (the Competition Appeal Tribunal (CAT)), without prejudice to claims in the courts.
• A new 'class complaint' type mechanism - designated consumer groups will be able to make "super-complaints" to the OFT asking for a particular market to be investigated.

Conclusion

Although the lengthy consultation period means that the contents of the Bill are not surprising, the Bill will introduce farreaching changes in all areas of British industry, many of which will directly affect the construction industry.

It is well known that once a regulator builds up expertise in a certain industry they will tend to investigate that industry once again as the experience they have gained allows them to more easily analyse that market's current state. Both the European Commission and national competition regulators have investigated cartels in the construction industry. This makes the construction industry a more likely target for future investigations. In addition, just as the Bill will allow UK regulators to disclose competition information it has on companies, access to information that foreign regulators' hold on companies will become more accessible to the UK competition authorities, with obvious repercussions for those involved.

In-house lawyers and risk managers should be considering systems and controls now to deal with the significant changes proposed to their operating environment.

Part 1:

The Office of Fair Trading

The OFT

· establishes the OFT

· sets out its general functions

· provides for arrangements for making super-complaints to the OFT

Part 2:

The Competition Appeal Tribunal

The CAT

· establishes the CAT

· provides rules on proceedings before the CAT

· claims for damages may be brought in the CAT

Part 3:

Merger Regime

· provides for a new merger regime

Part 4:

Market Investigations

· provides for new market investigations arrangements

Part 5:

The Competition Service

The CS

· establishes the Competition Service

· provides for Competition Commission (‘CC’) Chairman to make rules of procedure to regulate CC investigations

· amends the CC’s constitution and powers

Part 6:

Cartels

· deals with the creation of a cartel offence

Part 7:

Miscellaneous

· deals with a number of miscellaneous competition provisions

Part 8:

Consumer Legislation

Part 9:

Disclosure of Information

· provides for rules to govern the disclosure of certain information held by a public authority

Part 10:

Insolvency Law

Note: see article titled ‘Radical reforms to Insolvency law: the Enterprise Bill’

Part 11:

Supplementary Provisions

For further information please contact Marianne Walsh at marianne.walsh@cms-cmck.com or on +44 (0)20 7367 2654.