Firms involved in construction cartels must ‘come clean’

Construction industry firms that have been involved in anti-competitive practices must “come clean” if they want to minimise the inevitable fines they will face – according to law firm Nelsons.

The warning comes after the Competition and Markets Authority (CMA) imposed fines totalling more than £9m on two of the UK’s largest suppliers of rolled lead for breaking competition law.

Following an investigation into suspected cartel conduct, Hertfordshire-based firms Associated Lead Mills Ltd and H.J Enthoven Ltd (trading as BLM British Lead) admitted their roles in anti-competitive arrangements and have been fined £1.5m and £8m respectively.

After handing down the penalties, the CMA’s executive director of enforcement, Michael Grenfell, said the construction industry was firmly under the CMA’s spotlight and those that enter into anti-competitive arrangements run the risk of large fines.

Emma Ward, partner in Nelsons’ dispute resolution department, said: “The CMA has made it clear it is placing a firm focus on the construction industry, and any companies entering into illegal arrangements that restrict competition will be penalised.

“If you think you or your company might have been involved in anti-competitive activity, you should seek legal advice on how best to minimise liability. The CMA has a leniency programme – this allows a party to anti-competitive conduct to avoid fines and prosecution in exchange for reporting the arrangement and cooperating with the investigation.

“The first cartel member to report and provide evidence of anti-competitive arrangements will be granted total immunity from fines and criminal prosecution for any of its co-operating current or former employees or directors, as well as protection from director disqualification proceedings for all of its co-operating directors.

“This is as long as the CMA is not already investigating the cartel, does not otherwise have sufficient information to establish its existence, and the other conditions for leniency are met.”

“If unable to take advantage of the leniency program, a business should consider whether there are other ways to minimise liability: in this case, it is worth noting that the fines were reduced because Associated Lead Mills and BLM ultimately admitted their involvement in cartel activity.”

Following the investigation, which started in July 2017, the CMA found that four anti-competitive arrangements took place between October 2015 and April 2017. The CMA found that Associated Lead Mills and BLM had colluded on prices, exchanged commercially sensitive information, shared the market (including by arranging not to target certain customers and that they had arranged not to supply a new business that might disrupt their existing customer relationships and also compete with them).

Midland Lead – a family-owned company that has been manufacturing machine cast lead for the past 37 years – is actively against cartels, stating that they not only tarnish the reputation of the industry, but also cheat customers.

Boudewijn Tuinenburg, managing director at Midland Lead, said: “It is good news that this investigation has now come to a close and those companies involved in such anti-competitive arrangements have been, rightly, fined.

“We are disappointed the lead industry has hit the headlines with such a negative focus. The severity of this case has an adverse effect on the lead industry as a whole, and contractors and builders’ merchants have likely been prejudiced by the activities of those involved.

“We have never been a part of the arrangements between Associated Leads Mills and BLM British Lead or agreements with any other rolled lead sheet manufacturer and we pride ourselves on operating with integrity. We work independently and welcome competition as we know it encourages innovation and pushes for excellence in customer service.

“Now, more so than ever, we should be focusing on the positive aspects of lead. We are keen to continue to work with companies that share our values, tackling wider issues such as the skills shortage, training and encouraging sustainable manufacturing within construction. These issues are more achievable with a strong lead industry, where manufacturers and contractors work together.”

Lynn Street, marketing and sales manager at Midland Lead, added: “We have successfully grown our business in the UK and overseas by being innovative, customer-focused and providing high quality products in an ethical manner.

“Together as one industry sector, we can promote lead, share innovative ideas and fund research. However, the fact of the investigation and subsequent fines mean that as an industry, we will never be able to sit down in one room without suspicion – and that is unfortunate for the entire sector.”

According to research commissioned by the CMA in 2018, 77% of UK businesses admit to not understanding competition law, with 79% of respondents stating they regularly meet with rivals in social situations.

Emma, who is Midland Lead’s solicitor, said: “It’s important that businesses understand the rules. An anti-competitive arrangement can be reached informally over a beer – it doesn’t need to be documented by a formal, written agreement.

“The informal nature of some business deals, coupled with the lack of knowledge, means that there is a real risk of crossing the line without realising it.

“An infringement of competition law can occur at any level in a supply chain, with anti-competitive practices ultimately depriving customers of the efficiency, innovation and fair pricing that fair competition encourages. In addition, such practices can make it extremely difficult for other businesses that aren’t part of the arrangement to survive and grow.

“The CMA can investigate if it has reasonable grounds to suspect there has been anti-competitive behaviour. The investigation itself can be stressful as the CMA can demand information (backed by sanctions of a fine if the request is not complied with), attend premises unannounced and require that questions are answered by any person connected with the business – from temporary staff, through to the MD.

“If competition law is found to have been infringed, the consequences are serious and can damage a business as well as an individual’s career. Companies can be fined up to 10% of their annual worldwide turnover, individuals can face prosecution, and directors can be disqualified. Businesses can also suffer reputational damage. In this case, Associated Lead Mills and BLM were handed reduced fines as they admitted their involvement in Cartel activity. The amounts involved really do demonstrate just how serious the financial ramifications of an infringement of competition law can be.

“Proactive compliance is essential. It’s important to make sure your business has a written competition law compliance policy and detailed staff training programme in place. A major risk factor is a lack of internal competition law awareness within a business, so these are vital to avoiding serious penalties.”

Previously, the CMA had provisionally found that a third company – Calder Industrial Materials Ltd – had become involved in one of the anti-competitive arrangements at a later stage. The CMA has now decided there are no grounds for action in respect of Calder and has closed its investigation into the firm.