In March this year, two leading bagged fuel companies were fined £3.4m for rigging competitive tenders to supply the UK’s two biggest supermarkets.
CPL and Fuel Express, suppliers of coal, fire logs and charcoal for barbecues, admitted taking part in a market-sharing cartel following a 15-month Competition & Markets Authority investigation.
‘Cuddling up’
The CMA case study reveals how the relationship between the two business was complicated by the fact they were each other’s customers for certain products, and that they discussed forming a joint venture around the time the cartel was formed. Those involved in the negotiations acknowledged that they “cuddled up too close” and “were too co-operative”.
For some, the potential financial benefits of closer business relationships meant they were prepared to take a more “positive” approach to their competitor, such that the usual competition between these two rival businesses “calmed down”.
The pair, which supply petrol stations and supermarkets, had been rigging competitive tenders to Tesco and Sainsbury’s from June 2010 to February 2011. They were caught out by a tip-off to the CMA’s cartel hotline, with a formal investigation opening in November 2016.
Ahead of a CMA case study due to be published as The Grocer went to press, Juliette Enser, the director overseeing the case, reveals how the collusion unfolded and explains the lessons for other businesses.
How did this particular case unfold? “Following the tip-off, we carried out unannounced inspections of the premises of the companies concerned and reviewed documents obtained,” says Enser. Having received an invitation to tender from Tesco, existing supplier Fuel Express was found to have emailed CPL saying: ‘With regards to our conversation, please quote above the following…’. In return, having received an invitation to tender from Sainsbury’s, current supplier CPL emailed Fuel Express with a list of products and prices, which Fuel Express then matched in its own bid.
How did the companies break the law? “For each of the tenders, they agreed for one of them to deliberately submit a higher bid that was designed to lose so the existing supplier could retain its customer,” says Enser. Under competition law, businesses must take their commercial decisions independently, not by co-ordinating with competitors, says the case study. “The parties agreed to settle the case and admitted their participation in the infringement,” adds Enser
How much were prices inflated by? Although the impact on prices isn’t calculated, an email from Fuel Express revealed it had matched the prices provided by CPL despite estimating the latter’s charges to be ‘at least 10% less’. Enser says bid-rigging is “the most serious type of anti-competitive conduct” because it has “the potential to cheat customers out of the benefits of competition”.
How rife is cartel conduct? “It’s hard for us to know how rife the practice is because by its nature cartel conduct is concealed, but we are increasingly determined to crack down on it,” says Enser. “In the last year we have opened 10 new competition enforcement cases and over the last few years have issued £151m in fines. We have also seen a 30% rise in the number of tip-offs to the cartel hotline over the past year after running a Stop Cartels awareness campaign. And we have started making use of our power to seek disqualification of directors who have participated in cartel conduct.”
What lessons can other businesses learn from the case? “It is important other businesses make sure they are setting their prices independently when they go to compete for supply contracts, and that is the case even where they have a pre-existing business relationship or are considering a joint venture,” says Enser. ‘Gentleman’s agreements’ and informal arrangements are also illegal, and the consequences can be a fine of 10% of a business’s global turnover, says the case study. “Tread carefully when in discussions with businesses who are also rivals,” adds Enser.
No comments yet