Main suppliers of household fuels fined £3.4m for bid rigging
The CMA fined 2 of the main suppliers of bagged household fuels £3.4 million for taking part in a market sharing cartel.
This case study sets out lessons learned for other businesses, including a note of caution for those exploring business opportunities with competitors.
What happened
In 2018 CPL and Fuel Express, two of the main suppliers of bagged household fuels to large national supermarkets and petrol stations, were fined over £3.4million for breaking competition law by rigging competitive tenders to supply Tesco and Sainsbury’s. For each of the tenders concerned, they agreed that one of them would deliberately submit a higher bid that was designed to lose, so that the existing supplier could retain its customer.
This activity is a form of bid-rigging under which competitors share out the market between them instead of competing fairly and offering the best deal to win or keep customers.
Evidence shows that, following an invitation to tender from a customer – Tesco – the existing supplier Fuel Express emailed its competitor CPL with price quotations for household fuel products listed in the tender, stating:
With regards to our conversation, please quote above the following…
CPL then took this “pricing steer” into account when designing its bid.
In return, following the receipt of an invitation to tender from another customer – Sainsbury’s – the existing supplier CPL sent an email to its competitor Fuel Express providing a list of household fuel products and prices. Shortly afterwards, Fuel Express submitted a tender to the customer that matched the prices that its competitor had provided. This was confirmed by an internal email that said:
…what [they, CPL] told me to quote, I guess he is at least 10% less.
Through this bid-rigging, CPL and Fuel Express helped each other to maintain certain customer relationships and thus engaged in market sharing.
In this case, the businesses also exchanged competitively sensitive information and confidential pricing information (including the details of ongoing tendering processes) to enable their market sharing cartel.
The investigation was started after a tip-off to the CMA’s cartels hotline which led us to carry out surprise inspections at the offices of the two suppliers.
How this broke the law
Market sharing, bid-rigging and exchanging competitively sensitive information distorts the market so businesses don’t have to compete fully for customers.
Customers in turn are cheated out of a fair deal and can end up paying higher prices or having to make do with poorer quality products or services as a result. Under competition law, businesses must take their commercial decisions independently, not by coordinating with competitors.
When businesses compete unfairly their actions not only affect customers – they may also harm law-abiding businesses who do play by the rules. They have the potential to squeeze more innovative or efficient competitors out of markets or prevent them from entering in the first place.
The context of the cartel
The relationship between the businesses in this case was complicated by the fact that as well as being competitors, they were also each other’s customers for the supply of certain household fuel products.
Early on, around the time the cartel was first established, they considered entering into closer business relationships and discussed the possibility of a joint venture in relation to certain products.
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”.
Regardless of the opportunities businesses may be exploring with one another, they must compete independently– they shouldn’t be doing favours for one another at the expense of customers and other businesses. In this case, the businesses failed to compete independently by sharing the market for certain customers, by rigging bids and by sharing commercially sensitive pricing information.
Action taken by the CMA
The CMA fined the companies involved £3.4 million, which included uplifts for director level involvement.
Lessons from this case
- Market sharing and bid-rigging are amongst the most harmful types of anti-competitive activity and the CMA takes this type of behaviour very seriously.
- Regardless of when it occurred and how long it lasted, illegal business practices can come back to haunt you. The conduct in this case dates back to 2010-11.
- It’s not only formal written agreements with competitors that can break competition law – ‘gentleman’s agreements’ and informal arrangements can be illegal too.
- If you have a close business relationship with competitors – perhaps because you have a supplier relationship or are considering entering into a joint venture or some other business opportunity - you must know where the line is when it comes to fair competition and the law.
- Even if the cartel members themselves keep quiet about the breach, you can’t assume that you won’t get caught - this case started after intelligence work by the CMA following a tip-off to its cartels hotline.
- The consequences of breaking competition law can be severe: fines can be as much as 10% of a business’ global turnover and directors can be banned from running a company for up to 15 years. In the most serious cases, individuals can even go to prison for up to 5 years.
Advice for individuals and businesses
- Be clear about the competition law rules around collaboration and learn to recognise the kinds of behaviour that are illegal. A good place to start is our introductory competition law guides, short films on market sharing and bid-rigging, and our advice on Joint Ventures and Competition Law - Dos & Don’ts.
- Directors have a responsibility to lead by example and promote a culture of compliance within the businesses they lead - in this case director level involvement led to a fine uplift.
- Seek independent legal advice if you are unclear whether an agreement or arrangement is anti-competitive or not. If you think that you or your business may have been involved in illegal cartel activity, you may be able to benefit from lenient treatment and protection from disqualification for your current and former directors by being the first to come forward and confessing to the CMA. Call our leniency number on 0203 738 6833.
Visit our ‘Cheating or Competing’ website
This case study does not constitute legal advice and should not be relied upon as such.