The subject of competition

It is more important than ever for local authorities to comply with competition laws. Laurence Pritchard examines this complex area.

Public bodies have always had to be mindful of complying with competition laws when performing certain activities. However, the Office of Fair Trading (OFT), the body entrusted with enforcing competition laws in the UK, has now raised the stakes, first releasing details of an investigation it has recently carried out into the procurement activities of a number of local authorities and then issuing revised guidance on how it will look to enforce the competition laws against public bodies. Now more than ever it is incumbent upon local authorities to ensure that their activities do not breach competition rules.

The OFT’s recent investigation related to the activities of the “Pro5” group of public sector buying organisations (PSBOs) which had been formed by a number of local authorities with the aim of providing schools with better value goods and services. The OFT received a complaint about the way in which the Pro5 group members marketed their goods and services to schools. The OFT only closed its investigation after it had received adequate assurances from the individual members of the PSBOs that they will in future comply with competition law, in particular in recognising that:

• schools must remain free to purchase goods and services from any supplier they choose; and
• each individual PSBO must remain free to decide independently how, where and at what price to market its goods and services to schools and other customers.

The OFT’s concern was clearly that the PSBOs must not seek to restrict schools in their choices of suppliers, nor reach agreements amongst themselves as to the prices and other terms upon which they would supply goods and services, any such arrangements being a breach of the competition laws.

The consequences of breach of competition law are severe; anti-competitive agreements are void and unenforceable, the parties who enter into them are liable to substantial fines and individuals who engage in anti-competitive activity can in certain circumstances be prosecuted, sentenced to up to five years in prison and fined. Further, injured third parties can sue for damages.

Despite these severe sanctions, the application of the law is not straightforward. As stated above, the OFT has recently issued guidance on how competition laws affect public bodies. That guidance makes it clear that local authorities need to consider each of their activities in turn and decide whether the nature of the activity means that they are conducting an “economic activity”, in which case the competition rules will likely apply.

Conduct amounts to economic activity where:

• it involves the supply of a good or services; and
• that supply is of a "commercial" nature.

A supply is of a commercial nature where, for example, it is provided on a commercial market, whether or not for profit. On the other hand, where the activity could not by its very nature be carried out without state support (e.g. a non-profit-making state controlled compulsory healthcare scheme which provides benefits to members regardless of their health or level of contributions) then it will not be of a commercial nature, and so not an economic activity governed by competition law.

Activities of public bodies which have been held to be economic activities falling within the ambit of the competition rules include:

• the supply by Companies House of online company data search tools in competition with private sector information providers (though not the core statutory duties of Companies House involved in the registration of companies); and
• the regulation by Leeds City Council of Sunday markets.

The OFT makes the point that it was prompted to publish its recent guidance after having been approached by a number of private sector companies active in the same market as certain public bodies raising concern about the market behaviour of those public bodies.

Local authorities need to take on board these developments. Their procurement and sales functions need to be trained to identify potential economic activities which could fall within the competition rules and to act in compliance with the competition rules where they do so. Failure to do so could be expensive for them and their staff.

Laurence Pritchard is Head of Competition Law at Weightmans LLP. He can be contacted by email at This email address is being protected from spambots. You need JavaScript enabled to view it..