Public procurement reforms in force in the UK

Most of the provisions in The Public Contracts Regulations 2015 (SI 2015/102) came into force on 26 February 2015 and will apply to all new tender procedures started on or after that date.  The Regulations implement the EU Public Sector Directive (Directive 2014/24 EU) which was finalised in 2014.    The reforms offer new opportunities to promote innovation in procurement.  While the content of the reforms will be familiar to avid followers of procurement law, this area can be difficult to navigate.  How can public authorities and bidders ensure that they are using the new rules to best potential? 

The government  is publishing guidance, information and training on the new rules. The Cabinet Office’s Procurement Policy Notes can be a good source of information.  For further information see the link at the end of this post. 

While the new rules will only apply to procurement procedures started on or after 26 February 2015 any existing procedures will fall to be considered under the existing rules.  This means that the old rules will still be relevant to contracting authorities and bidders until existing procedures have run their course.  Disappointed bidders who lost out on a contract where the competition was conducted under the old rules will need to consider their options based on the 2006 Regulations.   

A “light touch” procurement regime has been introduced to support SMEs (under Lord Young’s reforms).  The reforms require public bodies to advertise opportunities for contracts under the Contracts Finder government portal within 24 hours of advertising them elsewhere.  The rules apply to contracts valued at £10,000 or more for central government and £25,000 or more for sub-central authorities.  This is a UK-specific gold plating of the EU requirements. 

The new rules are also likely to mean that contractual documents will be available earlier than before because regulation 53  requires that procurement documents should be available when the Notice in the Official Journal of the EU is published. 

This is the most significant change to UK procurement law since 2006.  This is not, however, the end of the process.  There remain two further directives for the UK to implement relating to utilities (Directive 2014/25/EU)  and higher value concession contracts (Directive 2014/23/EU).  These directives must be implemented by April 2016.  In the run up to a General Election it is interesting to see what the major parties are saying about public procurement.  An area of focus has been on the NHS and SMEs. The details of implementation however will be a matter for the government of the day. 

See further:  https://www.gov.uk/transposing-eu-procurement-directives

CMA says UK energy market needs better regulation and more customer switching

The CMA’s updated issues statement on its energy market investigation has been hailed as a ‘win’ for the energy companies, while suggesting that a lack of competition could be due to poor regulation and customer apathy.  A closer look at the CMA’s initial findings suggests a more nuanced view. 

Overall, the ‘Big Six’ energy companies – Centrica, EDF, E.ON UK, Npower, Scottish Power and SSE – will breathe a sigh of relief at the CMA’s initial view that there is insufficient evidence on a number of allegedly anticompetitive practices. These include suggestions of excess profits and pricing in generation and wholesale gas supply and collusive behaviour in retail energy markets. The CMA has also moved away from attributing competition concerns to vertical integration.  In so doing it appears to be placing little emphasis on a possible break-up of the Big Six. 

In contrast, the CMA appears to be laying some of the responsibility for a lack of competition at Ofgem’s door.  The CMA has pointed to areas where it believes, on initial examination, that the regulatory framework could be a potential cause of market distortion and inefficiencies in wholesale electricity markets.  At this initial stage the CMA seems to be focusing more on retail markets where domestic consumers – and particularly those on standard variable tariffs– have little inclination to switch supplier.   

These initial findings seem to suggest that the CMA is heading towards the type of remedies which could include simplified tariffs.  In principle more reliable and transparent information would make it easier for customers to compare prices and switch.  Some might say that is not a particularly earth shattering finding, and that an information remedy is rather a damp squib after what is likely to be an 18 month inquiry. 

While the initial findings are useful in terms of isolating the CMA’s key concerns and thinking, I would sound a note of caution before concluding that more intrusive remedies are off the table.  It may also be speculated how its findings will be received after a General Election. The CMA’s inquiry is ostensibly independent of the political process.  But it cannot go unnoticed that the day the issues statement was released energy minister  Ed Davey said that the government would not flinch from taking touch action if the evidence supports a structural remedy.  It is probably best not to speculate at this stage.  The CMA invites comments on its updated issues statement by 18 March. 

CMA press release, Energy market investigation – updated issues statement, 18 February 2015

Ryanair says it will fight on after Court of Appeal defeat

The Court of Appeal has rejected Ryanair’s contention that the Competition Appeal Tribunal was incorrect to uphold the Competition Commission’s order that Ryanair should reduce its stake in Aer Lingus from 28.5 to 5 per cent. 

The ruling is the ninth in a series of defeats for Ryanair in what continues to be a long fought battle over its ownership of a minority interest in Aer Lingus dating back to 2006.  The European Commission blocked Ryanair’s bid to acquire control of Aer Lingus on two occasions.  Ryanair has made repeated attempts to stop an investigation under UK merger control into its holding of a minority interest.

All of Ryanair’s six grounds of appeal were dismissed by the CAT last March.  The Court of Appeal has now delivered judgment rejecting Ryanair’s arguments, including the argument that the Competition Commission had breached its duty of sincere cooperation with the European Commission.

The Court of Appeal was also unpersuaded by Ryanair’s argument that its rights of defence were breached because the Competition Commission withheld the names of third parties that were considering a merger with Aer Lingus.  The Court did not consider that this prejudiced Ryanair in its ability to argue its case.

Ryanair has said that the Competition Commission’s report was based on fanciful hypotheses and secretive evidence and has announced that it has instructed counsel to file an appeal.  After a series of judicial blows to Ryanair in the English and European Courts it may be wondered what are the prospects of success before the Supreme Court?  Ryanair has also requested a review of the original Competition Commission report and remedies imposed. Section 41(3) of the Enterprise Act requires that remedies imposed must be consistent with the Competition Commission/CMA's decisions in its final report "unless there has been a material change of circumstances since the preparation of the report or the [CMA] otherwise has a special reason for deciding differently". It will be recalled that one of the findings of the Competition Commission was that Ryanair’s interest in Aer Lingus prevented or inhibited other airlines merging with or bidding for Aer Lingus.   The factual basis for that proposition might require reconsideration in light of IAG’s recent offers for Aer Lingus.  

Ryanair Holdings Plc v The Competition And Markets Authority & Anor [2015] EWCA Civ 83, judgment 12 February 2015

Indian competition authority throws out real estate and energy abuse of dominance cases

India's competition regulator - the CCI - has rejected two complaints alleging abuse of dominance against property developer DLF and energy company Tata Power.  The CCI's reasoning in these cases contains some interesting insights into the authority's approach.  As competition authorities in Europe maintain their competition law scrutiny of both sectors the cases merit a close reading.

In the first case, the complainant alleged that India's largest property developer DLF had abused its dominant position in the commercial real estate sector by making unfair changes to the way in which payments were made to lease units in a new commercial property development in New Delhi.  It was alleged that DLF unilaterally changed the payment method, terminated the reservation and then asked the customer to pay a penalty to have the space reallocated.  The CCI investigated the claims.  It found that the relevant market was the "provision of services for development and sale of commercial/office space in Delhi".  Within that market the CCI found that there were several large players and DLF could not be considered dominant within the market.  As a result, it dismissed the complaint and did not go on to consider the issue of abuse.

The CCI may well be right to rule out dominance in this case.  However, this is not the end of the matter.  DLF is continuing to challenge the CCI before the Supreme Court where it seeks to overturn the authority's finding that it had abused a dominant position in the residential real estate sector.  The CCI imposed a fine of 6.3 billion rupees (close to 95 million euros) which represents the highest fine imposed on a single company under India's competition law which came into force in 2009.  While the CCI has thrown out the current case against DLF on the basis that no dominance was established it is disappointing that it has not grappled with the question of whether the practices at issue could be abusive (if engaged in by a dominant company).    The pattern of conduct at issue is remarkably similar to that alleged in the previous competition cases involving DLF.  This raises the question of whether these cases should be treated as competition cases at all?  My own view is that competition law is not the right instrument to deal with the practices at issue.  The allegations expose more fundamentally the limitations of Indian law in terms of consumer protection and unfair contract terms; issues that have been obscured by the issue of dominance and its abuse. 

A separate complaint involved Tata Power.  It was accused of abusing its dominant position as a transmission licensee and generator by terminating supply to Brihan Mumbai Electric Supply and Transport (BEST).  The CCI accepted that Tata Power had a dominant position on the basis that it had the largest transmission network in Mumbai.  However, it rejected the case on the basis that the issue relates to "transmission of electricity only" and was a licensing and contractual issue that was governed by the regional electricity regulator.  This reasoning begs many questions.  The Indian Competition Act 2002 applies to the regulated sectors in the same way that it does to industries that are not subject to sector regulation.  The sector regulator can make references to the CCI and the CCI may refer cases to the sector regulators where the matter relates more properly to the jurisdiction of the other. Yet there is no embargo on the CCI applying its competition law powers in a case which is subject to sector regulation.  In fact, many of the European Commission's high profile abuse of dominance cases in recent years have related to the energy sector and have involved similar allegations of foreclosure on the part of a distributor as were alleged in the Indian case.

The cases will no doubt be received well by the parties under investigation.  What is less encouraging is the CCI's reasoning for its decisions.  In the real estate case the CCI has not fully addressed the question of characterisation of abuse. In the energy case the CCI has relied on a sweeping generalisation on the relationship between sector regulation and competition law which may hamper the CCI in its enforcement efforts in the future.


Suzanne Rab is the author of “Indian Competition Law, an International Perspective” (first published by Wolters Kluwer, May 2012; with a supplement of cartel regulation published in January 2013). The book is the first-of-its-kind international comparative analysis of the Competition Act 2002 published contemporaneously with the coming into force of Indian competition law and merger control.

Suzanne is also co-author of "Media Ownership and Control: Law, Economics and Policy in an Indian and International Context" (Hart Studies in Competition Law, 2014).

 

European Commission fines broker in Libor cartel case

The European Commission announced on 4 February that it fined the UK broker ICAP EUR 14.9 million for its role in allegedly facilitating cartel activity that manipulated the yen Libor interest rate. 

The Commission maintains that ICAP served as a conduit between a Citigroup trader and an RBS trader to enable the dissemination of information.  The practices are alleged to have facilitated cartels in the yen interest rate derivatives market between 2007 and 2010. 

The penalties are not unexpected and had been the subject of speculation by the Financial Times in the run up to the Commission's announcement.  However, the penalty was about EUR 5 million higher than had been expected.  According to the Commission, the penalty reflects the nature and seriousness of ICAP's involvement as well as an uplift for deterrence. 

The penalty follows over a year since the Commission fined UBS, RBS, Deutsche Bank, Citigroup, JPMorgan and the broker RP Martin a total of EUR 669 million for their involvement in six yen interest rate derivatives cartels.  The banks and other broker settled the case with the Commission but ICAP did not. 

ICAP continues to contest the case and has stated that it will appeal the Commission's decision.  It says that the case involves regulatory issues which do not concern competition law.  It also lodged a complaint relating to the Commission's handling of the case with the EU ombudsman in October last year.  This complaint will now be superseded by the proceedings before the General Court assuming that ICAP pursues its appeal. 

Commission press release IP/15/4104