Guidance for UK public bodies on competition law: Questions and answers

Back to top

1. What is the purpose of this guide?

The UK and EU competition law prohibitions on anti-competitive agreements and abuse of a dominant position apply to all 'undertakings', as defined by the case law of the UK and EU courts. This guide is intended to help public bodies understand when they may be acting as undertakings, and the impact of UK and EU competition law therefore applying.

'Undertakings' for the purposes of competition law include public bodies, when those bodies engage in 'economic activity'. Those prohibitions will typically not apply to a public body when it carries out non-economic, wholly social functions or it exercises public powers.

The OFT believes that public bodies would benefit from practical and accessible guidance that assists them in determining when their activities may be subject to competition law, so that they can ensure that their activities remain compliant with that law.

Back to top

2. What has prompted the publication of this guide?

The OFT's Annual Plan 2011-12 highlighted the OFT's work to improve competition in public services markets and identified such work as a strategic area of focus. Markets for public services continue to be opened up to the private and voluntary sectors. Effective competition in those markets can benefit the wider economy by encouraging greater productivity and innovation and preserving long term growth, while continuing to provide greater value for money for users and taxpayers.  Public bodies are also increasingly seeking to generate revenues by utilising assets or spare capacity in markets beyond their core public functions. 

This strategic focus has guided the OFT's recent and ongoing work in public services markets, including:

• Press release: Working with public sector buying organisations to address possible competition concerns relating to school supplies (6 December 2011)  
• the OFT's previous studies into Commissioning and competition in the public sector (15 March 2011), Competition in mixed markets (pdf 559kb) (July 2010) and Choice and competition in public service markets (pdf 658kb) (March 2010)
• Government in markets: why competition matters - a guide for policy makers (pdf 981kb) (2009).

During the course of such work, in particular our study into the role of competition in the commissioning of public services, we found evidence that competition in certain markets historically served by public bodies may not be operating as effectively as it could. We have also been approached by private sector companies active in the same markets raising possible concerns about the market behaviour of certain public bodies. 

Back to top

3. Is the OFT trying to extend the scope of competition law to public bodies?

No. This guide is intended to be an overview of the relevant aspects of UK and EU competition law and does not seek to extend or amend such law.

It is independent of, and is not intended to impact on, any Government proposals regarding the provision of public services. However, the OFT believes that policy proposals that result in greater interaction between public and private sector providers reinforce the need for public bodies to be aware of their existing and ongoing obligations under competition law.

To this end, where public bodies' conduct in markets is subject to competition law, the OFT is committed to ensuring that a level playing field and a similar commitment to compliance exists for all operators in those markets.

Back to top

4. What are the implications for a public body of being classified as an undertaking for competition law purposes?

Where UK and EU competition law does apply to some or all of a public body's activities, compliance with competition law should not materially impede that body's efficient exercise of its functions. Instead, such a body must self-assess whether its conduct is compliant with competition law to determine whether any amendments to that conduct are required.

Non-compliance with competition law can have serious consequences. These include the unenforceability of the relevant agreement or decision and an adverse reputational impact, as well as the possibility of financial penalties and/or claims for damages. Breaches of competition law may also have consequences for the individuals involved in some cases.

Back to top

5. Can public bodies obtain the OFT's opinion on whether one of its activities is subject to (and, if so, compatible with) competition law?

All undertakings are required to self-assess whether their agreements and conduct are subject to, and comply with, competition law, and are encouraged to seek legal advice on any areas of concern or uncertainty. Competition law guidelines such as this have been published by the OFT to assist undertakings, including public bodies, in making that self-assessment.

In cases involving genuine uncertainty, the OFT may - in appropriate circumstances - provide a public body with a non-binding 'Short-form Opinion' on the application of the CA98 to a specific collaborative activity. The circumstances in which the OFT will consider issuing Short-form Opinions are detailed in the OFT's Approach to short-form Opinions (April 2010). The OFT will also apply its prioritisation principles when considering any requests for Short-form Opinions.

The OFT considers that novel questions regarding the application of competition law to public bodies may be particularly suitable for consideration through the Short-form Opinion process, especially where the OFT's opinion would be of significant benefit to a wider audience, including other public bodies.

To enquire as to the possibility of a Short-form Opinion, or for other queries about the guide that cannot be addressed through legal advice, please contact the OFT's Enquiries and Reporting Centre on 0845 7 22 44 99, who will be able to direct you to an appropriate person.

Back to top

6. When will the OFT take action against public bodies?

Public bodies, and the individuals within them, are generally subject to the same sanctions for breach of competition law as other undertakings.  The OFT has a variety of investigatory tools at its disposal, and it will take such action (if any) as it considers to most appropriate, in the light of the circumstances of the case and based on the OFT's prioritisation principles (pdf 120kb). For example, in response to a competition concern in a public services market, the OFT will consider the range of options available to it, and will balance the beneficial deterrent effect of a formal decision and possible fine against the impact that payment of a fine might have on the public body and ultimately, the taxpayer.

In addition to investigating specific breaches of competition law, the OFT has previously used a range of other instruments to address concerns about the operation of certain public markets. These have included: 

• Launching studies using its market powers under the Enterprise Act 2002. [see note 1]
• Accepting parties' voluntary modification or clarification of their policies or practices (see press release: School suppliers provide assurances to OFT to ensure competition 6 December 2011)
• Publishing research (undertaken by the OFT itself or commissioned from third parties) on the impact of certain public sector practices on competition. [see note 2]

Back to top

7. Why has the OFT made markets for public services an area of focus?

Opening up markets for public services forms an important element of the Government's core policy agenda around sustainable economic growth, localism and the 'Big Society'. Such government policies point to the increased involvement of private and voluntary sector companies in 'public service' markets, and an increased focus on ensuring that public services are delivered efficiently and provide value for money for users and taxpayers.

Back to top

8. Why apply competition law to public bodies? Won't it lead to higher costs or lower income for bodies that need to be funded by taxpayers?

Competition benefits customers and encourages efficiency in the operations of suppliers, whether public or private (see Competition and Growth (pdf 395kb) (November 2011)).

A public body which engages in economic activity but without competing fully has less incentive to increase its own efficiency, for example by cutting costs internally or seeking better prices from its suppliers. In addition, competition is not just about prices and efficiency but can also lead to better product quality, product range and related services levels. The customers who benefit from this might be other public sector bodies or individual consumers.

Back to top

9. Does the guide cover all aspects of competition law?

In addition to the prohibitions on anti-competitive agreements and abuse of a dominant position addressed in this guide, public bodies' activities may, in any event, be impacted by other laws, including UK and EU merger control laws, the EU State aid laws and public procurement laws, and UK public and administrative law. Those laws are beyond the scope of this guide.

Back to top

10. How does this guide link with the OFT's previous 2004 Policy Note?

This guide replaces the OFT's Policy Note, The Competition Act 1998 and Public Bodies (OFT443). That note was published in August 2004, when particular ambiguity existed as to the application of competition law to public bodies. Since then, the Court of Justice of the EU has given judgment in further cases applying the law in this area, in particular the cases of FENIN (which is referred to in the previous Policy Note and was at the time on appeal) and SELEX Sistemi (Eurocontrol II). The law remains complex, and the highly fact-specific nature of past cases limits the ability to set out definitive criteria for the application of competition law to public bodies' activities. Nonetheless, the OFT considers that this guide will usefully assist public bodies in understanding the circumstances in which their activities are likely to be subject to such law.

In contrast to the 2004 Policy Note, this guide does not seek to set out the OFT's likely treatment of possible infringements of competition law by public bodies. The OFT determines what action (if any) it will take in a given case - including cases involving public bodies - according to its prioritisation principles (pdf 120kb), published in October 2008. Those prioritisation principles and their relevance to the OFT's case initiation process were not reflected in the 2004 Policy Note.

 

note 1: Previous studies have, for example, examined Care homes for older people in the UK (2005) and the Pharmaceutical Price Regulation Scheme and the Commercial Use of Public Information (2007).

note 2: See for example, OFT1314 Commissioning and competition in the public sector (pdf 855kb) (March 2011); OFT1242 Competition in mixed markets: ensuring competitive neutrality (pdf 559kb) (July 2010); and OFT1113 Government in markets (pdf 981kb) (September 2009).

Back to: Guidance for UK public bodies