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PN 32/02 28 May 2002
A trade association for the lift and escalator industry will no longer bar its members from offering certain terms, known as retentions, to their customers. These terms allow customers to retain a proportion of the payment for the work in case problems arise in the future. The freedom to include these terms follows action by the OFT.
The OFT acted following concerns raised by customers that members of the Lift and Escalator Industry Association (LEIA) had agreed to refuse to enter into contracts involving retentions. Members had agreed to this policy in a Resolution dated 14 July 1999. In return customers were offered a form of insurance warranty to cover faults that might subsequently occur in the lifts or escalator. The Association has a large share of the market and so its actions had a significant effect on customers' choice.
The LEIA has now withdrawn the Resolution and will allow members to offer other contract terms if they want. These changes will increase the scope for competition in the market.
Welcoming the changes, John Vickers, Director General of Fair Trading said:
'Contract terms between suppliers and customers should generally be freely negotiated. Trade association rules that unduly restrict commercial freedom reduce customer choice.'
1. A contract guarantee scheme was introduced by the LEIA as an alternative way of giving customers an assurance against faulty work. As an insurance scheme it spreads risk and so reduces the cost of covering a given level of risk. However, the bar on retentions restricted freedom to offer other contract terms. The OFT guidelines state 'Standard conditions, however, are less likely to have an appreciable effect on competition where members remain free to adopt different conditions if they so wish.' [OFT guideline 'Trade Associations, Professions and Self-Regulating Bodies' (paragraph 3.18, page 8) OFT408 – 3/99.]
2. The Chapter I prohibition of the Competition Act 1998 prohibits any agreements between undertakings, decisions by associations of undertakings or concerted practices which may affect trade within the United Kingdom and have as their object or effect the prevention, restriction or distortion of competition within the United Kingdom.
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