UK drainage cartel


Key Points

§  The Competition and Markets Authority (CMA) has imposed fines of more than £36m on suppliers of pre-cast concrete drainage products for breaching competition law

§  CPM Group Limited, FP McCann Limited and Stanton Bonna Concrete Limited are the named manufacturers involved in the cartel

§  Fideres’s preliminary estimate shows that direct purchasers may have suffered damages in excess of £40m


The allegations

On 23 October 2019, the CMA issued a decision finding that three suppliers of precast concrete drainage products had infringed United Kingdom (UK) and European Union (EU) competition law in relation to the supply of these products to customers in Great Britain between July 2006 and March 2013.

According to the CMA’s decision, the suppliers engaged in anticompetitive conduct by:

§  Fixing or coordinating their prices,

§  Sharing the market by allocating customers, and

§  Exchanging competitively sensitive information

The CMA recorded, as evidence, several meetings where the above information was discussed. In 2018, Stanton Bonna Concrete and CPM Group both accepted that they participated in the infringement and as a result, they have received reductions to their fines as part of CMA’s provisions for leniency and settlement processes.

The precast concrete drainage market

Precast concrete is a construction product produced by casting wet concrete in a reusable mould or form which is then cured in a controlled environment, transported to the construction site and installed. Precast products can be divided into over ten main types, of which drainage is one of them – it includes pipes, culverts and manholes.

We estimate the above-ground drainage and the below-ground piping systems market in the UK to be worth more than £250m per year in terms of revenues.

 

 

Preliminary damages estimate

The CMA decision does state which percentage of the cartelists’ revenues are attributable to collusive activities. There is also very little publicly available data on historical prices for drainage pipes at the wholesale level. As a result, Fideres has developed preliminary estimates of losses sustained by direct purchasers of drainage products during the cartel based on the following assumptions:

§  Since all cartelists sell a range of precast concrete products, we assume that about half of the their revenues are derived from drainage pipes and similar products that are covered by the CMA decision

§  In the absence of overcharge information, we conduct a sensitivity analysis based on two plausible scenarios.

The results of our analysis are shown below:

 

Price Inflation during

cartel period

Estimated Damages

(£ millions)

10%

39

20%

72


Follow-on claims 

Given that drainage pipes are essential for a large infrastructure projects, a wide range of end-user markets such as road systems, railways and water management projects, may have been affected by the cartel. Some examples for each of these markets are given below:

 

End-user Markets

Example (s)

Water and sewerage companies

 Anglian Water

Rail companies

 East Midland Trains, Chiltern Railways

Road construction

 GF Roadmarkings

 

In addition to turnover during the infringement period, the CMA fine also considers any mitigating factors. The follow-on claims that will ensue from hereon may require more robust methods to estimate the actual harm incurred by these purchasers.