The construction industry: Still in the spotlight

Firms active in the construction materials sector have been in the competition law spotlight for the past few years and will continue to be so. This watching brief summarises recent action taken by the competition authorities in the UK and EU and highlights some of the developments due to take place in the near future.

Key points

  • The Competition Commission is forcing major producers to sell off assets after finding anti-competitive behaviour in the cement market.
  • The Competition Commission is also concerned about a lack of competition in the aggregates and ready-mix concrete sectors in Scotland.
  • Certain aggregates no longer benefit from tax exemptions as of 1 April 2014, following the European Commission's announcement that it is launching a new investigation into exemptions from the UK aggregates levy.
  • Significant penalties continue to be imposed on construction cartels across Europe, including fines and damages claims totalling nearly £180 million.

This alert refers to the UK competition authorities as the Office of Fair Trading and the Competition Commission. It should be noted that as of 1 April 2014, these bodies no longer exist and have been replaced by a single authority known as the Competition and Markets Authority.

Competition Commission orders Lafarge Tarmac and Hanson to sell off plants

In January 2014, the Competition Commission (CC) published its final report following its investigation into the construction materials industry. Whilst it did not find any cause for concern in the markets for ready-mix concrete (RMX) and aggregates, the CC did express concern that the market for cement may suffer the effects of anti-competitive behaviour. In particular:

  1. The CC has ordered Lafarge Tarmac to sell off one cement plant in either Cauldon or Tunstead, to an independent cement producer from outside GB with adequate expertise and financial resources, which would not itself create more competition or regulatory concerns.
  2. The CC has also put in place accompanying remedies to support this order - Lafarge Tarmac must ensure that the buyer will have an adequate distribution network and a supply of limestone, as well as giving the buyer an option to purchase a fixed number of RMX plants.

The divestments required from Lafarge Tarmac come just over a year after it was forced by the CC to sell off assets as a condition of merger approval for its joint venture with Anglo American. In the earlier CC decision, Lafarge was forced to sell off its Hope cement works, Dowlow quarry, two rail-linked depots and over 60 RMX plants. In addition, Anglo American was forced to sell Tarmac's rail-linked depot in Walsall, and over 100 RMX plants. These and others assets were sold to Mittal Investments in January 2013, creating Hope Construction Materials (HCM).

  1. Hanson must sell one of its three active ground granulated blast furnace slag (GGBS) plants, preferably the one in Scunthorpe, which the CC considered to have the fewest post-divestment risks. The purchaser cannot be a GB cement producer, and Lafarge Tarmac will be required to enter into a long-term agreement to supply it with granulated blast furnace slag (GBS).
  2. The Mineral Products Association (MPA) and the Department for Business, Innovation and Skills (BIS) must undertake to publish monthly, quarterly and annual GB cement market data no less than three months after receiving it.
  3. Cement, GGBS and pulverised fly ash suppliers in GB are now prohibited from sending generic price announcement letters to customers. As a minimum requirement the letters must now specify:
  1. the name of the customer and the effective date of any price change;
  2. the current (or last) unit price paid by the customer;
  3. the new unit price being proposed; and 
  4. details of any other changes that affect the overall price paid.

Continued challenge

On 14 March 2014, the Competition Appeal Tribunal (CAT) published notices of appeals launched by Lafarge Tarmac and HCM against the CC's report.

Lafarge Tarmac is appealing the CC's decision to force it to sell off cement and associated RMX plants on the grounds that the CC breached the principles of procedural unfairness, failed to provide reasons for finding an adverse effect on competition through co-ordination, erred in its profitability analysis, and acted disproportionately and irrationally.

HCM is appealing the CC's decision that the Lafarge Tarmac cement plant cannot be bought by a GB cement producer. HCM argues that it would be a more effective purchaser as it would be in a better position to compete against the other "Major" construction materials producers than a smaller producer which currently has no GB cement plants.

Since publication of the CC's final report, Hanson has withdrawn its appeal in relation to the conduct of the market investigation. It is noteworthy that the CC decided to impose less onerous remedies in relation to GGBS than were suggested in its proposed decision (where it suggested Hanson may have had to sell off two GGBS plants).

The CC is due to publish final undertakings or order a formal public consultation in respect of the remedies by May 2014.

CC may require more structural changes in Scottish RMX and asphalt sectors

Whilst the CC's market investigation into construction materials found no features giving rise to an adverse effect on competition (AEC) in any market in GB for the supply of aggregates or RMX, this was not reflected in the findings of the CC's merger investigation into Breedon Aggregates/Aggregate Industries.

The CC is concerned that Breedon's acquisition from Aggregate Industries of 11 aggregates quarries, four asphalt plants and nine RMX plants may result in higher prices for RMX and asphalt products in parts of Scotland - namely Aberdeen, Inverness and Peterhead.

Whilst the "big five" construction materials producers (Aggregate Industries, Cemex, Hanson, HCM and Lafarge Tarmac) supply a substantial share of the aggregates, RMX and asphalt markets GB-wide, they have limited operations in North-East Scotland.

The limited presence of the "big five", plus the fact that Breedon is the largest supplier of aggregates, RMX and asphalt in the area, has led the CC to be concerned that prices will be driven up due to a lack of alternative suppliers. Buyers cannot look further afield for the products due to high haulage costs and, in the case of RMX, the perishability of the product.

The CC published its provisional findings on 6 February 2014. The two proposed remedies are for Breedon to sell off all the assets it purchased from Aggregate Industries, or to sell off RMX and asphalt operations in the three affected areas listed above.

The statutory deadline for the CC to publish its report is 5 May 2014.

Certain aggregates are taxable from 1 April 2014

The EU General Court published its decision on 24 January 2014, finding that the European Commission must pay the costs of the British Aggregates Association (BAA) in relation to a long-running state aid case. The decade-long battle centred around whether certain exemptions from the levy on the commercial extraction of aggregates under the UK Finance Act 2001 were compatible with EU state aid rules.

The state aid rules prohibit EU Member States from granting aid which distorts competition by favouring certain businesses or goods, unless the Commission has approved it. Under the rules, an exemption from a requirement to pay tax can constitute state aid if it is shown to provide a selective advantage to certain businesses. 

The exemptions from the levy, mostly based on the geology of the rock being extracted, were given state aid approval by the European Commission in 2002, but in 2012 the EU General Court annulled this decision. In August 2013, the Commission announced that it had decided to open a formal investigation into certain exemptions, exclusions and tax reliefs from the aggregates levy.

In response to this, the UK Government has suspended the exemptions which are the subject of the new Commission investigation. The affected exemptions were withdrawn on 1 April 2014 and the aggregates they cover are now taxable.

If the new investigation finds that the exemptions were not compatible with state aid rules, under EU law the value of the exemptions must be repaid, plus interest, from the date they began. As these exemptions have been in place for over a decade, this could potentially prove disastrous for many companies. HM Revenue & Customs (HMRC) has stated that it will not demand back payment of the levy if the exemptions are found to be illegal.


BAA is lobbying against HMRC in respect of these statements, as it is concerned that HMRC does not have the requisite power to make such a decision. This is because a decision not to recover illegal state aid would have to be made at EU-level by the European Court of Justice, not just by HMRC. 

BAA's view is that HMRC has adopted this position to avoid high profile protest from companies at risk of insolvency. BAA is lobbying for the UK Government to scrap the levy altogether.

Cartel activity across Europe

Criminal proceedings in UK

In March 2013, the OFT conducted dawn raids on several companies involved in the production of construction materials.  According to its website, seven individuals have been arrested in the Midlands and the OFT has opened a criminal investigation into suspected cartel activity in this sector. The OFT expects the next milestone in this case to be in March 2015.

In a separate matter, in January 2014, the OFT charged an individual with the criminal cartel offence, following an investigation into suspected cartel conduct in respect of the supply in the UK of galvanised steel tanks for water storage.  The OFT is conducting a related civil investigation.

Damage claims in Finland

In November 2013, the Helsinki District Court concluded the largest trial in Finland: an asphalt cartel claim for follow-on damages. The District Court granted the claimant municipalities aggregate damages of over £30 million plus interest as well as legal expenses, which the defendants, a group of Finnish asphalt manufacturers, must now face paying. As a follow-on action, the claimants were able to rely on a breach of competition law which has already been established in an infringement decision.

This figure is in addition to the Commission's infringement fine of over £68 million, leaving the overall costs at close to £100 million. The cartel consisted of seven major Finnish and European construction materials companies, who operated the cartel from 1994 to 2002.

The cartel participants had until 31 March 2014 to submit appeals.

EU cartel investigation

On 14 March 2014, the EU General Court handed down seven separate judgments relating to on-going anti-trust proceedings against several global cement manufacturers.

In 2010, the European Commission launched formal anti-trust proceedings against a number of global cement producers including Cemex, Holcim, Lafarge and Schwenk Zement. In March 2011, the Commission issued a decision demanding a large amount of detailed information from the companies, stretching back over many years.

All the companies, except Lafarge, lodged actions with the EU General Court seeking interim relief and annulment of the Commission's decision. All claims for interim relief were rejected in July 2011, and on 14 March 2014 the EU General Court rejected six out of seven appeals against the decision on all grounds. The General Court did partially uphold Schwenk Zement's appeal, finding that the two-week deadline the company was given to answer some questions was too short.

The Commission welcomed the judgments as confirming the scope of its powers to investigate suspected anti-competitive practices.

Whilst we are aware that inspections have been carried out in the UK on this matter, the Commission has yet to publish any further information on this. If anti-competitive behaviour has been found, the next step in the proceedings would be for the Commission to issue statements of objections to the parties concerned.