The UK Office of Fair Trading (OFT) has recently commenced an initial analysis into the supply of information and communications technology (ICT) to the UK public sector sending questionnaires to suppliers and customers and calling for views from stakeholders.
Summary of Procedure
The OFT’s action follows the UK Parliamentary Public Administration Select Committee’s concerns over “the dominance of government contracts by a small number of large systems integrators”. The OFT also reports additional stakeholder comments that suppliers’ profit margins may be high; and that commercial practices or other features of the market result in high costs when switching suppliers. The market features OFT identified include licence agreement terms, or contracts, as well as the lack of systems and software interoperability.
The OFT intends to request information and meetings with ICT suppliers, public sector customers and interested third parties. Copies of the OFT case team’s questionnaires and launch document are available on OFT’s web site. The OFT case team has requested written views, evidence and feedback by 18 August 2013.
A summary of the OFT findings will be published along with information on any proposed further action in October 2013. Further action by the OFT could include:
- Commencing a market study, which could be a prelude to a more intensive market investigation
- Using OFT’s competition law enforcement powers to investigate whether there has been an infringement of competition law obligations
- Seeking voluntary action from the industry and public sector buyers.
The OFT’s powers to compel the production of information currently vary depending on the procedure; in the initial stages of a market study the OFT may only request information, whereas formal powers to require the production of information exist in a competition law investigation or a market investigation. When the OFT’s successor, the Competition Markets Authority (CMA), commences operation in April 2014, it will have the power to require the production of information through a market study.
A market study can lead to a formal market investigation when the authorities have powers to order divestment of assets and compel changes in contractual terms. A competition law investigation can lead to sanctions on companies, including fines. There are also separate criminal law powers to investigate individuals.
The OFT’s successor, the CMA, will be under immediate political pressure to demonstrate its effectiveness surpasses the OFT’s and it is making good use of its more extensive powers, especially in priority areas. Likely the estimated £10.4 billion that public purchasers spend annually on ICT will spur the CMA to investigate the public sector ICT market as to whether there is a basis for more active market intervention beyond the OFT’s previous recommendations to public sector purchasers. In the first instance this would mean using investigation gathering powers on those businesses falling within the scope of further action. This alone could entail significant costs to businesses facing investigation and require those businesses to re-deploy capacity to respond to the procedure. However, businesses willing to engage with the OFT to influence its focus may benefit from new business opportunities given the pressure OFT may experience to take active measures.
We have had recent experience of devising and executing successful strategies for clients faced with these types of OFT initial analyses, through to market studies and both market investigations and competition law enforcement. In all these instances we have found that adopting an early planned approach can limit the costs of these potentially risky analyses or even lead to advantageous outcomes.