With increasing opportunities for charities and social enterprises to contribute to public service delivery, working in conjunction with other organisations is one way of ensuring an increase in scale or spread of expertise to best meet the needs of users. If you are responding to a formal local authority tender, collaborating with another organisation could well be the only way for you to meet the requirements of a local authority or commissioner.
Collaboration might seem like a very good idea – it’s one of the buzz words of the moment along with integration – everyone’s doing it. You obviously need to agree the commercial parameters of any collaboration – the more formal a collaboration, the more sensible it is to have a written record of who is doing what: liability, duration, payment terms, governance, even marketing.
Your mind might not necessarily turn to the importance of considering carefully and recording clearly why you are doing something with another organisation – the rationale is obvious isn’t it?
How quickly does collaboration turn to collusion, which has an altogether different tone?
And that is where the unfamiliar animal which is competition law creeps in. Amongst other things, competition law considers agreements between organisations who work together closely in the same sector; it assesses what the underlying purpose of that collaboration is. It roots out anti-competitive agreements or behaviour which ultimately have a negative impact on users. So a collaboration whose real objective is to ensure that pricing for a service is fixed amongst its participants or which aims to put a competitor, unfairly, out of the running are examples of anti-competitive agreements. UK competition law is consistent with and based on EU competition law. It is enforced in the UK by the Competition and Markets Authority (CMA) which is the recent successor to the Office of Fair Trading and Competition Commission. The CMA has a significant agenda to ensure competition law is effective in the public as well as the private sector.
For example, in November 2014, it advised public sector procurers (such as local authorities and health care commissioners) to be alive to the possibility of bid-rigging in tenders and to report any suspicious activity to the CMA. Competition law will at some point have an impact (good or bad) on those involved in any successful business.
Compliance with competition law must be taken as a serious affair – suspected breaches can result in lengthy and costly investigation by the authorities and, if proven, civil and (in the most heinous cases) criminal penalties. The CMA can levy fines of up to 10% of annual turnover in the affected market. Directors of organisations can be at risk
of personal unlimited fines and up to five years’ imprisonment.
You may be thinking, hang on… EU law? Competition law? Fines? We’re talking about charities and social enterprises here!
By this point, you might be finding the very idea mildly ridiculous in the context of non-profit making organisations with charitable or social purposes. Unfortunately, if you think that competition law really doesn’t apply to you, then you need to think again.
That’s what the independent fee-paying girls’ schools thought (all charities) when the competition authorities decided to investigate them (successfully) in 2005 for information exchange in relation to school fees. They paid a weighty financial price for that misapprehension (which, if you are wondering, was happily paid into an educational charitable trust fund). That was a long time ago and, for many in the charitable sector, the penny still has not dropped. Social enterprises are treated no differently. It is perhaps more palatable if we explain the purpose which competition law aims to serve. If we express it as law which tries to ensure a level playing field for all those who are involved in offering services to users, that does not sound so pernicious.
It serves to protect you against the malpractice of others (you can use it to bring a valid complaint to the authorities). It is also a deterrent to make sure you are not tempted to choose what sometimes appears to be an easy solution to a commercial issue or problem but which is essentially ‘unfair’ to others operating in the sector and its users.
So what can and should you do to ensure you are the right side of the law?
The best overall strategy would be to ensure your trustees, senior management and other employees are well versed in what competition law is, how it could affect your business, what the potential penalties are and how you as an organisation can show your commitment to continuing compliance. In other words: a competition compliance programme.
For small organisations, this might not seem appropriate but a programme need not be lengthy or costly and should be viewed as being as important as risk management in other areas. The CMA is particularly keen on evidence that an organisation has an effective top-down approach to compliance (although it will not get you out of hot water). Post training, regular distribution of a pointed list of competition law ‘do’s and don’ts’ is another effective way of keeping the key issues at the forefront of minds without spending a disproportionate amount of time or money.
Turning back to the specific idea of collaboration, you need to ensure that any collaboration you have with those active at the same level in the supply chain i.e. your actual and potential competitors, is assessed, objectively, for compliance and that an audit trail is maintained as evidential protection should the authorities come knocking. In practical terms, you will need to take care in your contact with competitors.
There will be many meetings, conversations and emails before you decide how to take a collaborative idea forward. If there is a development in the commercial negotiations (or similar) which sounds rather shady, you should record your withdrawal at that point and consider, independently, whether your concerns are well-founded. The development might be significant enough to warrant legal advice as to how to protect your position. A good rule of thumb is to consider how anything you do, say or write might be interpreted by a competitor who is not part of the collaboration and might be aggrieved by an apparent impact it is having on its business.
You might be surprised to learn that the CMA has powers of investigation which rival those of the police!
That said, the aim here is not to unsettle you into thinking that all contact with those active in your sector is bad. It is often unavoidable and, in some cases, necessary. For one thing, collaboration with an organisation which is not a direct competitor or which offers different services to users is unlikely to raise any substantive concerns. You can act in conjunction with other organisations on an objective basis.
Remember that your decision-making should always be (demonstrably) independent and for positive reasons. The aim here is rather to raise awareness – to protect you from breaching the law and to make you realise that there is an area of law which might prove useful if you are subject to questionable tactics by competitors.
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Continue reading other articles: Charities and Social enterprise round up, Top tips for collaborations, Client spotlight – following the journey of Balance CIC, Competition Law – what do you need to know? Minimum wage – counting the cost for charities and Promoting legacies – how effective is your website?