Case study

Water tanks cartel case study

Lessons from the Competition and Markets Authority’s water tanks cartel case.

image of steel water tanks

In 2016, a number of water tank suppliers were fined over £2.6 million for breaking competition law.

Another business was fined £130,000 for sharing commercially sensitive information at a single meeting that was secretly recorded by the CMA.

Galvanised steel tanks are used for water storage in large buildings, such as schools or supermarkets, and supply the water used in fire sprinkler systems.

What happened?

In the UK, there were only 4 main suppliers of a particular type of water tank:

  • CST Industries (UK) Ltd
  • Franklin Hodge Industries Ltd
  • Galglass Ltd
  • Kondea Water Supplies Ltd

These businesses would often meet to discuss matters relating to their industry.

Initially the businesses met for legitimate reasons as they were part of a working group to discuss European sprinkling system standards.

However, from 2005 to 2012, they also held secret meetings where they agreed to fix prices of tanks, divide up customers and rig bids for contracts. Their intention was to avoid having customers try to negotiate cheaper prices through ‘playing’ the suppliers off against each other.

We agreed that we all supplied fairly identical products and therefore should be able to charge a respectable price without the necessity to fight each other for each and every contract

(Witness statement, page 38, non-confidential decision)

This is what is known as a cartel.

Market sharing

The suppliers drew up a list of customers and marked them each A, B or C depending on who would ‘have’ that customer:

At the end of the meeting it was agreed that the customers would be split three ways. I think it was marked as A, B, C to reference each manufacturer

(Witness statement, pages 40/41, non-confidential decision)

Price Fixing

This started with the suppliers agreeing what discounts they would offer but over time this turned into agreeing fixed price lists - setting the prices so the right supplier would ‘win’ business from ‘their’ customers.

We all agreed that, whatever the pressure from the various contractors, we would only discount our prices to a maximum predetermined level. However […] We concluded that we had to come up with a specific price agreement. Something that harmonised prices between us all.

(Witness statement, page 51, non-confidential decision)

The cartel used the rising price of steel to mask their own price fixing.

Bid Rigging

Both the ABC list and the price guide were used alongside each other when it came to rigging bids for contracts.

[Company A] was allowed to discount the price of a tank to an ‘A’ allocated contractor by an agreed percentage off the guide price in order to win the bid.

However, any of the others who were asked to submit a bid for the same job would only provide the price as dictated by the guide, less a smaller percentage, giving the impression of competition. The smaller percentage was never enough to win the work.

(Witness statement, page 57, non-confidential decision)

Sharing sensitive information

As part of a separate decision, the CMA fined a company £130,000 for attending a single meeting with the cartel where sensitive information was shared.

In July 2012, a representative from Balmoral, a new supplier who had recently entered the market, was invited to a meeting with 3 of the main cartel members. The intention of the meeting was to invite Balmoral to join the cartel.

Although the representative from Balmoral refused to join the cartel, he stayed at the meeting and joined in a discussion about his company’s general approach to pricing and what they would quote for certain tanks.

The meeting was secretly recorded by the CMA, in which the representative from Balmoral said:

So it was never the plan, and it won’t be the plan going forward to the be the cheapest, but […] is it worth the risk that we take sitting having these conversations

We can always pick the phone up and have chat about it to see where we are […] if you go outside that [price] band, on the low side then I’d like to think it won’t be driven by us.

(CMA evidence: secretly recorded meeting)

This sharing of non-public commercial information was also illegal. It gave Balmoral’s rivals an idea of their pricing strategy, which reduced uncertainty and could have helped the other suppliers in their own strategies and pricing.

How did this break the law?

The aim of the cartel was to reduce the pressure these businesses were under to lower their prices. Any weakening of competition that maintains or increases prices is illegal.

Cartels create the illusion that businesses have competed against each other to give their customer the best deal, when in reality they have colluded to keep their prices up. They are a form of stealing from customers, forcing up prices and reducing quality and choice. In this case, the cartel may have impacted the overall construction cost of large buildings such as schools and supermarkets.

What are the lessons?

  1. Agreeing with your competitors that you won’t undercut each other on price or compete for your customers is illegal, and there can be serious consequences for the businesses involved
  2. Sharing information with competitors, even at a single meeting, can also be illegal
  3. If you are approached to join a cartel or to get involved in anti-competitive arrangements you should:

    • Immediately reject the approach, clearly and unequivocally
    • Leave the meeting and make clear you refuse to take part in anything illegal

What you can do

Learn to recognise the kinds of behaviour that are illegal. A good place to start is our introductory competition law guides.

You should tell the CMA as soon as possible if you think your business has been involved in illegal activity. You may benefit from lenient treatment by being the first to come forward. We also recommend that you seek independent, legal advice.

Report to us any information on other companies in your industry that may have been involved in an anti-competitive arrangement.

If you are concerned about cartel activity amongst your suppliers, you can download our cartels screening tool (shortlisted for the 2018 Public Finance Innovation Awards). The tool can scan your procurement data for tell-tale signs of bid-rigging.

We value your help in ensuring the UK is a fair place for all businesses to compete – and you may even be eligible for a financial reward.

Published 12 February 2018