Biggart Baillie Solicitors

OFT Launches Market Study into the UK Aggregates Sector

The Office of Fair Trading has today launched a market study into the UK aggregates sector.

The OFT notes that the aggregates sector is substantial, with a turnover in 2008 of £4.8bn. The majority of aggregates are used in the construction of homes and roads, much of it for making products such as ready-mixed concrete, concrete products, mortar and asphalt. Aggregates are also used as base material under foundations, roads, and railways.

The OFT considers that aggregates is a sector with high barriers to entry, increasing concentration at the local level and Government involvement in the form of a national system of control over outputs.

The OFT’s study will examine:

• the extent of competition between different aggregates producers and whether increasing concentration and integration of operations may affect competition at the local level;
• how the planning system, in determining the supply of aggregates at a local and national level, and competitive forces interact and affect services and value for money provided to customers; and
• barriers to entry and how these differ depending on whether competition is for land based aggregates, marine based aggregates or secondary aggregates.

The OFT’s study will look at all of these factors to determine how they influence competitive conditions and whether the market delivers good value for money to tax payers and end consumers as the cost of aggregates flows through to the construction of essential infrastructure.

The market study is being conducted using the OFT’s general powers under section 5 of the Enterprise Act 2002 which allows the OFT to carry out, commission or support research in order to carry out its function of obtaining, compiling and keeping under review, information about matters within its statutory remit, and to allow it to take informed decisions.   The initial phase of the market study is expected to last for four months. During that time, the OFT will gather and assess evidence. The final duration of the study will depend on the outcome of the initial phase. It is expected that the market study will be completed by July 2011.

Possible outcomes of the market study include:

• Using consumer enforcement powers to address any problems identified.
• Making a market investigation reference to the Competition Commission under Part 4 of the Enterprise Act 2002.  If the Competition Commission undertakes a market investigation it could lead to structural and behavioural remedies being imposed on certain market participants:  for example ordering firms to make divestments of businesses or assets; or requiring undertakings from firms not to make certain stipulations in contracts.
• Recommending changes to the law and regulations, or making recommendations to regulators.
• Making recommendations to self-regulatory bodies to consider changes to their rules.
• Giving the market a clean bill of health.

Douglas McLachlan, an Associate in Biggart Baillie’s Competition Team said:

“The OFT has looked at the UK aggregates sector before in the course of its merger clearance work.  Although it claims that the study has not been prompted by any particular complaint, it clearly feels that the state of competition in the aggregates sector requires a closer look.”

If you’d like to discuss this further, or need any assistance in making any submissions to the OFT on how the UK aggregates market is operating and how competition might be improved, please contact Douglas McLachlan at dmclachlan@biggartbaillie.co.uk