We would like to ensure that you are still receiving content that you find useful – please confirm that you would like to continue to receive ILO newsletters.
07 July 2016
The Competition Commission recently conducted an enquiry and started proceedings against the Pakistan Engineering Council, following a complaint from SPI Insurance Company Limited alleging that the council had restricted competition in the insurance market for public civil works. The commission found that council had violated Section 4 of the Competition Act 2010.
The bidding documents that the Pakistan Engineering Council prepared for the procurement of public sector engineering projects included provisions restricting the insurance cover of public civil works to AA-rated insurance companies. As a result, insurance companies without a AA rating were at a competitive disadvantage. Further, the bidding documents placed no credit-rating restrictions on banks providing bid and performance securities.
The main issue that the commission examined was whether the provisions regarding credit ratings in the bidding documents constituted a decision by an association of undertakings to prevent, restrict or reduce competition in the relevant market under Sections 4(1), 4(2)(a) and 4(2)(f) of the Competition Act.
Pursuant to Section 4(1) of the Competition Act, agreements containing provisions that prevent, restrict or reduce competition in the relevant market are void unless they are exempted by the commission. Section 4(1) of the Competition Act reads as follows:
"4. Prohibited agreements.- (1) No undertaking or association of undertakings shall enter into any agreement or, in the case of an association of undertakings, shall make a decision in respect of the production, supply, distribution, acquisition or control of goods or the provision of services which have the object or effect of preventing, restricting or reducing competition within the relevant market unless exempted under section 5."
The test for establishing whether the Pakistan Engineering Council had violated Section 4 of the Competition Act included determining whether:
The bidding documents (including the disputed provisions) were formulated by the Pakistan Engineering Council Act, the Bye-laws Committee and were approved by its governing body. Therefore, the documents were formulated by Pakistan Engineering Council members and constituted a council 'decision'.
In order to determine whether the council's decision had anti-competitive aims or effects, the Competition Commission referred to the non-exhaustive list of anti-competitive agreements under Section 4(2) of the Competition Act. Section 4(2)(a) refers to "fixing the purchase or selling price or imposing any other restrictive trading conditions with regard to the sale or distribution of any goods or the provision of any service", while Section 4(2)(f) refers to the application of "dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a disadvantage".
When examining whether the rating requirement amounted to restrictive trading conditions, the Competition Commission made the following observations:
As regards Section 4(2)(f) of the Competition Act, the Competition Commission observed that:
The AA rating requirement led the Competition Commission to conclude that the Pakistan Engineering Council had violated Section 4(1) of the Competition Act by resorting to restrictive trading conditions under Section 4(2)(a) and applying dissimilar conditions to equivalent transactions under Section 4(2)(f) to prevent, reduce and restrict competition on the relevant market.
The Competition Commission declared the AA rating requirement void and ordered the Pakistan Engineering Council to:
A cumulative penalty of PRs30 million was also imposed for the violation of Section 4 of the Competition Act.
The materials contained on this website are for general information purposes only and are subject to the disclaimer.
ILO is a premium online legal update service for major companies and law firms worldwide. In-house corporate counsel and other users of legal services, as well as law firm partners, qualify for a free subscription.