The Competition Commission has rejected exemption applications by six professional councils within the built environment. The professional councils sought an exemption from the application of the Competition Act in respect of the publication of fee guidelines for engineers, quantity surveyors, architects, property valuers, landscape architects, and project construction management.
The Competition Act has special provisions that allow a professional association to apply to the Commission for an exemption for any restriction contained in its rules which substantially lessens or prevents competition, but which is required to maintain professional standards or the ordinary functioning of the profession.
Since the inception of the Competition Act there have been very few applications for exemption for professional rules. Applications have been made by the General Council of the Bar South Africa; the Law Society of South Africa (LSSA), the Health Professions Council of South Africa (HPCSA) and most recently, the applications made by the Council for the Built Environment (CBE) and the six councils falling under the CBE. All of the exemption applications made by professional associations, where decisions have been made, have been rejected by the Commission.
The Commission is generally reluctant to grant exemptions from the application of the Act and the majority of exemption applications are rejected or conditionally granted for a limited duration.
In the LSSA and HPCSA applications the Commission found that some of the rules for whom the associations had applied to be exempted did not in fact restrict competition and were therefore not capable of being exempted. In relation to the remainder to the rules, the Commission indicated that there were less restrictive means by which to achieve the same outcomes and ethical standards in the profession.
In makings its decision on the most recent application by the councils within the built environment, the Commission concluded that the publication of the fee guidelines by the professional councils amounts to indirect price-fixing in contravention of the Competition Act. The Commission found that people offering their services within the built environment will make use of the fee guidelines as benchmarks when negotiating their fees with consumers. This reduces price competition and could also result in higher prices to the detriment of consumers.
The Commission also conducted a review of international best practice. The Commission found that building industries in other countries are moving away from the practice of publishing fee guidelines as an attempt to increase price competition in the market.
What is clear is that the Commission will not permit industry fee guidelines when there are pro-competitive alternatives available. Even where a professional association is required to publish guideline fees this can constitute a contravention of the Competition Act. In 2004, in the case of the Competition Commission vs The Institute of Estate Agents of South Africa, the Competition Tribunal confirmed a consent agreement for the payment of a penalty in relation to the publication of guideline pricing set by the Institute of Estate Agents.
Professional associations must be aware that any sort of fee guidelines for members is unlikely to pass muster under the Competition Act. Professional associations must review their practices to ensure that they are not putting themselves and their members at risk under the Competition Act.