Prohibited Agreements by Pakistan Engineering Council

Prohibited Agreements by Pakistan Engineering Council Case Laws Competition Corporate Law Council Insurance Knowledge – Corporate Law Prohibited Agreements Solutions - Corporate Law The Competition Commission of Pakistan in its order dated 20-04-2016 has decided the issue regarding prohibited agreements by Pakistan Engineering Council in Show Cause Notice No. 12 of 2015.

1. This order shall dispose of the proceedings initiated pursuant to show cause notice no.12/2015 dated 20 August, 2015 (the ‘SCN’). The SCN was issued pursuant to an enquiry carried out by the Competition Commission of Pakistan (the ‘Commission’) into allegations of violations of Section 4 of the Competition Act, 2010 (the ‘Act’). The enquiry was initiated under Section 37(2) of the Act, following a complaint from M/s SPI Insurance Company Limited, formerly Saudi Pak Insurance Company Limited (the ‘Complainant’).

2. The main issue under consideration is whether M/s Pakistan Engineering Council (the ‘Respondent’ or ‘PEC’) has taken a decision in terms of Section 4(1) of the Act by setting a minimum requirement of ‘AA’ rating for insurance companies in prima facie violation of Section 4(1) read with sub-section (2) (a) and/or Section 4(1) read with sub-section (2) (f) of the Act.

3. The Commission initiated an enquiry under Section 37(2) of the Act after review ofa complaint received from the Complainant on 16 February 2016, which was concluded vide an enquiry report dated 12 August, 2105, (the ‘Enquiry Report’). The complaint alleged that the Respondent had restricted insurance coverage of public civil works to only’ AA’ rated insurance companies. This condition had the effect of placing insurance companies not having an ‘AA’ rating at a disadvantage.

4. The provisions under contention are Provisions IB.15 (Bid Security) and 10.1 (Performance Security) (hereinafter ‘Impugned Provisions’) ofthe ‘Standard Form of Bidding documents (Civil Works)’ (hereinafter ‘Bidding Documents’) prepared by PEC. PEC contends that the same were approved by the Executive Committee of the National Economic Council (ECNEC) in its meeting on 12 November, 2007 and notified by the Planning Commission, Planning and Development Division vide Notification No. 8(60)WR/PC/2008 dated 12 December, 2008. The Bidding Documents are applicable to procurement of all engineering works undertaken by the federal, provincial departments/organizations and district governments funded locally or through donor agencies.

5. The relevant portions of the SCN issued to the Respondent are reproduced below:

WHEREAS, you, M/s Pakistan Engineering Council, (the ‘Undertaking’) are both a statutory body constituted under the Pakistan Engineering Council Act, 1976 which regulates the engineering profession and, as a group of professionals engaged in the engineering trade, an ‘association of undertakings’ in terms of Section 2 (1) (q) of the Competition Act, 2010 (the `Act);

AND WHEREAS, in terms of the Enquiry Report in general and paragraphs 13,14 and 15 in particular, the market for bid and performance security for public-sector civil works engineering services in Pakistan has been identified as the ‘relevant market’ in terms of Section 2 (1) (k) of the Act;

AND WHEREAS, in terms of the Enquiry Report in general and paragraphs 19-37 and 39 in particular, it appears that the Undertaking, in its capacity as an association of undertakings, has taken a decision in relation to an economic activity by including the provisions IB.15 ‘and ‘10.1’ in the ‘Standard Form of Bidding documents (Civil Works) which prohibits insurance companies not having an ‘AA’ credit rating from providing bid and performance securities to public-sector civil works engineering service providers;

AND WHEREAS, it appears that the decision taken by the Undertaking prima facie constitutes a decision in respect of the provision of services which has the object and effect of preventing, restricting or reducing competition within the relevant market, in contravention of Section 4 (1) of the Act;

AND WHEREAS, it appears that the decision taken by the Undertaking restricts insurance companies not having an ‘AA’ rating from fairly competing in the relevant market, and thus prima facie constitutes a restrictive trading condition with regard to the provision of services, in contravention of Section 4(1) read with sub-section 4 (2) (a) of the Act:

AND WHEREAS, it appears that no similar credit-rating restrictions have been placed on banks providing bid and performance securities, therefore the decision taken by the Undertaking prima facie constitutes the application of dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a disadvantage, in contravention of Section 4(1) read with sub-section 4 (2) f of the Act.

6. Subsequently, written replies were filed by the Respondent and hearings in the matter were held on 8 September, 2015, 15 September, 2015 and 1 October, 2015. Oral submissions were also made by the Respondents who reiterated arguments provided in their written replies.

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