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COVID-19: Excessive pricing – Cases pursued by the South African Competition Commission

10 September 2020
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The South African Competition Commission (Commission) recently referred an excessive pricing complaint against occupational health services company Blue Collar Occupational Health, and its investment partner Ateltico Investments, to the Tribunal. This followed a complaint from the South African Police Services (SAPS) that Blue Collar had supplied SAPS with bulk (10 000) 25lt hand sanitisers at excessive prices.

The Commission also cited Ateltico in its referral, on the basis that Ateltico provided funding to BlueCollar for the procurement of the hand sanitisers, and Ateltico and BlueCollar were parties to a profit-sharing arrangement in this regard. The Commission believes that this arrangement may have contributed to BlueCollar’s allegedly excessive mark up.

The Commission also referred a second complaint to the Tribunal, in which it alleges that Tsutsumani Business Enterprises, a supplier of general trade goods typically to departments and municipalities, charged excessive prices for the bulk supply (500 000) of three-ply face masks to SAPS.

These are the first of two COVID-19 excessive pricing matters pursued by the Commission in the public procurement space.

In a recent media release, the Commission indicated that it has taken note of the Report by the Auditor General of South Africa (AG) which pointed to suppliers overcharging public sector bodies for the procurement of personal protective equipment (PPE).

The Commission indicated that it is engaging with the AG’s office, National Treasury and the Special Investigations Unit in order to identify potential grounds for complaints in terms of the Act and to prioritize the investigation of these cases.

The Commission is calling upon suppliers who have charged excessive prices to present themselves to the Commission for speedy resolution of all matters. The Commission is also calling upon public institutions that procured PPE to exercise caution in making payments to suppliers whilst investigations are still ongoing.

The Commission said that it would engage with National Treasury on how best to deal with contracts already awarded and completed, at excessive prices.

In addition, the South African Competition Tribunal (Tribunal) has reported that it has confirmed a further six consent agreements relating to COVID-19 excessive pricing (see below). The consent agreements are settlements reached between the Commission and firms accused of having engaged in excessive pricing.

To date, 38 consent agreements have been made orders by the Tribunal (see our earlier newsflashes accessible here, here, here, here, here and here). The Tribunal’s orders represent full and final settlement of these matters.

  • Cambridge Food

In April 2020, the Commission received information regarding allegedly excessive prices charged by retail store, Cambridge Food, in respect of its 25kg Top White Super Maize Meal, a product recognised by the Commission as a basic food item in terms of the Consumer and Customer Protection and National Disaster Management Regulations and Directions (Regulations).
 
Following an investigation, the Commission – having regard to historic profit margins – found that a division of Cambridge Food charged excessive prices for maize meal without any corresponding increase in costs.

Without admitting liability and in order to avoid protracted litigation and costs, Cambridge Foods agreed to resolve the complaint by concluding a consent agreement with the Commission and confirming inter alia that the conduct complained of had already ceased; that it would refrain from engaging in such conduct in the future; and that it would donate essential goods to the value of ZAR 24 947 (being a value related to the alleged overcharge) to a community-based project.

  • Mzanzi Meat and Chicken

The Commission found that the mark ups by community-based butchery, Mzanzi Meat and Chicken, on its 5-dozen large- and medium-sized eggs were excessive and in contravention of the Regulations.
 
The butchery agreed settlement terms with the Commission, which included making a contribution of ZAR 12 000 to the COVID-19 Solidarity Fund; immediately desisting from excessively pricing the items concerned; and reducing its mark up on those items to an agreed percentage for the duration of the national disaster.

  • Rand Safety Equipment

In June 2020, and following a complaint received, the Commission investigated Rand Safety Equipment for allegedly excessive pricing of dust masks. The Commission conducted a price-cost comparison and found that the gross profit margin earned by Rand Safety Equipment in February 2020 was much higher than the historic margins it earned before the spread of the COVID-19 virus, and that the quantum of the overcharge was ZAR 8 284.

Rand Safety Equipment concluded a consent agreement with the Commission in terms of which it agreed to donate ZAR 8 284 to the COVID-19 Solidarity Fund; to immediately desist from excessive pricing conduct; and to reduce its gross profit margin on dust masks to an agreed percentage for the duration of the national disaster.

  • Oil and More General Trading

The Commission found that – having regard to historic profit margins – Oil and More charged excessive prices for nitrile blue disposable gloves. The Commission concluded that the gross profit margin on the aforesaid items was unreasonably high.

Oil and More subsequently admitted to excessive pricing; agreed to immediately desist from this conduct; to immediately reduce its gross profit margin on nitrile gloves to an agreed percentage for the duration of the national disaster; and to make a donation of ZAR 18 361.51 to the COVID-19 Solidarity Fund.

  • Levtrade International

The Commission referred a complaint to the Tribunal, against Levtrade for excessive pricing in May 2020, following findings that Levtrade increased the mark up on N95 (FFP2) masks in February and March 2020, without any corresponding increase in costs.

Levtrade disputed the Commission’s findings, but ultimately and without admitting liability, concluded a consent agreement with the Commission in terms of which Levtrade agreed inter alia to pay an administrative penalty in the amount of ZAR 50 000; contribute an additional ZAR 10 000 to the COVID-19 Solidarity Fund; donate essential goods such as surgical face masks and hand sanitisers to the value of R25 000 to a non-profit organisation; and reduce its gross profit margin on the aforesaid masks to an agreed maximum percentage for the duration of the national disaster.

  • Sentra Kem

Without admitting liability and in order to avoid protracted litigation, Sentra Kem, a Paarl-based supplier of pharmaceutical products, concluded a consent agreement with the Commission in terms of which it agreed, inter alia, to donate ZAR 15 785.03 to the COVID-19 Solidarity Fund and to reduce its gross profit margin on facemasks to an agreed maximum percentage for the duration of the national disaster.

This, following the Commission’s conclusion that Sentra Kem had engaged in excessive pricing of face masks.