Irish Competition Authority Decisions

1. Dublin Institute of Technology, acting on behalf of an association of 15 third-level educational institutions, notified joint purchasing arrangements and a draft Product Supply, Implementation and Support Agreement on 16 November 1999, with a request for a certificate or, in the event of a refusal by the Authority to issue a certificate, a licence.

2. The notified agreement relates to the joint purchasing of computer hardware for Management Information Systems by fifteen third-level institutions. These institutions have established an ad-hoc association to negotiate joint terms for the purchase of Information Technology (IT) hardware on their behalf and have delegated one of their number, the Dublin Institute of Technology, to manage the contract award process. The contract has been advertised in the Official Journal of the European Union. The closing date for receipt of tenders was 24 September 1999. Contract terms will cover purchases of similar hardware to meet similar needs. Upon completion of the tender procedure, a Master Agreement providing for a minimum committed purchase and one or more optional additional purchases will be signed by the members of the Association.

3. The parties to the joint purchasing agreement are the following third-level educational institutions:

i. Athlone Institute of Technology

ii Institute of Technology, Blanchardstown

iii. Institute of Technology, Carlow

iv. Cork Institute of Technology

v. Dublin Institute of Technology

vi. Dundalk Institute of Technology

vii. Dun Laoghaire Institute of Art, Design and Technology

viii. Galway-Mayo Institute of Technology

ix. Letterkenny Institute of Technology

x. Limerick Institute of Technology

xi. Institute of Technology, Sligo

xii. Institute of Technology, Tallaght

xiii. Tipperary Rural and Business Development Institute Limited

xiv. Institute of Technology, Tralee

xv. Waterford Institute of Technology.

The ad-hoc association mentioned in Paragraph 2 above has no separate legal personality or existence and there is no written Association Agreement.

4. The relevant product/service market is that for computer hardware, including PCs, servers, dumb terminals and peripherals. This is a very large market. It is also a global market, because of the generic nature of the products. The notifying party states that the total value of this geographic and product market is unknown, but that world-wide purchases and production of PCs alone in 1998 were estimated at approximately IR£16.2 billion [1]. In Ireland the annual value of all hardware purchases has been estimated at IR£464 million for 1999 [2] and the production of PCs alone at approximately IR£2 billion [3]. There is a large number of existing suppliers and of existing and potential purchasers. Internationally, the major suppliers of such hardware include Dell, Bull, Hewlett-Packard, Fujitsu, Compaq, IBM, Gateway, Siemens and IBM. In Ireland the major suppliers of such hardware would include all of these multinational companies, many of which have manufacturing and other facilities in the State. There are no Irish indigenous hardware manufacturers. The Authority therefore considers that the geographical market is at least the State.

5. Estimates for 1999 indicate that the total value of IT hardware, software and services purchased in Ireland by all sectors is approximately IR£832m, rising to IR£984m by the year 2001. Of these totals, hardware accounts for up to IR£464m (or 56% of total national IT expenditure) in 1999, rising to IR£558m (or 57% of the then total) by the year 2001 [4].

6. The annual IT purchases (comprising hardware, software and services) of the member institutions of the Association are currently estimated at IR£12 million. Of this, annual hardware expenditure will be approximately IR£8.94 million, representing only approximately 1.93% of the total annual Irish hardware market. This percentage is expected to remain broadly similar for the years to 2001 inclusive. The arrangements which are the subject of the notified agreement will be limited (by the amount of special project funding available from the Department of Education and Science) to purchases amounting to approximately IR£3.5m over three years. This represents an annual value of about IR£1.17m or 0.25% of the Irish market.

7. The notified agreement is an unwritten joint purchasing agreement for computer hardware among the fifteen third-level educational institutions named in Paragraph 3, above. The arrangements extend the activity of an ad-hoc association previously established to co-ordinate the purchase of information technology software on behalf of third-level educational institutions. The arrangements relating to the purchase of software were notified to the Authority on 30 January 1998 and were granted a certificate on 17 June 1998 (Decision No. 510). The notifying party states that the present arrangements relate to the purchase of hardware to support the software previously purchased. Terms will therefore cover similar hardware to meet similar needs. Actual purchases will be carried out by members in accordance with common agreed terms. The arrangement is expected to cover 3-5 years’ purchases of project-related hardware. The details annexed include a draft Product Supply, Implementation and Support Agreement, between the Contractor (to be appointed) and the Authority (the third-level educational institution).

8. Clause 2 of the Product Supply, Implementation and Support Agreement provides that, in consideration of the payment of certain charges, the Contractor shall supply the products and services as specified in the agreement, and the Authority shall perform its responsibilities. Clause 2.3 states that “[T]he Authority shall not be obliged to purchase from the Contractor any goods and/or services save for the Products and/or the Services.” Both “Products” and “Services” are defined in schedules to the agreement.

9. The notifying party stated that it was intended that all member institutions would sign a Master Agreement with the successful suppliers. The precise terms of this agreement were yet to be finalised as they would emerge from the tender process. The form and structure of the Master Agreement would have regard to the requirements of the European Public Procurement Directives and specifically to Directive 93/36/EEC, as amended by Directive 97/52/EC (the Supplies Directive”). It was expected that the Master Agreement would stipulate a minimum committed purchase and provide for optional additional purchases on the agreed terms over the lifetime of the agreement. The optional additional purchases would be at the discretion of the individual member institutions. It was also expected that the form and structure of the Master Agreement would be broadly similar to that for the previous software purchase. There was no separate Association Agreement and the Association itself did not have separate legal personality.

10. The notifying party stated that the primary purposes of the collaboration in the Association were avoidance of incompatibility and duplication (in purchasing processes and in systems), with consequent waste of taxpayers’ and ultimately ESF funds; and compliance with European Public Procurement Directives, as outlined above.

11. The notifying party stated that the Master Agreement would restrict buying/selling prices for IT hardware only insofar as the Association would determine prices for purchases covered by the agreement and prospective service providers had been asked to abstain from contacting member institutions directly in relation to the same matters until the tender procedure was completed. This was necessary to ensure compliance with European Public Procurement Directives. It was envisaged that the tender procedure would result in a single service provider being identified as the most competitive candidate. However, it was also possible that different service providers would be identified as the most competitive candidates for different lots, of which there were three described in the tender documentation. The Master Agreement would be non-exclusive insofar as its scope would be defined by the availability of the specific project funding from the Department of Education and Science. The member institutions would thus retain the freedom to purchase similar hardware outside of the scheme. (from other suppliers/service providers) without the benefit of the specific departmental funding. The agreement would not otherwise restrict the parties in their freedom to make independent commercial decisions regarding: technical development or investment; choice of markets; whether to apply similar terms for the supply of equivalent goods or services; or whether to offer different goods or services separately or together.

12. The notifying party argued that the arrangements would be eligible for a certificate because:

(a) the formation of the Association and the aggregation of supplies were consequences of the need to comply with EU public procurement directives which were specifically formulated to promote competition and transparency in tendering;

(b) a previous notification by substantially the same Association using substantially the same procedures had previously been certified by the Competition Authority;

(c) the object of the arrangements was to secure the cost-effective purchase of suitable hardware, and therefore not to prevent, restrict or distort competition in the State. It was desirable that the same common structures and personnel be used employed in this purchase as was employed in the previous purchase of software;

(d) the arrangements were not anti-competitive as they allowed inter-operability and ease of communication between sites and also permitted the members to pool their expertise, which would help them in negotiations with suppliers who enjoyed market power and were among the largest and most vigorous MNCs in the world;

(e) the correct geographic and sectoral market was “purchases of computer hardware and peripherals globally”, and that this general market was so large that the impact upon it of the members of the Association was infinitesimal. The total annual IT budgets of the participating institutions represented only a minor percentage of the annual Irish market for relevant goods and services, and the affected purchases represented an even smaller percentage;

(f) none of the parties to the Agreement would be compelled to purchase in accordance with the terms agreed by the Association, nor would any of the existing or prospective service providers/suppliers be compelled to deal with the Association, outside of the scope of this specific IT project;

(g) all of the existing or prospective suppliers would be free to tender for the specific IT project involved on equal terms and in accordance with an advertised objective procedure, and all intellectual property rights in the hardware would remain the property of the suppliers who would remain free to enjoy them and to engage in further development without restriction.

13. The notifying party also submitted arguments in support of the granting of a licence, if a certificate were to be refused. As the Authority does not consider these arguments relevant, they are not reproduced here.

14. Section 4(1) of the Competition Act, 1991 states that “all agreements between undertakings, decisions by associations of undertakings and concerted practices which have as their object or effect the prevention restriction or distortion of competition in trade in goods or services in the State or in any part of the State are prohibited and void.”

15. Section 3(1) of the Competition Act, 1991 defines an undertaking as “a person being an individual, a body corporate or an unincorporated body of persons engaged for gain in the production, supply or distribution of goods or the provision of a service.” In several previous decisions [5], the Authority found that organisations which were engaged in the provision of the services of third-level education and research for which they received revenue by way of fees, were undertakings. In the present case the fifteen members of the Association are all engaged in the provision of such services and all charge fees for such services. They are all therefore undertakings.

16. The joint purchasing agreement is therefore an agreement among undertakings, since there are no parties to it other than members of the Association. This agreement is unwritten but its terms are implicit in the information supplied with the notification and in certain terms of the draft “Product Supply, Implementation and Support Agreement”, notably in Clause 2.3. The agreement has effect within the State.

17. The primary feature of the Agreement is that it is a joint purchasing agreement which is exclusive within the terms of a specific project defined by the availability of funding from the Department of Education and Science. The Authority has previously considered the issue of group buying among the same group (with the exception of the Institute of Technology, Blanchardstown) in its Decision No. 510 [6]. In that decision the Authority cited its own previous decision on Musgraves [7], as well as a number of important EU decisions in the area of joint purchasing (i.e. the Intergroup decision [8], the National Sulphuric Acid Association [9] decision). In Decision No. 510, drawing on these precedents, the Authority made clear its view that the effect of joint purchasing agreements on competition in the relevant market depended on the share of the market which was covered by the joint purchasing scheme and on the freedom of the members to make purchases other than through the group scheme. In granting a certificate to the Institutes of Technology in the previous case, the Authority noted that the project was of a limited duration and that its size was restricted by the funding available, to approximately 0.3% of the total Irish market of IR£700m for hardware, software and services in 1997. Moreover, suppliers were prevented from negotiating directly with Members of the Association in respect of this specific project only, and were not restricted from dealing directly with Members of the Association in respect of any other purchases of information technology hardware, software or services.

18. The Authority considers that the effect of the present arrangements is very similar, except that the market share affected is even smaller (approximately 0.25% of the Irish market). In view of the small market share, and of the fact that suppliers are not prevented from negotiating directly with members of the Association except in respect of purchases made under this specific project only, the Authority considers that the notified arrangements do not have the object or effect of preventing, restricting or distorting competition.

19. In the Authority’s opinion, the fifteen third-level educational institutions listed in paragraph 3 of this decision are undertakings within the meaning of Section 3(1) of the Competition Act, 1991, as amended, and the notified agreement is an agreement between undertakings. In the Authority’s opinion, the notified agreement does not prevent, restrict or distort competition and thus does not contravene Section 4(1) of the Competition Act, 1991, as amended.

The Competition Authority has issued the following certificate:

The Competition Authority certifies that, in its opinion, on the basis of the facts in its possession, the joint purchasing arrangements among the fifteen third-level educational institutions listed below, notified under Section 7 of the Competition Act on 16 November 1999 (notification no. CA/15/99) do not contravene Section 4(1) of the Competition Act, 1991, as amended.

For the Competition Authority,

i. Athlone Institute of Technology

ii Institute of Technology, Blanchardstown

iii. Institute of Technology, Carlow

iv. Cork Institute of Technology

v. Dublin Institute of Technology

vi. Dundalk Institute of Technology

vii. Dun Laoghaire Institute of Art, Design and Technology

viii. Galway-Mayo Institute of Technology

ix. Letterkenny Institute of Technology

x. Limerick Institute of Technology

xi. Institute of Technology, Sligo

xii. Institute of Technology, Tallaght

xiii. Tipperary Rural and Business Development Institute Limited

xiv. Institute of Technology, Tralee

xv. Waterford Institute of Technology.

[1] Source: Computerworld, 20 July 1998

[2] Source: International Data Corporation 1997

[3] Source: Central Statistics Office

[4] Source: International Data Corporation 1997

[5] Notification No. CA/20/96 - Athlone Regional Technical College/The Governor and Company of the Bank of Ireland, Decision No. 475 of 12 December 1996; Notification No. CA/3/98 - Dublin Institute of technology/Joint Purchasing Agreement, Decision No. 510 of 17 June 1998.

[6] Notification No. CA/3/98 - Dublin Institute of technology/Joint Purchasing Agreement, Decision No. 510 of 17 June 1998.

[7] Notifications Nos. CA/18/92E and CA/19/92E - Musgraves ltd./Licensee and Franchise Agreements, Decision No. 354 of 19 September 1994.

[8] Commission Decision of 14 July 1975, OJ No. L212, 9 August 1975, p. 23-26.

[9] Commission Decision of 9 July 1980, OJ No. L260, 3 October 1980, p. 24-33.