Exclusive agreements to supply uniforms, equipment - Legalwise Seminars

Commerce Commission New Zealand has released Procurement Guidance for schools on school uniforms and supplies, in accordance with the Commerce Act.

The guidelines aim to help schools maximise the benefits of competition when entering into exclusive arrangements for school uniforms, stationery or other school supplies. Exclusive arrangements are formed when a school grants the right to source or sell its uniform or school supplies to one supplier or retailer.

The Commission warns that under the Commerce Act, it is illegal to enter an agreement that substantially lessens competition in a market. It suggests that schools take steps to understand the competition risks that can arise from the exclusive supply of school uniforms and other school supplies.

Competition risks from exclusive arrangements

In theory, an exclusive arrangement could breach the Commerce Act if it substantially reduced competition in the market concerned. For example, a substantial lessening of competition may occur if the agreement prevents or makes it substantially more difficult for:

• a potential competitor to start competing in the market to win such contracts

and/or

• an existing competitor to compete for such contracts.

A substantial lessening of competition is more likely to happen when, for example, existing exclusive contracts are simply rolled over without conducting competitive tenders. Typically, a substantial lessening of competition would be reflected in higher prices or lower quality or service as a result of the exclusive arrangement.

Keep parents fully informed

When selecting suppliers for an exclusive arrangement, schools should make sure that the selection process is transparent, and that parents are fully informed of:

• the reasons for entering into an exclusive arrangement
• the process followed for selecting the manufacturer and/or the retailer(s)
• the reasons for choosing the successful supplier and the terms and conditions of the arrangements (including how long it lasts)
• the steps taken by the school to ensure that the chosen supplier charges prices that result in a net benefit to the school
• the financial benefits to the school from choosing this supplier, and why this is good for the school.

When explaining any exclusive deal to parents, schools also need to make sure that they describe the arrangement accurately. For example, if a school claims it has “negotiated the best deal for prices”, it needs to ensure that this is indeed the case.

Practical tips for schools in supply arrangements:

• Conduct competitive tenders on a regular basis – at least every 3 years.
• Consider whether appointing two or more suppliers would provide greater benefits than a single supplier.
• Choose suppliers based on objective criteria.
• Fully inform parents of the reasons for any exclusive arrangement.
• Be clear about the process for choosing a supplier and any financial benefit that the school is receiving from the supplier.

Source: Commerce Commission New Zealand

The Commerce Commission is New Zealand’s competition, consumer and regulatory agency. Visit the Commission’s website or connect via Twitter, Facebook or LinkedIn