| 1. |
This circular is issued to all governing bodies to highlight the purpose of the Competition Act, 1998 (Act 89 of 1998) and the need to comply with the requirements of the Act. Sections 4, 5 and 8 under the heading "Prohibited Practices of the Act" are applicable to schools as highlighted in the attached Annexure. The complete Act is available on the website https://www.westerncape.gov.za/legislation/competition-act-89-1998. The purpose of this Act is to promote and maintain competition:
- The promotion of the efficiency, adaptability and development of the economy.
- Providing consumers with competitive prices and product choices.
- The promotion of employment and the advancement of the social and economic welfare of South Africans.
- The expansion of opportunities for South African participation in world markets and recognising the role of foreign competition.
- Ensuring that small and medium-sized enterprises have an equitable opportunity to participate in the economy.
- The promotion of a greater spread of ownership, in particular to increase the ownership stakes of historically disadvantaged persons.
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| 2. |
The Competition Commission of South Africa has received a number of complaints from potential uniform suppliers in the Western Cape regarding their exclusion from competing in the market for the supply of school uniforms to schools. This exclusion relates to the use of exclusive agreements between schools and incumbent school uniform suppliers which, in some instances, are concluded for an unlimited duration. Parents also complain about these exclusive agreements and the resultant high prices of school uniforms. |
| 3. |
The provisions of the Competition Act, 1998 (Act 89 of 1998) prohibit firms from engaging in particular conduct that may prevent competition and lead to high prices and a lack of choice. In particular the Act prohibits firms from entering into vertical agreements which prevent or restrict competition1. Vertical agreements are those agreements between a firm and its supplier/s and/or customers, examples of which include supply agreements, distribution arrangements and agency and franchise agreements. Therefore an agreement between a school and its supplier of school uniforms is a vertical agreement within the context of the Competition Act, 1998 (Act 89 of 1998). |
| 4. |
The Competition Act, 1998 (Act 89 of 1998) also prohibits dominant firms from abusing their dominance by charging excessive prices and excluding their non-dominant rivals from participating in the market2. Adopting long term exclusive agreements may result in the creation of a monopoly supplier who may charge higher prices. |
| 5. |
The following measures must be implemented to mitigate the potential anti-competitive effect of exclusive agreements in the procurement of school uniforms by schools:
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| 5.1 |
To open up the market to other suppliers of school uniforms
Preferably school uniforms should be as generic as possible such that it is obtainable from many suppliers. Where this is not possible, exclusivity should be limited to such items that the school regards as being necessary to get from pre-selected suppliers. It is recommended that schools promote and uphold competitive bidding for the supply of school uniforms. To give effect to this, schools must invite bids for the supply of their school uniforms. This will give all potential school uniform suppliers the opportunity to compete to supply schools with the required uniforms. In this regard, unless there are reasonable practical reasons, more than one supplier should be appointed so as not to totally eliminate competition during the duration of the contract.
When schools do engage suppliers in the bidding process, they should be mindful that they do not facilitate collusive conduct which is also prohibited by the Competition Act, 1998 (Act 89 of 1998).
The Competition Act, 1998 (Act 89 of 1998) prohibits competing firms, such as different suppliers of school uniforms to schools, from entering into agreements which result in the fixing of prices, the division of markets and/or customers and the rigging of bids3.
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| 5.2 |
School uniform contracts must be of a fixed or limited duration
The contract to supply a school with school uniforms should be of a limited duration. This means that the tender awarded to a supplier must be for a specific period of time and should not be indefinite. At the end of the contract’s duration, it should again be open to tender. This process of open, transparent and fair competitive bidding would be to the benefit of schools, students and parents as it will result in more choice, improved quality of services offered by suppliers and a reduction in prices.
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| 6. |
These restrictive practices w.r.t. school uniforms may also occur w.r.t. other goods e.g. stationery and cleaning materials. Governing bodies are requested to ensure that they implement the measures as stipulated at paragraph 5 above w.r.t. school uniforms and to adhere to the requirements at paragraphs 3 – 5 w.r.t. any other purchases of goods or services for the school. Schools found guilty of not adhering to these requirements can be fined by the Competition Tribunal and the Competition Appeal Court, as well as any civil Magistrate’s Court. |
| 7. |
The Western Cape Education Department (WCED) wishes to remind all governing bodies of their duty to uphold good corporate governance to ensure that the schools they govern are not exposed to financial penalties that may adversely affect schools’ financial liquidity. Section 16 (2) of the South African Schools Act, 1996 (Act 84 of 1996), states that "a governing body stands in a position of trust towards the school". |
| 8. |
In the above regard, the WCED requests that schools revisit their procurement practices relating to the acquisition of any goods and/or services to ensure compliance with the Competition Act, 1998 (Act 89 of 1998). |
| 9. |
Kindly ensure that the content of this circular is brought to the attention of all concerned, including the school’s auditor. |
SIGNED: PA VINJEVOLD
HEAD: EDUCATION
DATE: 2015:07:29
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