Lately the Housing Affordability politicking has turned its attention towards building materials – manufacturing and supply and how the industry is contributing to high prices through what appear to be significantly more expensive materials than are available overseas. The questions have led to an enquiry that seeks feedback from the industry.
Whilst the likelihood is a low turnout on submissions due to fears of being black listed by the big suppliers it is interesting that much focus is upon incentives and price fixing and what happens within the building materials industry to fix prices high, maintain that equilibrium and shit out competition.
Section 4 of the enquiry questionnaire entitled: ‘competition impact of strategic conduct in construction markets’ notes the following issue.
Issue: Lack of Transparency of Strategic Practices
‘Strategic practices such as the provision of rebates or targeted discounts have the potential to constrain access to distribution channels for building materials. The lack of transparency around their use also means the benefits that result from them are less likely to be passed to end consumers’.
What this is about is such practices as ‘cover pricing’ – the act of having a face price but offering rebates and incentives, loyalty schemes between merchants and tradespeople as well as other schemes. ¬†
The paper suggests that a common conduct of suppliers and manufacturers is to structure discounts and benefits that are provided to tradespeople on the basis of sales of total volume. Most of these discounts and benefits are rebates or non-cash benefits like overseas trips, tickets to games, products and so on.
Offering these to builders means there is often no way to pass on the benefit to the principle of a building contract – like the mum and dad building their home.
In doing this the suppliers are ensuring that the price of materials as products are kept at their inflated rates and that loyalty is acquired from tradespeople who are less inclined to swap suppliers because their accrued benefits would be lost.
The government is keen to explore how these benefits can be made transparent. What is surprising is that they may have overlooked that this can already be achieved using the Secret Commissions Act of 1910.
Whilst it requires some further consideration from legal minds it is possible that the SCA 1910 already makes it illegal to receive benefits without declaring them and carries a 2 year jail term.
The key to whether this Act can be relied upon – to place pressure on suppliers to stop offering incentives and benefits and to start lowering prices as genuine discounted rates that can be passed onto the cost of houses – is what is the definition under case law to define commissions and whether commissions include any benefit received in return for a sale.
In short it may well be that the act of providing or receiving of such benefits without declaring them is illegal and can result in jail time.