A firm or group of firms that exert influence as purchaser of a product or service to obtain more favorable terms from a supplier , will be liable for an offence that attracts a fine of KSh10 million or a jail term of 5 years or both.
This is according to provisions of the Competition (Amendment) Bill, 2019, which has been signed into law by President Uhuru Kenyatta.
The Competition (Amendment) Bill 2019 empowers the Competition Authority of Kenya to review contracts and agreements between suppliers and buyers to determine cases of abuse of buyer power.
This Bill, which was submitted to the National Assembly during the reading of the 2019/2020 budget, is intended to separate the legal provisions on abuse of buyer power from those on abuse of dominant power.
The Act will facilitate investigations with a view of mitigating abuse of bargaining or buyer power which adversely affects the economy and empowers the Competition Authority to investigate and take action against such conduct.
“Buyer power” means the influence exerted by an undertaking or group of undertakings in the position of purchaser of a product or service, so as to obtain more favorable terms, or to impose a long term opportunity cost including harm or withheld benefit, which, if carried out, will be significantly disproportionate to any resulting long term cost to the undertaking or group of undertakings.
The Act empowers the Competition Authority of Kenya to require sectors which have a potential for abuse of buyer power to develop a binding code of practice.
Any professional association whose rules contain a restriction that has the effect of preventing, distorting or lessening competition in a market in Kenya and which fails to apply for an exemption as required by law commits an offence and shall be liable, upon conviction, to imprisonment for a term not exceeding five years or to a fine not KSh 10 million or both
Conduct amounting to abuse of buyer power includes:
- Delays in payment of suppliers without justifiable reason in breach of agreed terms of payment;
- Unilateral termination or threats of termination of a commercial relationship without notice or on an unreasonably short notice period, and without an objectively justifiable reason;
- Refusal to receive or return any goods or part thereof without justifiable reason in breach of the agreed contractual terms;
- Transfer of costs or risks to suppliers of goods or services by imposing a requirement for the suppliers to fund the cost of a promotion of the goods or services and
- Transfer of commercial risks meant to be borne by the buyer to the suppliers.
Others are demands for preferential terms unfavorable to the suppliers or demanding limitations on supplies to other buyers, reducing prices by a small but significant amount where there is difficulty in substitutability of alternative buyers or reducing prices below competitive levels; or bidding up prices of inputs by a buyer undertaking with the aim of excluding competitors from the market.
