Written evidence submitted by Sainsbury's
INTRODUCTION
1. Sainsbury's has consistently supported the
strengthened and widened Groceries Supply Code of Practice (the
Code) and we have made significant investments to implement it
throughout our business. We support effective Code enforcement,
but we do not believe that an additional enforcement body is necessary,
as the strengthened provisions in the Code and the existing enforcement
regime are already self sufficient. These provisions, which were
not in place in connection with the old Code, provide suppliers
with an effective route to resolve complaints. Since
the new Code came into force on 4 February 2010, we have received
fewer than 10 supplier complaints out of over 3,000 suppliers,
and all of them have been settled internally to the satisfaction
of the suppliers without the need for recourse to the "Dispute"
process under the Code.
2. Sainsbury's therefore believes that the right
approach would be to refrain from establishing an Adjudicator
until the need for further enforcement mechanisms can be properly
assessed using the reporting methods already in place under the
Code. However, we recognise the Government's commitment to introducing
an Adjudicator, so the comments in the remainder of this submission
are about the operation of the proposed new body, not whether
a new body is required.
SUMMARY OF
OUR VIEWS
ABOUT THE
OPERATION OF
THE ADJUDICATOR
3. We agree the Adjudicator should sit within
the OFT (and then the new Competition and Markets Authority) and
hope that this will enable the Adjudicator to learn best practice
from the way that the OFT operates. The OFT previously dealt with
the old Code and has considerable experience and expertise in
investigations. Moreover, the OFT is consumer focused and the
Code is ultimately about serving the interests of consumers.
4. We agree that the Adjudicator's sole purpose
should be to oversee and enforce the Code and that only those
involved in the supply chain should be able to make representations
to the Adjudicator. The Adjudicator must not get involved in any
other aspect of the commercial relationship between retailers
and their suppliers, eg pricing or costs which are outside the
remit of the Code and were outside the scope of the original Competition
Commission investigation. The limited resources of the Adjudicator
should be focused on complaints from smaller suppliers, rather
than larger suppliers many of whom are multinational businesses
that are larger than the retailers they supply.
5. The mechanisms in the Code must be used to
the fullest extent so complainants should exhaust all routes under
the Code before referral to the Adjudicator. The dispute resolution
process, whereby the supplier notifies the retailer of a dispute,
should not be capable of circumvention by a supplier going direct
to the Adjudicator as this may undermine the Code and the prospects
of disputes being resolved without the need for full arbitration.
The only basis on which the Adjudicator would not redirect complaints
back to the Code dispute resolution process should be where the
supplier can provide compelling evidence that it has been treated
adversely by the retailer in relation to the handling of an alleged
breach of the Code.
6. Our main concerns about the draft Bill can
be summarised as follows:
6.1 the impracticality, unfairness and potential
burden of anonymous complaints;
6.2 the risk that indirect supplier complaints
may lead to burdensome investigations;
6.3 the need for retailers to be involved in
developing guidance on how the Adjudicator will operate and for
this to be prepared before the Adjudicator is appointed;
6.4 the potential cost burden of wide-ranging
investigations;
6.5 the need to ensure enforcement powers are
proportionate, and therefore that financial penalties are unnecessary;
and
6.6 the Adjudicator's lack of accountability.
ANONYMOUS COMPLAINTS
7. We foresee practical problems and significant
burdens and costs of allowing anonymous complaints and there is
a risk of burdening retailers with wide-ranging and costly investigations
that cast an otherwise unnecessarily wide net in order to hide
the identity of a complainant. There is also the risk that anonymity
will encourage vexatious complaints. In both cases, there is the
risk of significant burdens on the Adjudicator as well as retailers
which would be inconsistent with the Government's Better Regulation
policy. In any case, it will be difficult for a retailer to change
its behaviour to address specific problems without knowing the
details of a complaint. Moreover penalties could not be imposed
on the grounds of an anonymous complaint, and complainants could
not seek redress in the form of civil remedies as they can do
with a complaint that follows due process under the Code. Anonymous
complainants will also not be able to demonstrate that all processes
under the Code have been followed first, thus undermining a principle
of the Adjudicator process. Raising complaints directly with retailers
using the mechanisms and protections set out in the Code will
result in much more effective outcomes for suppliers than pursuing
an anonymous complaint with an Adjudicator.
8. If anonymous complaints are to be permitted
then appropriate checks and balances need to be put in place and
set out in the proposed guidance about how the Adjudicator will
operate. For example, within the constraints imposed by anonymity
the retailer(s) concerned must be involved well before any decision
to launch an investigation. The Adjudicator must be reactive,
guided by the specific complaints it receives about a direct breach
of the Code, and not proactive in seeking information or investigating
matters that are outside the scope of a specific complaint. In
the light of our experience of suppliers who have made use of
the Code, we would recommend that only those suppliers with an
annual UK turnover of less than £1 billion should be able
to make anonymous complaints.
INDIRECT SUPPLIERS
9. Beyond direct suppliers, the Adjudicator should
consider relevant complaints made by indirect suppliers (ie those
who do not contract directly with retailers but who are part of
the supply chain to the retailer in question) for the purposes
of information gathering only. This is because the nature of the
supply chain is such that it will be difficult to establish a
causal relationship between a complainant and one retailer. The
original complaint must be accompanied by evidence relating to
a specific breach of the Code to help avoid spurious investigations.
10. We agree with the Government that it is not
necessary for representative bodies or other special interest
groups to be able to make complaints. It is also important that
the Adjudicator resists initiating investigations in response
to concerted pressure from such bodies or public misconceptions
about supply chain issues.
GUIDANCE FROM
THE ADJUDICATOR
11. We agree that guidance needs to be published
about the way the Adjudicator will conduct investigations as well
as criteria on the application of relevant enforcement provisions,
ensuring that the materiality thresholds are appropriate, proportionate
and pragmatic, and that the primary purpose of the Adjudicator
is the protection of consumers' interests. Retailers must be consulted
about all guidance. It is important that this is published before
the Adjudicator is appointed so that it is clear from the outset
how the new body will operate. For example, we would want to see
any guidance set a high bar before investigations are initiated,
such as evidence of consistent breaches of the Code or a settled
pattern of behaviour contrary to the Code, and should be clear
about what will not be investigated as well as what will be.
12. As part of the guidance, whilst ensuring
the parties' commercial interests are protected, the Adjudicator
should commit to publishing any advice provided to a supplier
since this will help retailers' compliance. Advice to suppliers
should not be allowed to distort a retailer's efforts to resolve
a complaint going through its internal dispute resolution process
under the Code.
THE COSTS
OF INVESTIGATIONS
13. We agree that a retailer found to have clearly
breached the Code should be required to pay all or some of the
costs of the investigation. We also agree that vexatious or unwarranted
complainants should be required to pay all or some of the costs
of the investigation, though have some concerns about how practicable
this will be. However, we remain concerned that, without sufficient
checks and balances, costly, time-consuming and unnecessary investigations
will create burdens on both the Adjudicator and retailers.
14. Given the anticipated considerable burden
of gathering relevant data to respond to an Adjudicator's data
request, it is critical all investigations have deadlines for
their start and finish. We suggest that investigations should
be brought before the Adjudicator within three months of an alleged
breach, and concluded within six months of the alleged breach.
Both deadlines could be extended subject to agreement of both
the retailer and Adjudicator.
15. Without guidance on how the Adjudicator will
operate we have no way of knowing how accurate the figures are
in the Regulatory Impact Assessment (RIA) prepared by Government
for the Adjudicator set up and running costs. In any case Government
should seek to set a limit on the budget for the Adjudicator and
retailers should (a) receive an annual report about how their
funds have been used, and (b) be consulted each year about the
size of the retailer levy for the coming year.
16. We believe that the suggested £120k
cost a year per retailer in the Regulatory Impact Assessment is
likely to be an underestimate given our experience of investigations
by the OFT. Ensuring appropriate thresholds about when and how
the Adjudicator will operate will be crucial in determining final
costs.
ENFORCEMENT POWERS
17. We believe that the levying of financial
penalties is unnecessary. The Code already contains a number of
deterrents that will encourage compliance and we consider that
the levying of penalties would be disproportionate and would risk
undermining the dispute resolution process already available whereby
potential breaches of the Code can be dealt with effectively,
to the direct benefit of the affected suppliers, via an arbitration
award. Financial penalties may also be more liable to appeal than
an arbitration award under the Code (which may only be appealed
in limited circumstances) or recommendation, resulting in increased
costs and delays for all parties. Giving the Adjudicator the power
to require retailers to publish information about a breach of
the Code is a significant deterrent because of the risk of considerable
reputational damage to the retailer concerned.
ACCOUNTABILITY OF
THE ADJUDICATOR
18. We note that the Secretary of State intends
that the Adjudicator should be completely independent of Government.
We can understand why independence is seen as important but have
concerns that there will be few checks and balances on the Adjudicator,
apart from the three-yearly review to be conducted by the Secretary
of State. It is not clear to whom the Adjudicator will be accountable,
or what action may be possible if there are concerns about the
operations of the Adjudicator outside of the three-yearly reviews.
In addition, there is currently no means for the retailers who
are funding the new body to comment on its operation outside these
reviews. We believe that the draft Bill should be amended to address
these gaps in accountability.
14 June 2011
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