Business, Innovation and SkillsWritten evidence submitted by the Department for Business, Innovation and Skills

Consumer Rights Bill—An additional, “satisfactory quality” test for Services

I was pleased to learn that the BIS Select Committee is undertaking pre-legislative scrutiny of the draft Consumer Rights Bill. As you know, I believe the draft Bill offers an important opportunity to secure more confident consumers and thereby generate a more dynamic and stronger economy. I understand my officials have been liaising with the Committee clerks to prepare scrutiny. We stand ready to support the Committee’s process and I look forward to discussing the measures in detail in the Autumn.

In the meantime, I thought it would be helpful to write at this stage on one specific issue which we raised alongside the draft Bill—the idea of a new right that a service is provided to an additional “satisfactory quality” standard. I hosted a roundtable meeting in May on this issue and sought more specific evidence. I attach a note of the roundtable and the submissions received to aid your scrutiny process. The rest of this letter draws out some of the key points that I drew from the evidence.

“Satisfactory quality right” for services

A “satisfactory quality” right already exists for goods. It focuses on the outcome produced for the consumer and whether it is what a reasonable person would expect, taking into account the description, price and other relevant circumstances. If goods are not of satisfactory quality, the right will be breached, no matter how much care and skill a trader has taken. The existing law on services is instead concerned with how the service is provided, (whether it was provided with “reasonable care and skill”). As long as a trader has taken reasonable care and skill the trader is not liable, no matter what the end result. In 2010, an academic report commissioned by government proposed that we add a “satisfactory quality” right for services.1

We received a range of views on this issue in response to our consultation. Some argued that consumers would benefit from a test that was more aligned to the satisfactory quality test for goods; others felt such a test would be complicated, costly or unworkable.

Potential Benefits

It was suggested to us that it would make consumer rights easier to understand and this would give consumers more confidence to challenge traders. For example, consumers could see for themselves whether a wall had been evenly painted. However, they might feel they would need to ask an expert to assess whether the wall had been painted with “reasonable care and skill”, particularly if the trader said the reason for any uneven patches was because of pre-existing damp problems. Which? responded to our request for evidence that “consumers understand the concept of “satisfactory quality”. This is how they assess any goods they purchase (and have done so for many years). It also reflects the natural parlance.”

Some also felt that a focus on the outcome would increase dialogue between consumers and traders, as traders would need to explain, discuss and understand the result the consumer required before and during provision of the service. The dialogue could also help manage consumer expectations of the outcome and therefore reduce the potential for disputes once the service had been performed.

Research2 indicates that 7% of consumers have experienced a problem with a regulated service in the last 12 months. Some stakeholders have told us that these, and problems in the non-regulated sectors, would be more likely to be resolved if consumers were equipped with this new right.

Potential drawbacks

It was also suggested to us that a new right would create more complexity for both consumers and traders because the same right could not be interpreted in the same way universally across all services. For example, the outcome of a service related to a physical product (such as a car repair) is much easier to define than one that does not (such as a beauty treatment) where expectations are likely to vary considerably. Exempting or applying different standards to different types of service would make the law more complex and be counter to the aims of the draft Bill to streamline and clarify consumer rights.

Often there will be matters of uncertainty to the trader that will mean that they will not be able to specify or meet the pre-contractually negotiated outcome. For example, a dry-cleaning firm cannot be certain that their solvents will be sufficient to shift a stain of uncertain origin. A private French tutor cannot be sure that his methods will help you improve your confidence in the language. An architect cannot guarantee that her design is the optimum solution for your range of requirements.

Some felt businesses would be discouraged from taking on higher risk contracts. For example, renovation work on an old house, where the risks of finding problems mid-job are high. Business might also break big jobs into small parts, where they have more control of the outcome or include more contingency in the price to cover themselves against more eventualities. This could result in increased complexity and higher prices for consumers.

There was also concern that a “satisfactory quality” right would lead to traders using more legal disclaimers. The aim would be to clarify what “satisfactory quality” would look like. This is important because some types of services have relatively subjective outcomes, with expectations varying by consumer, such as the benefit expected from a life coaching session or new central heating system. Disclaimers could, of course, be helpful if they lead to a better understanding by the consumer of the likely outcome but they could also encourage unnecessary paperwork and an increase in “small print” as traders anticipated all potential eventualities. Such multiple disclaimers could make it harder for consumers to understand if their rights had been breached, to prove the breach or to enforce their rights.

It has proved difficult to assess the cost implications. Business groups have told us that a satisfactory quality test would mean they had to spend more on legal advice, appropriate disclaimers and potentially higher insurance costs for services where the outcome was harder to manage. SMEs may be particularly affected by the costs involved in taking external legal advice or adopting a more risk-averse approach to the service they felt they could provide; in turn this could reduce consumer choice and competition.

I hope this summary and the detailed evidence I am attaching is helpful to your consideration. There clearly remains a divergence of views and I believe the case still has to be made to warrant a change from the current position. I therefore will continue to consider further evidence and views as they are debated during pre-legislative scrutiny and I look forward to learning the Committee’s views and to discussing them with you in due course.

Jo Swinson MP
Minister for Employment Relations and Consumer Affairs

20 September 2013

Annex 1

NOTE OF MINISTERIAL ROUND-TABLE—CONSUMER RIGHTS SERVICES TO PROPERTY AND INSTALLATION SERVICES 7 MAY 2013, 2PM-3PM BIS

Attendees:

1.Jo Swinson MP—Minister for Consumer Affairs (Chair)

2.Chris Warner—In-house lawyer, Which?

3.Miles Trower– Legal representative for the National Franchised Dealers Association (NFDA) (part of the Retail Motor Industry Federation (RMI))

4.Nick Kell—Market, Legal & Growth Policy, Direct Line Group (DLG)

5.Mike Dixon—Assistant Chief Executive, Citizens’ Advice.

6.Hamish MacLeod—Chair, Mobile Broadband Group (MBG)

7.BIS Officials—Harriet Knighton, Lara Mustafa, Laura Harbidge.

Discussion:

1.The Minister thanked attendees for their time and introduced the discussion based on the discussion paper circulated in advanced.

2.Attendees were asked what they thought were the problems with the current “reasonable care and skill” test and several were pointed out:

That the test was overly “legal” as consumers naturally judged a service by its outcome rather than how it was carried out.

That consumers were used to, and happy with, the different regime used when purchasing goods.

That there were also examples (such as curtailed concert performances) where the service was provided with reasonable care and skill but the consumer was still not satisfied.

That “reasonable care and skill” was hard for the consumer to prove.

3.However, it was also pointed out that there might not be a problem to solve that merited such a change in the legislative framework.

4.The Minister asked that attendees provide any quantitative evidence they had available to reinforce these points.

5.Attendees were asked what they thought were the potential problems with a new “satisfactory quality” test for services to property and several were pointed out:

that bringing the services regime closer to the goods regime by introducing this test was not appropriate, as services were inherently different to goods;

that consumers often had unrealistic expectations of the outcome of a service, so adding a satisfactory quality guarantee would increase costs and prices;

that traders would use exemptions to protect themselves from liability. A trader would set out when agreeing to provide the service a number of potential issues and outcomes to ensure the consumer couldn’t hold them liable for the final outcome not meeting unrealistic expectations;

that traders may have to create an overly bureaucratic system to manage this new regime—for example splitting a job into stages where they could control the outcome of each small stage—which might be lengthy and time consuming for the consumer;

that some services providers such as mobile network operators are not “masters of their own destiny” and therefore couldn’t control the outcome of the service;

that it would be difficult to define “satisfactory quality” especially for continuous services; and

that OFT and other regulators already had systems in place to ensure and increase quality, without the need for anything further in legislation.

6.The Minister asked that attendees provide quantitative evidence they had available to reinforce these points.

7.Attendees were asked whether a new “satisfactory quality” test for some services but not others would cause problems. Attendees agreed that it would be difficult to draw a line between services sectors, though some thought it was not impossible and would allow the new test to be used where it was most appropriate.

Annex 2

EVIDENCE FROM CITIZENS ADVICE

The CA Consumer Service (advice line) received over a million contacts in 2012/13, relating to 837k individual cases. Of these issues, 173,562 (21% of all issues) were categorised with a complaint description of “substandard services”. These are summarised by Tier 1 issue (business area) in the table below:

Service

Cases

Broadcasting

127

Commercial Goods and Services

1110

House Fittings and Appliances

55219

Leisure

19069

Other Household Requirements

21242

Personal Goods and Services

18136

Professional and Financial Services

28126

Transport

30533

Grand Total

173562

Of the largest, “House Fittings and Appliances”, “Home maintenance and Improvements” was by far the largest with 30578 cases.

From a sample of cases, we deduce that the majority of consumers already apply an “outcome based” standard to services provided.

Specific (anonymised) examples from their Consumer Service helpline:

“Consumer had an extension built several years ago. Over the years there have been a couple of leaks—mainly around the window on the pitched roof. The consumer recently had two roofers round and independently they have both said that the original builder has used the wrong roof tiles for the pitch of the roof. It is now going to cost us several thousand pounds to re-tile the roof.”

The consumer is most likely entitled to redress under the “reasonable care and skill” right, however if there was a “fit-for-purpose” standard, they would not have needed to hire two expert roofers to prove this—they could see the roof wasn’t right.

“Consumer has entered into a contract with a trader to fit an alarm system. Consumer paid for a pet sensitive alarm but it keeps going of. Trader put tape over the sensor and an independent report states there are parts missing from the alarm system”.

The consumer might not be entitled to redress under the current “reasonable care and skill” right for the trader fitting the wrong, faulty alarm, however if there was a “fit-for-purpose” standard, they could be and they would not have needed an independent expert to prove this.

“Consumer had problem with computer so took to in for repair. Trader advised problem with wires and would be £60. Trader had computer for 4 weeks, and then replaced a part, but still wouldn’t work. Consumer gave it to a computer expert to look at- Advised nothing wrong with part changed, advised plug is not the correct plug, C charged with correct plug and computer was fine”

The consumer might not be entitled to redress under the current “reasonable care and skill” right, however if there was a “fit-for-purpose” standard, they could be and they would not have needed an independent expert to prove this.

“Consumer took two Siberian Goose pillows, £60 each, to dry cleaners. On the label of the item, it specifically states the item cannot be dry cleaned. And consumer stated to trader that this item needs to be hand washed. When the two pillows were returned, one has become faulty and ripped, as well as stained. Trader is claiming he has not liability”

The consumer might have right to redress under the current “reasonable care and skill” right, however this would be difficult to prove without an expert, compared to a “fit-for-purpose” standard, they could be and they would not have needed an independent expert to prove this.

Annex 3

LAW SOCIETY’S CONSUMER LAW REFORM REFERENCE GROUP: CONCERNS ABOUT AN OUTCOME BASED QUALITY STANDARD FOR SERVICES IN THE CONSUMER RIGHTS BILL

Issue

1. Should there be an outcome based standard for services?

2. Some members of The Law Society’s Consumer Law Reform Reference Group met with BIS officials in June 2013 to discuss this issue. At the meeting, those in attendance raised a number of fundamental concerns with this proposal and argued for their careful consideration before moving ahead with this idea.

Unique nature of the Services Sector

3. The services sector is very different from the goods and digital content sectors in that it is often much more difficult to judge what is a satisfactory outcome for services, given the range of possible expectations that a customer may have. For example, the quality of a service which does not have a physical product, such as education, a hair cut or beauty treatment, is more difficult to assess than a service that does have a physical product/result at the end of it, such as the building of a new wall or the painting of a room or a car repair.

4. The very wide variety of services makes it extremely difficult to find wording that provides satisfactory coverage. For example, some services lead to the production of goods, some involve working on existing goods and others involve no physical item at all. In other words it is difficult to have one standard that would apply meaningfully to each type of service.

5. The existing law on liability for the provision of services requires that there should only be liability where there is fault, and the current standard of “reasonable care and skill” captures this.

6. A workable “satisfactory outcome” test would likely require trying to differentiate between different types of services. This would result in the creation of another complication in another part of the law.

7. If the reasonable care and skill test is made clearer and applied robustly, along with a requirement for transparency to customers about the service being offered, it will—in the majority of cases—lead to the same result as an outcome based standard without imposing unrealistically high burdens on business. This test has applied for many years and has resulted in relatively few disputes going to costly litigation.

Issues with a Satisfactory Quality test for Services

8. Risk of traders being held to unrealistic standards: often there will be matters out of the control of the trader that will mean that they will not be able to meet the pre-contractually negotiated outcome. For example, a student attending a university course may expect to receive a certain qualification at the end, but this is subjective, and will largely depend on the ability of the student and the efforts that the student itself puts into the course. In addition, different individuals will have different expectations for the level of service they receive. This would be very difficult to manage in practice on an objective basis.

9. Complex contracts: in practice, a satisfactory quality standard would mean that there would be a large number of disclaimers in the contracts. This paperwork would be expensive to research and provide—most firms would need to seek legal advice to draw up these documents. This is at a time when traders are already having to review their contracts in response to other changes (eg unfair contract terms). It also may mean that the right itself is no easier to apply for consumers than the current one, and will continue to involve looking through complex paperwork. The use of disclaimers would be one of the obvious ways traders would seek to protect themselves against these new standards, but this in itself would not be satisfactory for customers, as there would be less certainty as to what they can expect from an individual trader, and a greater prospect of “small print”.

10. Uncertainty for consumers and a chilling effect on choice and competition: The inevitable increase in the use of disclaimers by businesses is likely to cause more confusion for consumers as to what their legal rights are. Having a clear set of remedies in place for when a consumer is unhappy with any service it has been given, would significantly help consumers and businesses alike in addressing such concerns. In addition to a rise in excessive use of disclaimers, this increased standard could result in a polarisation of providers in the market: those companies that will provide “premium” quality services (likely to be at significant cost to consumers); and those companies that are not concerned with the quality and offer “budget” services at low costs. This type of market would not favour the consumer, and will offer less choice. SMEs in particular are likely to find it harder to absorb the financial risk of refunds etc compared to larger providers. This type of pressure will help drive competitors out of the market.

11. Traders being liable for service failures they are not directly responsible for: In addition, certain businesses could face extra costs in providing remedies for problems with a service for which they are directly not responsible. For example, if (non-package) travel companies were to be liable for injuries to tourists that were caused by their subcontractors. At the moment the test is based on negligence (so if the travel company exercised reasonable care and skill in selecting their subcontractors they won’t be liable). In addition, an outcomes based standard would be impossible to implement for travel services which will involve overseas contractors.

12. Costs of insurance would no doubt rise: We think this and other costs will mean that some service providers will be forced out of the market with the potential of leaving only very high end service providers or cowboys, which has the potential to cause significant consumer detriment.

13. Compliance with sector specific requirements: Many services, such as financial services, utilities and telecoms, have their own sector specific legislation and governance. It is vitally important that the general consumer obligations dove tail with the sector specific legislation eg if mobile phone operators meet the standards required by OFCOM would this mean that they have met a satisfactory quality test? How this will work in practice warrants much greater detailed consideration.

Questions

1. Would you feel the need to change your advice to clients based on a new satisfactory quality right? If so, how?

14. Yes. This is a fundamental change to the current position in law. When advising businesses it is likely we would advise them to limit consumer expectations as much as possible by “specifically drawing to the attention of the consumer” any possible problems. We would probably do this by advising on listing disclaimers. Significant costs are likely to be incurred by businesses to ensure that their customer facing documentation complies with the various legal requirements whilst seeking to clearly delineate their obligations to the customer in connection with the services being offered.

15. When advising consumers we would ask them for any evidence as to what the quality of the outcome would be.

2. Would the “reasonable person” test be easier/harder to apply to services as compared to goods?

16. The “reasonable person” test is likely to be difficult to apply to many services because of the subjective element that is involved with many types of services. With goods, it is usually obvious whether the item is “fit for purpose” or of “satisfactory quality”, where the same is not the case with some services.

3. We are particularly interested in certain sectors, which have either been excluded from other countries’ legislation on this issue or whose representatives have raised concerns with us. Do you think the new test would be particularly difficult for any of these sectors:

Architecture

Telecommunications

Utilities

Financial Services including insurance

Engineering

Transport and storage of goods?

17. Some of the services listed appear to be those that are already heavily regulated (eg telecoms, utilities, financial services). That may be the reason that these are excluded. As noted above, it will be important that the numerous sector governance is dove-tailed with these new requirements so that there is certainty for both consumers and traders. The danger of duplication is a real one and would need to be guarded against to prevent unnecessary burdens and compliance confusion.

18. Legal services could also be added to this list for similar reasons to financial services and architecture.

Conclusion

18. Given the specific nature of the services sector, there are significant difficulties with a “satisfactory quality” or “fitness for purpose” test. There are no easy ways of overcoming these problems

19. The current test is—in most cases likely to prove sufficient and it is well known. Further, the changes being proposed in terms of providing clarity on pre-contractual information and the remedies available to consumers will address some of the concerns that consumers have faced in seeking redress against businesses.

20. Aligning the quality standard for goods and services is likely to (at best) deliver only marginal improvements for some consumers at significant cost. The decision whether to proceed must be taken with this in mind

21. If it were introduced, there may need to be significant flexibility in the standard to minimise the increase in costs to business eg by trying to differentiate between different types of services to ensure the standard is only applied to ones where it most obviously appropriate. This in itself, is likely to have an adverse affect on the clarity of the legal position in this area, in particular for consumers.

Annex 4

WHICH? EVIDENCE

Complaints levels about services are quite high:

Two in five British consumers have made a complaint about a service in the last 12 months. This survey explores the extent of complaints in different sectors. It finds that broadband, mobile phones and energy are the most complained about sectors.

A number of service providers do not take responsibility for problems:

Of these complaints, another two in five are not resolved by the provider—this tends to be because the provider does not take responsibility for the issue, or blames another company.3

Two in five complaints aren’t resolved by the provider, although this varies by sector. And top reasons include a shifting of the blame:

40% of complaints in the service sector in the last 12 months were not resolved by the provider:

Problems not being resolved by the provider seem most prevalent in:

Trades services—58%

Airlines/holiday operators—56%

Car/vehicle repairs—53%

Top reasons for this are:

That the problem was caused by circumstances out of their control—26%

That another company was responsible—15%

That it was not possible to fix the problem—15%

That they have done what they had promised to do—13%

That the terms and conditions of your contract said they weren’t liable—11%

That the problem was caused by consumer—10%

The provider ignored the issue/gave no response—9%

That they have complied with the industry standard—9%.

Having further discussed this issue with the Which? telephone lawyers, we have identified the following scenarios where a change in to a “satisfactory service obligation” is most likely to be of benefit to consumers (ignoring for now the general benefits previously discussed, such as empowerment from it being more intuitive and objective standard):

Where the trader claims the consumer’s dissatisfaction results from circumstances beyond their control;

Where a third party is at fault (eg one of their suppliers was slow making the delivery);

Where the trader has met industry standards, but this has not resulted in the envisaged service; and

Where the scope of the service has not been properly defined. For example, where the trader has agreed to “tile a wall” and the consumer assumes this includes an assessment of whether the wall is suitable to be tiled. (If it has been recently plastered, it may need longer to dry out, for example).

1 https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/31838/10-1255-consolidation-simplification-uk-consumer-law.pdf

2 Consumer Focus Survey: http://www.consumerfocus.org.uk/files/2012/10/TNS-for-Consumer-Focus-Consumer-Detriments-20121.pdf

3 Populus study , on behalf of Which?, interviewed a random sample of 2,021 GB adults aged 18+ online between 24th and 27th May 2013.  Surveys were conducted across the country and the results have been weighted to the profile of all GB adults.  Populus is a founder member of the British Polling Council and abides by its rules.

Prepared 20th December 2013