Analysis of Proposed Consent Order
The Federal Trade Commission ("Commission") has accepted, subject to final approval, an Agreement Containing Consent Order ("Order") from fourteen swimming pool contractors in Bakersfield, California, a city of 224,000 people in Kern County in the Central Valley of California. As alleged in the Commission's proposed complaint, these swimming pool contractors were part of an unlawful price-fixing and group boycott combination that began in the Spring of 1998. The proposed Order is designed to prevent the recurrence of these anticompetitive practices engaged in by these swimming pool contractors.
The Proposed Complaint
The proposed complaint alleges that, in the Spring of 1998, fourteen swimming pool contractors formed an informal group, known as the Southern Valley Pool Association (the "Association"). The complaint alleges that, through the Association meetings and other communications, some of these swimming pool contractors agreed to increase prices substantially to homeowners for swimming pool construction. The proposed complaint also alleges that, as a result of this combination, some of these contractors thereafter significantly increased their prices to homeowners.
The proposed complaint also alleges that some of these swimming pool contractors engaged in a group boycott designed to prevent homeowners from escaping this collective price increase by turning to alternative means for the construction of swimming pools. According to the Commission's proposed complaint, homeowners usually hire a swimming pool contractor to handle all aspects of constructing a swimming pool. Some homeowners, however, may choose to enter into an arrangement, known in the industry as an "owner-builder" arrangement, by which they hire subcontractors directly or use swimming pool contractors as consultants only in arranging for subcontractors. In this way, homeowners who act as owner-builders are able to save substantial amounts of money.(1) Similarly, home construction developers and contractors may hire swimming pool contractors to handle all aspects of constructing a swimming pool, or they may hire subcontractors directly for that purpose.
According to the Commission's proposed complaint, owner-builders were viewed as a major threat to the success of the collective efforts by some swimming pool contractors to raise prices to homeowners. Homeowners acting as owner-builders could work directly with subcontractors or use pool contractors only as consultants and thereby defeat the price increase. Similarly, home construction developers and contractors could also work directly with subcontractors (rather than with pool contractors) and similarly defeat the price increase. To effectuate this group boycott, the proposed complaint alleges that, beginning in early April 1998, a series of meetings was held, with some of respondents and all or nearly all of each trade of subcontractors in attendance. At these meetings, some respondents:
As a direct result of these meetings, according to the proposed complaint, most of the subcontractors raised their prices to pool contractors by the specified amounts on or about May 15, 1998. Also as a direct result of these meetings, some subcontractors began charging or sought to charge owner-builders and home construction developers and contractors substantially higher prices than they charged swimming pool contractors. Other subcontractors stopped doing owner-builder jobs altogether, because they were fearful of losing their work with respondents.
According to the proposed complaint, the effects of these collective actions are to increase prices for swimming pool construction services and swimming pool subcontracting services and to interfere with consumers' choice in deciding to build their swimming pool in an owner-builder arrangement or through home construction developers or contractors.
The Proposed Order
The proposed Order contains provisions designed to remedy the violations charged and to prevent the proposed respondents from engaging in similar acts and practices in the future.
Paragraph II of the proposed Order would prohibit the proposed respondents from
(1) entering into any agreement, express or implied, relating to the price for swimming pool contracting or subcontracting services and (2) requesting, proposing, threatening, urging, recommending, advocating, or attempting to persuade in any way anyone else to alter in any way their price and terms for such services. Paragraphs II.A.(1) & B.(1). These provisions will prevent future efforts, whether by agreement or through requests to others, to raise prices and alter terms for both swimming pool contracting and subcontracting services.
Paragraph II would also prohibit the proposed respondents from entering into any agreement to refuse to deal with owner-builders or home construction contractors or developers. Paragraph II.A.(2). It would bar them as well from requesting, proposing, threatening, urging, recommending, advocating, or attempting to persuade in any way any swimming pool contractor or subcontractor to refuse categorically to deal with owner-builders, home construction contractors or developers, or swimming pool contractors who act or wish to act as consultants for owner-builders. Paragraphs II.B.(2) & (3). Finally, Paragraph II would prohibit respondents from requesting, proposing, threatening, urging, recommending, advocating, or attempting to persuade in any way any subcontractor with respect to the terms of that subcontractor's dealings with owner-builders, home construction contractors or developers, or swimming pool contractors who act or wish to act as consultants for owner-builders. Paragraph II.B.(4)
Together, these provisions will bar respondents, collectively as well as individually, from seeking (1) to stop any subcontractor from working for owner-builders, home contractors or developers, and swimming contractors who act or desire to act as consultants for owner-builders; (2) to change the prices and terms subcontractors charge those homeowners and contractors; and (3) to stop other swimming pool contractors from working for those homeowners and contractors. These provisions, by barring individual efforts as well as collective ones, fence in respondents from engaging in conduct similar or dangerously close to the unlawful activity they engaged in earlier.
A proviso to Paragraph II makes it clear that nothing in this Paragraph prohibits any respondents from discussing and/or entering into a specific proposed or actual business transaction or project in which those involved are or would be in a contractor/subcontractor or other joint or cooperative working relationship.
Paragraph III of the Order requires respondents, for a period of five years, to tape record all meetings and maintain copies of those tape recordings and all materials distributed at the meetings. This provision should have a prophylactic effect in ensuring that the respondents do not seek to engage in such anticompetitive conduct again.
The proposed Order also requires that, should the respondents turn the Association into a more formal organization, they must incorporate Paragraph II of this Order by reference in the by-laws of such organization and distribute a copy of the by-laws to each of the members of the organization. Paragraph IV. Finally, the Order contains reporting requirements (Paragraphs V. & VI.) and provisions guaranteeing Commission staff access should the need arise (Paragraph VII.).
Opportunity for Public Comment
The proposed consent Order has been placed on the public record for sixty (60) days for reception of comments by interested persons. Comments received during this period will become part of the public record. After sixty (60) days, the Commission will again review the agreement and the comments received and will decide whether it should withdraw from the agreement or make final the agreement's proposed Order.
The purpose of this analysis is to invite public comment on the proposed Order. This analysis is not intended to constitute an official interpretation of the agreement and proposed Order or to modify their terms in any way.
1. In owner-builder arrangements, liability in the event of an accident or injury during construction falls on the homeowner, rather than on the pool contractor.