CMA issues informal guidance on Builders Merchants Federation’s supply chain initiative: A framework for ensuring compliance of sustainability agreements?

On 28 March 2025, the CMA published informal guidance issued to the Builders Merchants Federation (BMF) in respect of a proposed supply chain assurance initiative for use by its members (BMF Guidance). The BMF Guidance is made pursuant to the open-door policy under the CMA’s Green Agreements Guidance on the application of the Chapter I prohibition to the Competition Act 1998 (CA98) to environmental sustainability agreements (CMA Guidance).  This is the third time the CMA has published such informal guidance. Other instances relate to supply chain emissions and fairtrade initiatives in the grocery sector. 

The growth of this body of precedents provides helpful insights into the CMA’s analysis of sustainability agreements and gives companies a better idea as to the type and design of initiatives that will and will not be problematic under competition law. It also reflects the CMA’s ongoing commitment to helping facilitate lawful collaboration between businesses pursuing environmental sustainability goals.

This article highlights some of the key takeaways in the BMF Guidance that may be relevant to other businesses seeking to work together to implement their own sustainability initiatives.

The BMF proposal

Builders merchants are under increasing pressure to demonstrate robust, objective and audited supply chain assessments as their customers demand greater transparency and accountability for ESG practices within their supply chains. Several BMF members had been working independently to develop their own supply chain assurance schemes (“SCAS”) with third party providers. 

Given the increasing importance of SCAS, the BMF proposed that the industry appoint a single provider of supply chain assurance services to make it easier for merchants to assess the impact of their supply chains and for suppliers to provide ESG information on a consistent basis. The initiative aims to improve transparency and environmental outcomes in the industry without placing undue burdens on suppliers, who would otherwise have to provide different information to individual merchants’ supply chain assurance providers.  The alternative, fragmented approach also risked undermining the BMF scheme’s aims, due to difficulties reconciling assessments carried out by different supply chain assurance providers. 

On grounds of cost and efficiency, the BMF favoured adoption of an existing SCAS that a merchant, and BMF member, had already been using for four years, rather than developing an entirely new scheme. Approximately 60% of suppliers had already been assessed on this existing platform and could transfer their existing supply chain assessments to the proposed single preferred platform, avoiding additional costs. Within 24 months of launching the platform, BMF would conduct a competitive tender to identify a recommended supply chain assurance provider for the following period and committed to re-tender the contract at regular intervals.

The supply chain assurance service works broadly as follows:

• In return for a fee, the SCAS provider audits suppliers’ replies to an ESG questionnaire. Suppliers are awarded a rating based on their replies and supporting evidence. The supply chain assurance provider also manages any follow-up actions required of suppliers.
• Merchants deciding to use the single preferred platform would:
  • have individual contracts with the supply chain assurance provider, pursuant to which they pay a fee to access the platform and suppliers’ supply chain assessments.
  • receive access to a bespoke dashboard for their own supply chain; and
  • receive access to assessments and risk ratings of all suppliers on the platform, including any they are not using.
• BMF members and non-members would receive equal access to the platform and be charged the same fees for using the service.

The CMA's Assessment

Decisions by an association of undertakings covering environmental sustainability matters are eligible for informal guidance under the open-door policy outlined in the CMA Guidance. BMF’s proposal was deemed to constitute such a ‘decision’ and therefore was eligible for a light-touch review, as envisaged by the CMA Guidance. The CMA assessed that the proposal would not restrict competition by object and so went on to consider its overall effects on competition. 

The CMA first considered the potential foreclosure effects arising from the development of the sustainability questionnaire and subsequently accessing this document and processing responses to it.  The BMF’s proposal allowed for broad participation by BMF members and non-members and the resulting questionnaire (including the methodology for assessing responses) would be made available so that other suppliers could develop their own SCAS.  Overall, the CMA concluded that these features meant that there was limited scope for appreciable anticompetitive effects provided that when revisions are made to the questionnaire and/or the assessment methodology, there is an ongoing requirement to disclose these changes to other supply chain assurance providers.  The CMA also recommended that this group of stakeholders be given the opportunity to input on the development of the questionnaire during the initial design stage. 

The CMA’s assessment of the BMF’s intention to recommend a single preferred platform is more in-depth.  The CMA considered whether this proposal could result in a single preferred provider being able to exploit a position of market power. The analysis distinguishes between the risk of short-term and long-term market power. The CMA could not rule out that this element of the proposal gave rise to some risk of an appreciable negative effect on competition and so went on to consider whether the proposal is capable of exception under section 9(1) CA98 because the benefits of the proposal outweigh the harm to competition.

Exploitation of a strong market position resulting from the foreclosure of other providers from the market

The CMA considered the risk that BMF's recommendation that the industry use a single preferred provider may have the effect of foreclosing other supply chain assurance providers from providing equivalent services to merchants and suppliers.

In particular, the CMA considered the risk that, in practice, BMF's recommendation to use a single preferred platform may have a similar effect to a mandated reservation of its members' demand to the single preferred platform provider, with competing providers de facto foreclosed from servicing the market. This could provide the inaugural single preferred platform provider with market power which it could exploit during the initial period to increase prices or reduce service quality.

The CMA also considered that the proposal could facilitate indirect network effects to the advantage of the single preferred platform provider, whereby an increased use of the single provider at the merchant level would increase its value for suppliers, thereby also driving increased use at the supplier level.

The CMA pointed to the following countervailing factors as capable collectively, of imposing a helpful constraint on the preferred platform provider by increasing the ability of rival assurance providers to compete to offer rival services. 

• Making the questionnaire open source: reduces a barrier to supply for other supply chain assurance providers, by enabling competing suppliers to develop alternative solutions and compete to supply equivalent services to merchants and suppliers.
• Data portability: reduces the costs of switching to alternative providers for merchants and suppliers using the single preferred platform which in turn, should disincentivise the single preferred platform provider from exploiting its market power.
• Threat that BMF reassigns its recommendation: in the event of deteriorating price / non-price terms may serve to curb any market power conferred by the initial appointment.
• BMF may also initiate the competitive tender sooner: if the inaugural single preferred platform provider began exploiting its market power.

Ineffective competition for the market in future

The CMA considered the risk that the proposal could also exclude competing providers from entering the market in future competitive processes, given the potential for the BMF’s recommendation to confer an unassailable competitive advantage on the inaugural single preferred platform.

The CMA considered that exposing the BMF recommendation to competition on a sufficiently regular basis would help mitigate foreclosure risks, by providing competing providers with opportunities to compete ‘for’ the market. Fairly regular tenders would create momentum for merchants and suppliers to collectively switch and therefore tip the market to a new supplier. Other features of the BMF proposal also help remove other friction points which can deter switching. For example, data portability, the ability to extract and transfer data provided to merchants as well as open access to the sustainability questionnaire. Finally, to the extent the BMF became concerned about the scope for lock-in, it could launch a competitive process to consider alternatives to the incumbent platform provider.

The Section 9 Exemption

Based on its light-touch assessment, the CMA concluded that the BMF proposal was capable of satisfying the four cumulative conditions in section 9(1) CA98 which exempt qualifying agreements from the scope of the Chapter I prohibition.

The CMA’s analysis of whether the claimed benefits of the BMF proposal outweigh the potential harm to competition provides helpful practical guidance to businesses on how the four cumulative conditions for exemption applies to sustainability agreements and the depth of analysis needed to demonstrate the claimed benefits.  In particular:

• The CMA’s appraisal of the environmental benefits that BMF claimed would flow from its proposal.  The CMA Guidance emphasises that environmental benefits must be substantiated and be objective, concrete and verifiable. In its submissions, BMF had particularly highlighted the scope for greenhouse gas emission reductions, establishing a link between its recommendation to use a single preferred platform and environmental sustainability benefits (at least) in relation to upstream emissions in manufacturing and construction.  The CMA performed an illustrative sense check of the emissions benefits the BMF claimed would derive from the single preferred platform.  This involved confirming that identified estimates of the emissions baseline are in line with industry data and current national statistics; checking with reference to published sources whether emissions reductions to the level identified is feasible and cost-effective in the near term; corroborating emissions reductions estimates provided by the BMF; and assessing the net benefit from each unit of emissions in terms of reduced or avoided costs.  While acknowledging uncertainty around the precise size of the benefits, the CMA was satisfied based on the evidence reviewed that the benefits would be substantial.
   
• BMF provided calculations indicating significant cost reductions associated with having a single preferred platform, with the CMA recognising the benefit associated with this.
   
• In considering the ‘fair share’ limb of section 9(1), the CMA did not undertake detailed analysis to verify the BMF’s claim that consumers would receive a fair share of the benefits that result from the proposal.  Rather, the CMA concluded from the materials reviewed that it was reasonable to assume that the BMF could substantiate these benefits.  Seeing as the CMA viewed proposal as a ‘mixed agreement’ generating both climate change benefits and other environmental benefits, in relation to the climate change aspects of the proposal, it also considered the totality of the climate change benefits accruing to all UK-consumers. The CMA judged that the BMF proposal was capable of helping the construction sector to achieve significant reductions in carbon emissions which would in turn, benefit all UK consumers. 
   
• As to whether the single preferred provider solution was indispensable to achieving the claimed consumer benefits, the CMA was satisfied with the BMF’s justifications why an alternative multi-platform approach would not be as quick to implement or as effective (in terms of producing uniform and consistent outputs).  In contrast to its more detailed analysis of the claimed environmental benefits, the CMA does not subject the BMF’s reasoning to much scrutiny (and it is not clear why some of the benefits could not be obtained by using multiple providers).  However, the CMA does press the BMF to consider (and keep under regular review) whether the initial recommendation needs to last for 24 months, or if a shorter period would be sufficient before running a competitive tender for the preferred platform provider.

Comment

The CMA’s detailed response to BMF’s request for informal guidance reflects the CMA’s commitment to positively engaging with businesses to help ensure that competition law does not unnecessarily prevent businesses from collaborating to pursue sustainability initiatives. 

It is clear from the BMF Guidance that the CMA worked with the BMF to iterate their proposal over time, including through the addition of safeguards intended to mitigate the potential negative effects on competition. Similar additional safeguards could be applied to other sustainability and climate change initiatives to help overcome the foreclosure concerns identified in the BMF Guidance.  However, businesses should ensure that they factor in sufficient time to engage with the CMA on these issues. They must also be prepared to adapt their proposal to address any competition concerns that are identified. It is striking that the BMF initially approached the CMA in February 2024 with its plans meaning the process took over a year to reach a conclusion.