OFT to investigate council street furniture advertising contracts

The Office of Fair Trading has opened an investigation into contracts entered into by two major media owners with local authorities over advertising on bus shelters, information panels and other street furniture.

The move is the latest development in the watchdog’s wider market study into the outdoor advertising industry, which was launched in May 2010. The market study has now concluded that the outdoor advertising industry is broadly competitive amongst both specialist buyers and media agencies.

However, the OFT said it wanted to consider the long durations and potentially restrictive terms of Clear Channel and JCDecaux’s contracts with councils. The watchdog has written to the two companies to explain that there are reasonable grounds for suspecting that the agreements restrict competition, within the meaning of the Competition Act 1998 and/or Article 101 of the Treaty on the Functioning of the European Union.

The OFT said its investigation was “at a very early stage and no assumption should be made that any of the agreements infringes competition law”.

In its report, released last week, the watchdog said it had found that many local authority contracts for small format advertising rights were agreed in the 1990s without a tender process, adding that this appeared to represent poor value for some local authorities. Between them Clear Channel and JCDecaux have “virtually all local authority contracts for such small format sites”, the report added.

It also found that:

• site rents appeared low relative to the advertising revenue that installations on the sites may generate
• there appeared to be limited competition for new contracts
• relatively few contracts to date have been put out to tender at renewal due to a combination of the length of contracts, tacit renewal clauses and local authority procurement practices
• where contracts have been put out to tender, the incumbent owner appeared to have won the new contract in the large majority of cases
• local authorities had expressed concern over the level of competition in bidding processes where contracts have been put out to tender.

The OFT said local authorities could take steps themselves to protect their interests. It added: “These include using an open, formal tender process to maximise value and, potentially, taking ownership of street furniture so that they can sell the rights to advertise on existing street furniture. We encourage local authorities to ensure that procedures are in place to monitor their current agreements including any tacit renewal clauses.”

Chris Corney, litigation and public sector specialist at law firm DMH Stallard, said: “This has huge implications for local authorities who are trying to generate revenues from outdoor advertising on public land and highways. The OFT has concluded that the outdoor advertising industry generates revenues of £150m p.a. from sites on local authority land – but local authorities only see a fraction of this.

“We understand that most London boroughs and major metropolitan authorities in Britain have entered a contract with either JCDecaux or ClearChannel which falls within the scope of the Competition Investigation. Any authorities with such a contract will need to consider whether they may have new opportunities to generate revenue as a result of the challenge to these contracts."

DMH Stallard has been advising a group of London authorities in relation to the OFT market study.

The market study report provides further guidance on the issue for local authorities. It can be downloaded here.