National Competition Policy Review of the Professional Standards Act 1994


6. Impact on Competition

6.1 Introduction

6.1.1 The Terms of Reference require the review to identify the nature of the restrictive effects on competition of the Professional Standards Act, and to consider whether the effects of the Act contravene the competitive conduct rules in Part IV of the Trade Practice Act and the New South Wales Competition Code. These instruments include a prohibition on the enforcement of exclusionary provisions, whether or not they are anti-competitive, and arrangements which have the effect of substantially lessening competition; proscription of horizontal price fixing as anti-competitive; and proscription of covenants which have the effect of substantially lessening competition.

6.1.2 Chapter 6 of the Issues Paper discusses areas where the Act may impact on competition. The areas identified are not intended to be exhaustive or definitive. In looking at areas where the Act may impact on competition, it must be borne in mind that that the guiding principle is that legislation should not restrict competition unless the benefits of the restriction to the community as a whole outweigh the costs, and the objectives of the legislation can only be achieved by restricting competition.

6.2 Restrictions on competition

6.2.1 According to the National Competition Council, legislation may restrict competition if it:

• governs the entry or exit of firms or individuals into or out of markets;
• controls prices or production levels;
• restricts the quality, level or location of goods and services available;
• restricts advertising and promotional activities;
• restricts price or the type of input used in production process;
• is likely to confer significant costs on business; or
• provides advantages to some firms over others by, for example, shielding some activities from competitive pressures.

• who can provide goods/services;
• ownership and control of business;
• personal conduct of providers;
• advertising and other information provision; and
• prices/fees charged for goods and services.

6.3.1 Restrictions on who may provide services

6.3.1.1 The Professional Standards Act does not make schemes compulsory in the sense that a scheme may not apply to all classes of members within an occupational association and a person may be exempted from a scheme. However, it may be compulsory for members of an occupational group to join a scheme in order to practice. For example, an occupational association may require its members to join a scheme as a prerequisite to membership and right to practice. In the case of one particular occupational group, the cost of insurance without a cap is so high that there is no practical alternative but to join both the occupational association and scheme in order to practice with any form of insurance protection.

6.3.1.2 Membership of schemes may also become compulsory due to other factors. For example, one particular occupational association considers its scheme to be voluntary, but encourages membership by withholding the right to use the qualification post-nominal unless a member of the association joins the scheme.

6.3.1.3 Section 34 of the Act allows an occupational association to compel its members to hold insurance against occupational liability. This may apply regardless of whether a member of the occupational association is a member of scheme. In addition to compulsory insurance, the imposition of fees, qualification levels and training requirements by some schemes may restrict competition by imposing additional compliance costs on practitioners.

6.3.1.4 If consumers deal with professionals who are members of schemes, they must accept a cap on liability. However, consumers are assured of dealing with service providers who have insurance and risk management training, and consumers also have access to complaints handling mechanisms.

6.3.1.5 If occupational associations require their members to have insurance, undertake risk management training, participate in complaints handling and disciplinary processes, and adhere to standards, whether or not they are members of a scheme, the only difference between members and non-members of schemes could be the cap on liability.

Issues

6(a) Does the Act restrict competition by restricting who can provide services in markets for occupational services? Are the requirements relating to compulsory membership and compulsory insurance cover unnecessary restrictions on competition?

6.3.2 Controls on price

6.3.2.1 The Professional Standards Act does not directly control prices, but it may impact on prices. If arguments in support of the legislation based on the cost of insurance are correct, it would suggest that the Act should have resulted in lower price structures than would otherwise have been the case.

Issues

6(b) Does the Act have restrictive effects on competition in markets for occupational services by affecting or distorting prices?

6.3.3 Restrictions on conduct of members

6.3.3.1 The Professional Standards Act contains a model complaints and discipline code and schemes may adopt the code with modifications approved by the Professional Standards Council. The code contains provisions that include the power to caution or reprimand, impose conditions on practice, and to expel from the occupational association. Modifications to model code could include the power to suspend members from practice and to impose fines.

6.3.3.2 While a complaints and discipline code may impose restrictions on the conduct of scheme members, it can also result in benefits for consumers, such as assured minimum standards and avenues for having grievances redressed.

6.3.3.3 The complaints and disciplinary mechanisms supported by the Act also need to be examined to see whether they operate in practice to protect the interests of occupational groups ahead of consumers, and whether they duplicate other areas of the law, such as occupational licensing schemes and consumer protection and trade practices legislation.

6.3.3.4 It is also noted that schemes apply to occupational groups that are already licensed, such as solicitors and surveyors, or to groups which are covered by professional associations that have their own rules, requirements for insurance, and complaints handling policies. In these circumstances, it might be argued that the only feature that distinguishes the schemes under the Act from other compulsory and voluntary arrangements already applying to members of occupational groups, is the cap on liability.

Issues

6(c) Does the Act restrict competition in markets for occupational services by restricting the conduct of members of schemes under the Act? Is the system of complaints and disciplinary procedures associated with the Act a restriction on competition?

6.3.4 Advertising and the provision of information

6.3.4.1 The Professional Standards Act does not place any restrictions on advertising, other than requiring any advertisements to disclose the fact that a member of a scheme has limited liability. It would appear that the public interest is served by requiring such disclosure, because it ensures consumers are aware of the cap and the scheme. However, there is no requirement that the amount of the cap be disclosed. Where all or most members of an occupational group are members of a scheme and therefore subject to a cap, advertising the cap is of little benefit to consumers because there is no choice but to deal with a person whose liability is capped. Finally, the requirement may add to the business costs of scheme members.

Issues

6(d) Does the Act restrict competition in markets for occupational services by restricting the provision of information?

6.3.5 Significant costs

6.3.5.1 The Professional Standards Act entails significant costs for those wishing to take advantage of it. Under the Regulation made pursuant to the Act, there is a $5,000 fee to make an application for approval of a scheme, and a $2,000 fee for renewal of a scheme. There is an annual fee of $40 for each person who is a member of a scheme. The minimum annual fee is $2,500.

6.3.5.2 Other costs for occupational associations with a scheme include the cost of setting up and maintaining the required body corporate and setting up and administering the scheme, including developing and implementing a risk management program and complaints handling processes, and reporting to the Professional Standards Council. Individual scheme members bear the cost of compulsory insurance, attending risk management training, and any reporting required under the scheme. Occupational associations that do not have a scheme service, and occupational service providers who are not members of a scheme, may not have any of these significant costs.

Issues

6(e) What guidelines should be used in setting fees?

6.3.6 Discriminating advantages

6.3.6.1 It may be argued that the Act advantages some occupational groups over others. For example, occupational groups that are unable to form or belong to an incorporated association cannot take advantage of the cap on liability. Also, the cap may protect service providers with poor records who would otherwise cease providing services due to the cost of insurance, and the Act may be working against the public interest in this way.

6.3.6.2 Schemes may also confer a competitive advantage on members who compete with non-scheme members from the same occupational group, because limited liability may mean lower insurance costs. Also, consumers may choose to deal with scheme members because they are confident about the quality of services provided. However, this advantage should be weighed against the fact that scheme membership also imposes additional costs on participants, such as membership fees and participation in complaints handling processes.

Issues

6(f) Do members of approved schemes have a competitive advantage or an unfair advantage over non-members? Does the Act unfairly discriminate against those occupational groups that are unable to organise into an incorporated association? Are service standards and quality for scheme members higher than that for non-members?

6(g) How does the existence of schemes affect the market for occupational services, and occupational groups and service providers who choose not to belong to schemes?

6(h) Is there any evidence that consumers choose to deal with scheme members over non-scheme members? Does the cap on liability for scheme members affect consumer choices?

6(i) Does the Act impose any other restrictions on competition?

6(j) Do the benefits of the restrictions on competition outweigh the costs, and can they be justified in terms of a net benefit to the community as a whole?

6(k) Does the effect of the Act contravene the competitive conduct rules in Part IV of the Trade Practices Act and the New South Wales Competition Code?

FOOTNOTES:

11. Council of Australian Government’s Committee on Regulatory reform, Guidelines for the Review of Regulation of the Professions Under National Competition Policy, 1999, at p.33.