CAUTION

Suppliers duped into bad contracts by buyers – CAK

SMEs most affected

In Summary

•Delayed payments account for 66 per cent of complains on buyer power abuse.

•Others are contract termination,unjust return of goods, unfavourable terms, delisting of products, transfer of risk to suppliers and the transfer of cost.

Basic food items on display at at a super market. /FILE
Basic food items on display at at a super market. /FILE

Suppliers are getting unfavourable terms from buyers, the Competition Authority of Kenya (CAK) has said, in the wake of investigations into abuse of buyer power by the watchdog.

Most affected are Small and Medium-Sized Enterprises (SMEs) with delayed payment or debt settlement being the most form of abuse by buyers.

According to CAK, delayed payments account for 66 per cent of complains while unilateral contract termination account for 15 per cent. These two formed the biggest concern on buyer power abuse as of April this year.

 

Others are unjust return of goods, unfavourable terms, delisting of products, transfer of risk to suppliers and the transfer of cost, the competition watchdog notes, with only 30 per cent of the country's retail market being formal.

Seventy per cent of outlets -retail, SMEs and manufacturing where consumers access goods, remain informal.

“Many(suppliers) are not getting good deals,” Priscillah Njako, manager-buyer power at CAK said yesterday during webinar by the authority, calling on suppliers to report any abuse.

“They should bring the complains to the authority for investigation,” she said.

Insurance sector leads with most buyer power cases handled by the authority(38 per cent), followed by retail which accounts for 28 per cent of cases.

Others are manufacturing,telecommunication, government supplies, energy , and agricultural sector.

The retail sector has  been hard hit with suppliers entangled in debt claim cases with supermarkets, where a number of retailers have failed to meet their obligations.

 

Among them is Nakumatt which went under with more than Sh30 billion, including Sh18 billion owed to suppliers.

Tuskys is currently under probe by the competition watchdog over a Sh1.29 billion debt owed to suppliers.

This was after an investigation by the authority, which in April this year, requested 25 major retailers from across the country to submit their debt portfolios outstanding for over 90 days.

Out of the 25 retailers, four retailers were found to have delayed payments exceeding 90 days.

“Three of the four retailers presented payment plans and have continuously reduced their debt portfolio, aiming to settle the outstanding amounts within the next 60 days,” CAK director-general Wang'ombe Kariuki told the Star.

Tuskys failure to present a payment plan or evidence of negotiations with affected suppliers led to a probe into it's accounts, CAK said.

The authority said the current ‘Abuse of Buyer Power’ provisions gives it the muscle to deal with the delayed payment of suppliers by the retailer.

Most retailers and suppliers dont have well detailed contracts,” Njako noted, the authority will be embarking on a sentization campaign on this. Contracts between buyers and suppliers must abide to requirements such as payment terms.”

Section 24 (2D) of the Competition Act defines "buyer power" as the influence exerted by an undertaking or group of undertakings in the position of a purchaser of a product or service to obtain from a supplier more favourable terms.

Or to impose a long term opportunity cost including harm or withheld benefit which, if carried out, would be significantly disproportionate to any resulting long term cost to the undertaking or group of undertakings.

Any person who contravenes the provisions of this section commits an offence and shall be liable on conviction to imprisonment for a term not exceeding five years or to a fine not exceeding ten million shillings or to both.