Keeping the bid process clean
From the August 2016 print edition
The Liberal government elected last fall has brought a new emphasis on infrastructure. This is manifested in the Prime Minister’s Mandate Letter for the Minister of Infrastructure and Communities and the 2016 Federal Budget included a “historic” plan to invest over $120 billion in infrastructure over 10 years.
In light of this, the Competition Bureau has indicated that it will heighten efforts to improve awareness about bid rigging and equip the procurement community and others with tools to prevent, detect and deter this damaging and illegal behaviour. The bureau has indicated that this will include presentations to key players, including procurement officials at all three levels of government and representatives from private industry.
The bureau’s focus is spurred by work of the Organization for Economic Cooperation and Development (OECD) that concludes that the distinctive nature of public procurement and its context make it particularly vulnerable to collusion and corruption, particularly in the construction sector. Industries that may give rise to bid-rigging concerns include those with homogeneous products, simple products or services that have not seen recent technological change and where there are relatively few suppliers. Illegal bid-rigging agreements can also take a variety of forms, including cover bidding, bid suppression, bid rotation, market division and subcontracting.
The criminal conspiracy provision of the Competition Act (Section 45) prohibits agreements or arrangements between competitors to fix prices, allocate markets or customers or limit production or supply. Bid rigging is prohibited in a separate criminal provision of the Competition Act (Section 47). It generally relates to agreements not to submit a bid, to withdraw a bid or to submit a bid agreed on between bidders where the agreement is not disclosed to the person calling for the bids at or before the time the bid is submitted or withdrawn.
Potential penalties for price-fixing conspiracies and bid rigging include criminal fines (up to $25 million for price-fixing and no set limit for bid-rigging) and/or prison terms up to 14 years. While Canadian courts have historically imposed conditional sentences involving home confinement and/or community service, such conditional sentences have been eliminated for these offences increasing the risk for parties to price-fixing and bid-rigging agreements (as well as those that aid or abet such agreements).
In general, the bureau relies on its immunity and leniency programs to detect illegal bid-rigging activities. These programs create incentives to report bid rigging to the bureau. Along with fines and imprisonment, section 36 of the Competition Act provides that anyone who has suffered loss or damage from conduct contrary to the criminal provisions of the Competition Act, or failure to comply with a tribunal or court order under the Competition Act, may start a private damages action.
The bureau isn’t only interested in public procurement. In May, it was reported the bureau is investigating allegations of price-fixing and bid rigging in the supply of condominium refurbishment services in the Greater Toronto Area. The bureau’s investigation appears to focus on 2006-2014 with over 100 condo boards compelled to produce records. While the bureau conducts criminal investigations in private it appears that the investigation follows earlier compulsory production orders served on renovation companies. The probe’s focus appears to be the renovation firms and possibly condo management firms and not necessarily condominium owners or boards.
Recent bureau bid-rigging enforcement includes its ongoing international auto parts bid-rigging investigation that has led to significant fines in Canada and abroad as well as jail terms in the US. Other recent bureau enforcement successes include public and private construction tenders in Quebec and a loss in a case involving the supply of information technology services to two federal government departments.
Given the bureau’s recently enhanced bid-rigging enforcement and awareness efforts, it may be advisable for companies to consider adopting or reviewing competition law compliance programs and ensuring they have controls to avoid illegal bid rigging. Government agencies and other organizations that source construction or other services through tender processes may consider adopting or reviewing their processes for detecting and deterring bid rigging.
Trade and professional associations whose members provide procurement-related services should consider reviewing internal compliance processes so they don’t facilitate coordinated bidding that may violate the Competition Act. Companies whose personnel attend trade or industry association meetings should determine whether those associations have credible and effective compliance programs in place as a condition for attendance.