Canadian COMPETITION LAW

December 21, 2010

The Competition Bureau announced earlier today that it has laid criminal charges against eight companies and five individuals in Quebec that are accused of rigging bids for private sector ventilation contracts for residential highrise buildings in the Montreal area (see: Charges Laid in Residential Construction Bid-Rigging Scheme in Montreal and Competition Bureau, Backgrounder, Charges Laid in Residential Construction Bid-Rigging Scheme in Montreal).

In making its announcement, the Bureau stated:

“The Bureau uncovered evidence indicating that several companies specializing in ventilation, air conditioning and heating services, secretly coordinated their bids in order to pre-determine the winners of the contracts, while blocking out honest competitors.

…

The Bureau’s investigation found evidence of criminal activity in five competitive bidding processes between 2003 and 2005, for contracts worth approximately $8 million. The contracts in question relate to the supply and installation of ventilation and/or air conditioning systems in residential highrise construction projects in the greater Montreal region.”

According to the Bureau, it began investigating this matter in 2005 based on a tip from a former employee of one of the companies charged and the objective of the bidders was to pre-determine the winners of the contracts (while blocking other companies that were not involved in the alleged bid-rigging scheme).

Some of the common types of bid-rigging that can violate the criminal bid-rigging offences under the Competition Act include: (i) “cover”, “courtesy” or “complementary” bidding (some firms submit bids that are too high to be accepted, or with terms that are unacceptable to the buyer, to protect an agreed upon low bidder), (ii) bid suppression (one or more bidders that would otherwise bid agree to refrain from bidding or withdraw a previously made bid), (iii) bid rotation (all parties submit bids but take turns being the low bidder according to a systematic or rotating basis), (iv) market division (where suppliers agree not to compete in designated geographic areas or for specified customers) and (v) subcontracting (parties that agree not to submit a bid, or submit a losing bid, are awarded subcontracts or supply agreements from the successful low bidder).

Section 47 of the federal Competition Act sets out three distinct criminal bid-rigging offences, making it a criminal offence to: (i) agree to not submit a bid or tender, (ii) agree to withdraw a bid or tender already submitted (which was recently added to the Act as a result of March, 2009 amendments) or (iii) submit a bid or tender that is arrived at by agreement.

In Canada, bid-rigging is ”per se” illegal, in that no anti-competitive effects on a relevant market (or markets) need to be established in order to make out an offence.  However, all of the elements need to be established on the criminal standard (i.e., beyond a reasonable doubt).

This most recent case also appears to signal a more aggressive enforcement approach by the Bureau under the helm of the new Commissioner, which has included the recent Visa/MasterCard price maintenance case, misleading advertising case against Rogers in Ontario (relating to allegations from telecom new entrants Wind Mobile and Mobilicity) and the recently concluded CREA MLS abuse of dominance case.

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