> Bid-rigging Update: Competition Bureau Announces Guilty Pleas in Quebec Construction Bid-rigging Case | COMPETITION LAW

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On February 17, 2012, the Competition Bureau announced that Construction G.T.R.L. (1990) Inc., Acoustique JCG Inc. and Enterprises de Construction OPC Inc. have pleaded guilty to bid-rigging in Quebec Superior Court relating to the expansion of the Chicoutimi Hospital in 2003 (see: Quebec Construction Companies Plead Guilty to Rigging Bids for the Chicoutimi Hospital).

In making the announcement, the Bureau said:

“The court ordered Construction G.T.R.L. to pay a fine of $50,000, and Acoustique JCG and Entreprises de Construction OPC to pay a fine of $25,000 each. The companies are subject to a court order for a period of 10 years.

‘Bid-rigging harms everyone but the criminals who cheat the system for their own financial gain,’ said Melanie Aitken, Commissioner of Competition. ‘In this case, the bid-rigging scheme ultimately harmed the Chicoutimi Hospital and Saguenay residents, by preventing the hospital from obtaining a competitive price for its renovation.’

The Bureau announced in November 2008 that three construction companies, and certain of their executives, were charged with rigging bids submitted for the expansion and refitting of the emergency room at the Chicoutimi Hospital in 2003. The Bureau’s investigation found that the parties entered into an agreement to pre-determine the winner of the contract.

The parties have now pleaded guilty for rigging bids for the Chicoutimi Hospital contract.”

Bid-rigging offences under the Competition Act

Under section 47 of the Competition Act, it is a criminal offence to: (i) agree to not submit a bid or tender, (ii) agree to withdraw a bid or tender already submitted or (iii) submit a bid or tender that is arrived at by agreement.

Some common types of bid-rigging that can violate section 47 include:

“Cover”, “courtesy” or “complementary” bidding.  Some firms submit bids that are too high to be accepted, or with terms that are unacceptable to the party calling for bids, to protect an agreed upon low bidder.

Bid suppression.  One or more bidders that would otherwise bid agree to refrain from bidding (or withdraw a previously made bid).

Bid rotation.  All parties submit bids but take turns being the low bidder according to a systematic or rotating basis.

Market division.  Suppliers agree not to compete in designated geographic areas or for specified customers.

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.

The Bureau indicated in its news release that this case involved an agreement to pre-determine the winner of the construction contract (a cover bidding arrangement).

Immunity program

The Bureau also indicated that its investigation relied on cooperation from an immunity applicant under its Immunity Program, whereby individuals or firms implicated in criminal conduct under the Competition Act may offer to cooperate with the Bureau in an investigation and request immunity (i.e., full immunity from prosecution for criminal offences under the Act).

In general, to be eligible under the Bureau’s Immunity Program, the Bureau must either: (i) be unaware of an offence (and the immunity applicant is the first to disclose it) or (ii) be aware of the offence but does not yet have enough evidence to refer the matter to the Director of Public Prosecutions for criminal prosecution.

There are a number of other requirements for immunity applicants, including termination of participation in the illegal activity and providing “complete, timely and ongoing co-operation” with the Bureau during an investigation, including confidentiality obligations, disclosing any other offences and securing the co-operation of current directors and officers.

Importantly, obtaining immunity is a “race” in that only the first applicant to fulfill the requirements of the Immunity Program is eligible to receive full immunity from prosecution.  (Leniency applicants may, however, be entitled to reductions in penalties, but a guilty plea is one condition of obtaining leniency, and so less desirable than full immunity.)

Enforcement in the construction industry

The construction industry has long been a target of competition/antitrust regulators.  For example, some of the construction related cases in Canada, many of which have also involved trade associations, have included building contractors, corrugated metal pipe manufacturers, electrical contractors, gypsum dealers and manufacturers, plumbing contractors, among many others.

Some recent construction related competition cases in Canada, largely bid-rigging cases, have involved ventilation contractors (see: Guilty Plea and $425,000 Fine for Bid-rigging in Montreal and Charges Laid in Residential Construction Bid-rigging Scheme in Montreal), sewer maintenance contractors (see: Competition Bureau Exposes Sewer Services Cartel in Quebec) and roofing contractors (see: Competition Bureau Obtains Court Order Against the Saskatchewan Roofing Contractors Association).

Bid-rigging continues to be an enforcement priority

The Commissioner of Competition has also emphasized in recent public statements that bid-rigging, together with criminal cartels (i.e., price-fixing, market allocation/division and supply/output restriction agreements between competitors), remains an enforcement priority for the Bureau:

“Cartels and bid–rigging continue to be our focus, given the seriousness of this conduct, and its unambiguously harmful nature. We are committed to advancing cases that matter to Canadians, doing so in a timely manner, and following them through to the end.

For cartels, while it will necessarily take some time before we bring our first case under the new section 45, we do have a number of ‘hybrid’ cases underway that will give us experience with the new provisions.

Unfortunately, large global cartel cases continue to be common, and we maintain close working relationships with key partners, so that we can take coordinated action to effectively combat these pernicious cartels.

In both cartel and bid–rigging cases, we will be appropriately aggressive when dealing with individuals. To date, 38 individuals have been charged in the Quebec Octane case, and last December, five individuals were accused of rigging bids for private sector contracts in residential highrise buildings in the Montreal area.”

Based on the current enforcement priorities of the Bureau, and these recent statements reflecting an intention to step up criminal enforcement under the amended Competition Act, we expect to see a number of other criminal cartel and bid-rigging cases announced in coming months.

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