Canadian COMPETITION LAW

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. pleaded guilty to bid-rigging in Quebec Superior Court in a case 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 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 and have gone back about a century, have included building contractors, corrugated metal pipe manufacturers, electrical contractors, gypsum dealers and manufacturers, plumbing contractors, road surfacing contractors, chain link fence contractors, among many others.

There have also been a number of recent bid-rigging cases in Canada involving construction and construction supply related companies.

See for example: Guilty Plea and $425,000 Fine for Bid-rigging in Montreal, Charges Laid in Residential Construction Bid-rigging Scheme in Montreal, Competition Bureau Exposes Sewer Services Cartel in Quebec, Competition Bureau Obtains Court Order Against the Saskatchewan Roofing Contractors Association.

This is the second in a series of posts on Canadian bid-rigging law, which will conclude with practical steps for companies to take to reduce potential risk in light of heightened enforcement.

For Part 1 see: here.

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OVERVIEW OF BID-RIGGING IN CANADA

Canada has a standalone bid-rigging provision under section 47 of the Competition Act.  This is unlike some other major jurisdictions, where bid-rigging falls under general conspiracy (i.e., cartel) or other prohibitions.

For example, in the United States, bid-rigging has historically been considered one of the most egregious or “hard core” anti-competitive practices under the Sherman Act, together with price-fixing, market allocation/division and output restriction agreements.  International enforcement authorities also commonly classify bid-rigging as a type of cartel.

Canada’s bid-rigging offence was first enacted following 1976 amendments to make it easier to enforce.  Before this change, bid-rigging fell to be enforced under either the general conspiracy sections of the Act or the fraud provisions of the federal Criminal Code.  The conspiracy offences at the time required that adverse market effects be proven (i.e., that an agreement prevented or lessened competition “unduly”), while the Criminal Code offence required proof of intent to defraud and proof of loss (neither of which is required under section 47 of the Competition Act).

Section 47 of the Competition Act makes it a criminal offence to:

1.  Agree to not submit a bid or tender;

2.  Agree to withdraw a bid or tender already submitted (an offence that was recently added to the Competition Act as a result of wide-ranging amendments in 2009 and 2010); or

3.  Submit a bid or tender that is arrived at by agreement.

In Canada bid-rigging is a “per se” criminal offence, in that, like conspiracy agreements under section 45 of the Competition Act, it is not necessary to prove any anti-competitive effects on a relevant market (or markets) to make out an offence.

All elements of the offence do, however, need to be established on the standard criminal burden of proof – i.e., beyond a reasonable doubt.

COMMON TYPES OF BID-RIGGING AGREEMENTS

Some of the common types of bid-rigging that can violate section 47 of the Competition Act 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 bid that has previously been made).

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.

While bid-rigging arrangements, like cartels, are difficult to detect, the Competition Bureau has a number of investigation tools available to it.

These include access to wiretaps, compulsory production orders (i.e., search warrants or “section 11 orders” for the compulsory production of documents or interview of individuals under oath) and, as in conspiracy cases, its Immunity and Leniency Programs (under which individuals or companies may receive total immunity from prosecution or leniency in sentencing for cooperating with a Bureau investigation).

Some of the recent bid-rigging cases in Canada have involved cover and bid rotation arrangements, while some past cases have involved, among other things, cover bidding (i.e., an agreement who will be the lowest bidder, with higher bids submitted to camouflage the lowest bid), agreements to withdraw previously made bids (an offence since 2009) and dividing revenues obtained from contracts won by agreement.

Our next posts will discuss what is necessary to prove bid-rigging, penalties, defenses, the Bureau’s Immunity and Leniency Programs and practical steps for companies and associations to take to avoid liability under section 47.

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