March 22, 2017
The Toronto Star has reported that the City of Toronto is investigating potential bid-rigging activities in relation to City paving contracts. In this regard, the Star reports that the City has called in the police to help it determine whether competing paving contractors have violated the criminal law. It was not clear from the reporting whether the City has also filed a criminal complaint with the Competition Bureau.(though this would be a logical related step).
The potential illegal activity was discovered by the City’s Auditor General (in a related report), who identified bidding anomalies including grossly inflated contract prices, a small group of contractors and a particular supplier that had won most of the tenders in some particular districts.
Some of the key initial concerns identified appear to include whether competing contractors engaged in illegal cover bidding or subcontracting (i.e., whether some contractors agreed to submit intentionally low bids to allow an agreed upon high bidder to win some contracts or that a high winning bidder would subcontract work to low bidders or contractors that agreed not to submit bids).
The auditor also identified a number of tendering process related defects, including a lack of appropriate controls and lack of routine analysis of bid submissions and bidding patterns. (Monitoring bidding patterns in tenders is one of the strongest means to identify potential coordination among competing bidders.)
Given this development, contractors and associations that may have been involved in criminal activities may well wish to obtain legal advice on their potential exposure and options, which may include considering whether they need to participate in the Competition Bureau’s Immunity or Leniency Programs.
And, as always, companies and associations involved in competitive tendering should ensure that they have credible and effective competition law compliance programs in place to mitigate potential risk for their everyday activities, irrespective of any particular investigation.
Overview of Bid-rigging Under the Competition Act
Section 47 of the Competition Act makes it a criminal offence for competing bidders or tenderers to enter into three types of agreements: (i) to not submit a bid or tender, (ii) withdraw a bid or tender that has already been submitted or (iii) coordinate the terms of bids or tenders submitted.
In Canada bid-rigging is “per se” illegal in that no anti-competitive effects on a relevant market needs to be established to make out the offence. Like other Canadian criminal law competition offences, however, like conspiracy under section 45, all of the elements need to be established on a criminal burden of proof – i.e., beyond a reasonable doubt.
Some common types of bid-rigging that can violate the criminal bid-rigging provisions of the 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 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.
For more information about bid-rigging, see: bid-rigging.
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