“Bid-rigging occurs when two or more persons agree that, in response to a call for bids or tenders, one or more of them will: not submit a bid; withdraw a bid; or submit a bid arrived at by agreement.
Bid-rigging is a serious crime that eliminates competition among your suppliers, increases your costs, and harms your ability to compete. Whether this occurs on government projects or in the private sector, these increased costs are ultimately passed on to the public.
Bid-rigging typically involves competitors agreeing to artificially increase the prices of goods and/or services offered in bids to potential customers.”
(Competition Bureau, Bid-Rigging Pamphlet)
MAJOR COMPETITION LAW COMPLIANCE UPDATE: On June 3, 2015, the Competition Bureau (Bureau) finalized its new core competition law compliance materials. The Bureau’s new compliance materials, which include information on most major competition law areas, misleading advertising, associations and the Bureau’s Leniency Program, are essential reading for corporate compliance officers, senior management and in-house and general counsel. For an overview of the developments (with links) see: Canadian Competition Law Compliance Programs.
Canada has a standalone bid-rigging provision under section 47 of the Competition Act (the “Act”) unlike some other major jurisdictions where bid-rigging is treated as another type of general cartel offence.
Section 47 of the 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 and the criminal misleading advertising offences, all of the elements need to be established on a criminal burden of proof – i.e., beyond a reasonable doubt.
COMMON TYPES OF BID-RIGGING
Some common types of bid-rigging that can contravene 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.
ELEMENTS TO ESTABLISH BID-RIGGING
To establish a bid-rigging offence under section 47 of the Act, all of the following elements must be established: (i) an agreement or arrangement between two or more persons (or bidders or tenderers as the case may be); (ii) to not submit a bid or tender, withdraw a bid or tender already made, or submit bids or tenders arrived at by agreement; and (iv) a call or request for bids or tenders. There will also be no offence where an agreement has been disclosed to the party calling for bids or tenders at or before the submission or withdrawal of a bid.
Agreement or Arrangement
The first necessary element to establish bid-rigging is the existence of an agreement or arrangement to not submit a bid, withdraw a bid already made or submit a bid arrived at by agreement.
Like the conspiracy offences under section 45 of the Act (i.e., price-fixing, market division and output restriction agreements between competitors), an agreement is an essential element to establish a bid-rigging offence under section 47. Also like the criminal conspiracy provisions, Canadian courts have held that this element requires a “consensus of minds” or “mutual understanding” between the parties to an agreement.
Mere consultations between parties bidding in relation to pricing, where there has been no agreement or arrangement between the parties and their respective bids are not communicated to the other before tenders are submitted, may not contravene section 47.
However, discussions or interaction with co-tenderers, where such interaction is not part of a bid consortium or other legitimate joint bidding arrangement, may well raise significant issues and risk for the parties – for example, lead to the formation of an agreement that does violate section 47 or allow the Competition Bureau, a court or private plaintiff to infer the existence of an agreement.
As with criminal conspiracies, a bid-rigging agreement may also be inferred from mere circumstantial evidence – for example, the submission of identical bids following a meeting of bidders, identical (or highly similar) terms in bid documentation, etc.
Call or Request for Bids or Tenders
It must also be established that a bid or tender is made “in response to a call or request for bids or tenders”.
It has been held that this requirement will not be met where mere price quotations are submitted where there is “no specific direction or call” for bids or tenders (e.g., where price quotations by subcontractors are submitted to a general contractor, where the call for tenders or bids has been made to general contractors not subcontractors).
This requirement to establish bid-rigging has also been the subject of recent litigation in Canada, with courts determining variously that, factually, there has or has not been a call or request for bids.
As such, it is important that potential challengers of bid-rigging arrangements consider whether this element can be established. Conversely, potetential defendants need to evaluate whether this specific and technical requirement to establish bid-rigging in Canada under the Act can be made out.
Agreement Not Made Known to
Person Calling for Bids or Tenders
Finally, to establish a bid-rigging offence under section 47 of the Act, it must be proven that an agreement or arrangement has not been made known to the person calling for bids or tenders at or before the submission or withdrawal of a bid or tender by any party to the agreement.
The Act in essence provides a defense for parties that are engaged in joint bidding projects, such as bidding consortia or other types of joint ventures that may involve the submission of joint bids.
The time when a bid or tender is made is critical to ensuring that this requirement is met, which has been held to be when the contents of a tender are communicated to the party calling for tenders (i.e., a tender is opened).
It is also crucial that communication of any joint tendering be expressly made. Merely inferring the submission of joint bids – for example, by the fact that bids are identical – has been held to be insufficient.
The only express Competition Act bid-rigging exception is for agreements between “affiliates” as defined in the Act (i.e., where an agreement or arrangement is entered into only between affiliates).
Having said that, as discussed above, a bid-rigging offence will also not be established where parties (or bidders) expressly communicate an agreement to a party calling for bids or tenders at or before the time when a bid is submitted or withdrawn.
The penalties for contravention of the bid-rigging provisions can be severe and include unlimited fines (i.e., in the discretion of the court), imprisonment for up to 14 years, or both.
For governments and tendering authorities it is important to detect bid-rigging and implement processes to reduce the likelihood that competing bidders and tenderers are colluding in the submission of bids and tenders.
Like cartel agreements among competitors generally (e.g., price-fixing or market division agreements), bid-rigging arrangements, whether in the construction, IT or other sectors, can be challenging to detect.
Some key “warning signs” for tendering authorities to watch for that bidders/tenderers may be submitting coordinated (and potentially criminally illegal) bids include:
1. Identical or similar bids or language in bid documents or other communications from competing bidders.
2. Competing bids received together.
3. A bidder that would normally or has often bid does not bid or submits an unusually high bid (or withdraws a bid already made).
4. One contractor or sub-contractor is often the successful bidder.
5. A winning contractor or sub-contractor does not accept the contract.
6. A winning bidder sub-contracts work to unsuccessful bidders.
7. Patterns suggesting rotation of successful bids among several suppliers.
8. Large differences in the price of a winning bid and other bids.
9. A range of quoted prices has suddenly moved (suggesting a coordinated increase).
10. Only one bidder contacts wholesalers for pricing information.
11. Language or suggestions from bidders that bids have been: coordinated; not made; withdrawn by agreement; that bidders have “preferred” customers; or that bidders would not “poach” a competitor’s customers.
12. Meetings where competing bidders may discuss competing bids (e.g., associations can be high risk, particularly where association members discuss the terms of potential bids, whether or not to submit bids, etc.).
LINKS AND RESOURCES
Legislation: Competition Act, Competition Bureau: Certificate of Independent Bid Determination, Pamphlets: Bid-Rigging, Bulletins: Immunity Program under the Competition Act, Leniency Program, Multi-media Tools: Bid-Rigging – Awareness and Prevention
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