OVERVIEW
Canada has a standalone bid-rigging provision under section 47 of the Competition Act (the “Act”) (unlike some other major jurisdictions, where bid-rigging falls under general conspiracy or cartel offences).
Section 47 makes it a criminal offence to: (i) agree to not submit a bid or tender, (ii) agree to withdraw a bid or tender already submitted (recently added to the Act as a result of the 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 (though all of the elements need to be established on the standard 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; (iii) intent; (iv) a call or request for bids or tenders; and (v) the agreement or arrangement is not 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.
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.
It has been held, as under the conspiracy offences of the Act (section 45), that an agreement is an essential element to establish a bid-rigging offence under section 47. Also as under the criminal conspiracy provisions, Canadian courts have articulated this element as requiring a “concensus of minds” or a “mutual understanding” between the parties to an agreement.
It has been held, however, that 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, does 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 actual illegal agreement or allow the Competition Bureau or a court 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.
Intent
The second necessary element to establish bid-rigging is intent.
In this regard, it must be established that an accused intentionally entered into an agreement or arrangement with one or more persons (or bidders as the case may be) to not submit a bid, withdraw a bid already made or submit a bid arrived at by agreement.
It is worth noting, however, that while it must be established that an accused intended to engage in conduct prohibited under section 47, motive is irrelevant to establish an offence.
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).
Agreement Not Made Known to Person Calling for Bids or Tenders
Finally, to establish a bid-rigging offence, it must be established 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., when a tender is opened).
It is also critical that communication of any joint tendering be expressly made, as merely inferring the submission of joint bids (e.g., by the fact that bids are identical) has been held to be insufficient.
EXCEPTIONS
The only express bid-rigging exception in the Competition Act 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. Where this is effectively achieved, the elements necessary to establish a bid-rigging offence cannot be made out.
PENALTIES
The penalties for contravention of the bid-rigging provisions can be severe and include unlimited fines (i.e., fines in the discretion of the court), imprisonment for up to 14 years, or both.
COMPETITION/ANTITRUST LAW & ECONOMIC TERMS
For competition/antitrust definitions and terms see:
CANADIAN BID-RIGGING LINKS & RESOURCES
Legislation
Competition Bureau
Certificate of Independent Bid Determination
Pamphlets
Bulletins
Immunity Program under the Competition Act
Multi-media Tools
Bid-Rigging – Awareness and Prevention
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