Construction season is well under way, as evidenced by work crews and traffic delays. In light of the Canadian Competition Bureau’s plans to increase training and public awareness to help prevent collusion and corruption in the construction sector, the following is a brief backgrounder on bid-rigging in the context of requests for proposals and bids.
Unless otherwise notified in advance, project owners expect to receive bid responses that are prepared independently, including with respect to pricing. When a bidder colludes in its submission (and misleads the project owner about the competitiveness of its bid), issues arise under the federal Competition Act.
Under section 47 of the Act, bid-rigging occurs when two or more bidders agree, without first informing the person who put out the bid request, to i) refrain from submitting a bid or tender; ii) withdraw a bid or tender already submitted; iii) or submit bids or tenders on coordinated terms. Because bid rigging is a per se offence, the Crown must only prove that the prohibited behavior occurred, in order to secure a conviction. It does not need to show any negative impact to competition.
Bid-rigging carries a penalty of imprisonment for a maximum term of 14 years, a fine, or both. Courts have discretion as to the amount of the fine, and there is no upper limit on the fine. Earlier this year, an Ontario Superior Court fined Showa Corporation, a Japanese manufacturer and supplier of automobile components, $13 million after Showa pleaded guilty to bid-rigging. That was the second largest fine awarded against bid-rigging in Canadian history.
However, Canadian courts have long recognized that bid-rigging should have serious consequences. In a 1983 case by the Alberta Court of Appeal, pertaining to a bid-rigging arrangement for the supply of heating equipment, Justice Kerans stated the following:
The courts must uphold the integrity of the tender system. Cheating of this sort is very easy to arrange and very difficult to discover. It must be made clear to the commercial public that the game is not worth the candle. The fines must hurt.
In certain circumstances, Section 47 of the Act, which prohibits conspiracy between competitors, may apply to bid-rigging. The federal Criminal Code also has potential application.
Bidders should be aware that improper activities conducted through trade associations will not shield them from liability under the Act. The Competition Bureau is aware that industry associations generally facilitate communication between competitors, and it has previously communicated that extra vigilance is prudent in the bid review process where there is an “active trade association” involved.
Bid rigging can be difficult for owners to detect, but some warning signs include:
- Receiving competitors’ bids together;
- Identifying unusual similarities in bids;
- Identifying identical irregularities in bids;
- Bidders meeting prior to submitting bids, without the bid requestor present;
- References to “industry suggested prices” or “industry price schedules”; and
- Bidders having knowledge of a competitor’s confidential bid.
The Competition Bureau has awareness and prevention information on its website that provide information on bid-rigging. Such materials may be accessed at http://www.competitionbureau.gc.ca.