The Competitor : Canada Competition / Antitrust Blog by Stikeman Elliott Lawyers & Attorneys

This case stands in stark contrast to the recently-decided Quebec Court case R v. Al Nashar et al. whereby similar charges of bid-rigging were dismissed once the court determined that a request for quotes from subcontractors did not amount to a “call or request for bids or tenders” since the person requesting the bids was under no obligation to accept the bids.

Bid-Rigging

Bid-rigging is a criminal offence which deals specifically with collaborations between independent, third party competitors with respect to responses to calls for bids or tenders. Section 47 of the Competition Act sets out the elements of the offence, which the Crown must prove beyond a reasonable doubt:

1. a call or request for bids or tenders;
    
2. two or more bidders enter into an agreement related to the submission, withdrawal or decision not to submit a bid or tender;
    
3. bids were submitted, withdrawn or not made pursuant to that agreement; and
    
4. the person who called for the tenders was not made aware of the agreement or arrangement, at or before the time the bids were submitted (or due).

Both the Dowdall and the Nashar decisions were issued pursuant to a preliminary inquiry to determine whether the Crown had enough evidence to make out all the elements of the offense. Both cases ultimately centred on whether the “call or request for bids” from contractors satisfied the first element of section 47.

Most bid-rigging cases centre on the second element - whether there is an agreement - however, as whistle-blowers and Competition Bureau investigations become more common, the body of jurisprudence is growing with respect to other elements as well.

Dowdall

In early 2005, the Competition Bureau investigated the bidding processes for 10 IT services contracts worth $67 million. These services were with various government departments: Canada Border Services Agency, Public Works and Government Services Canada, and Transport Canada. The case and subsequent appeals dealt with the Transport Canada contracts.

According to the Bureau, evidence indicated that the bidders’ objective was to collectively win and divide the contracts awarded, while blocking competitors who were not a part of the conspiracy.

In Dowdall, the RFPs in question were for the purpose of creating a standing order for the potential provision of I.T. services – essentially pre-qualifying certain potential suppliers. A standing offer is an offer from a potential supplier to provide goods and/or services at pre-arranged prices, under set terms and conditions, when and if required. If the government issues a “call-up” against the standing offer then those who have pre-qualified will have a chance to bid for the services. The government is under no actual obligation to purchase until that time, and the applicants are under no obligation to respond to the call-up.

The applicants argued that these arrangements could not be considered requests for bids, since they did not result in a contract for services. The fundamental nature or goal of the procurement process was merely to create a list of potential qualified suppliers with no specific or clearly identified project or commitment to engage any services at all.

The preliminary hearing judge found that there was sufficient evidence to infer that the process of obtaining a Standing Offer Agreement was contractual and would therefore constitute a bid, and committed the appellants to stand trial for bid rigging under s. 47 of the Competition Act and conspiracy to commit bid rigging contrary to s. 465(1) of the Criminal Code.

The accused applied to the Superior Court of Justice in Ontario for certiorari of the preliminary decision and appealed that decision to the Ontario Court of Appeal. Each court in turn dismissed the application, affirming the preliminary inquiry judge’s decision.

In the end the Superior Court agreed with the preliminary inquiry judge and found that there was value in obtaining the Standing Offer Agreement and these agreements could give rise to enforceable rights and obligations on both parties. As such, there was some evidence from which a jury could infer that the process was contractual.

The Court of Appeal affirmed the lower court’s decision with the caveat that they did not agree with any statement made by the superior court judge which could be interpreted as saying that there was no actual contract in this situation. The Dowdall case will now proceed to trial, and could set an important precedent for the scope of processes subject to the law. It stands, however, in stark contrast to a Quebec case, R v. Al Neshar et al., that went the other way.

Nashar

In early February 2013 the Quebec court held a preliminary inquiry into five potential counts of bid-rigging and levied against nine defendants, all of whom were subcontractors in the business of installing ventilation systems in buildings under construction.

For three of the counts, the same general contractor would prepare a list of potential subcontractors and send each of them a detailed request for tenders. Once the bids were in, he would often enter into negotiations with several of the lowest bidders and eventually make a recommendation to the ultimate client. He was under no obligation to accept the lowest bid or, indeed, any of the bids submitted. The situation was similar with the two other counts; the general contractor was under no obligation to accept the lowest bid and for one count the bid was cancelled altogether.

For all five tenders, the competitors had formed agreements to determine who would submit the lowest bid. Once determined, the other competitors would bid higher than the chosen “winner”.

Although on the face of it the general contractor’s detailed submission looked like a call for bids, the Court stated that it had to dig further to determine the true intention of the parties.

The testimonial evidence of the contractors showed that they did not consider that they were under any obligation to accept any of the bids; furthermore, clauses in the RFPs specifically stated that one or all of the submitted bids could be rejected without cause.

This was enough for the court to determine that the general contractors did not believe that they would have to accept any of the bids. As such, the court found that the general contractor’s submission to the sub-contractors did not amount to a “call or request for bids or tenders” within the meaning of section 47 and the accused were discharged.

Conclusion

The sentencing changes now in effect under the SCCA follow upon sweeping amendments to the Competition Act in March 2009, which, among other changes, created a per se cartel offence (in effect since March 2010, which prohibits agreements among competitors to fix prices, allocate markets or limit production, whether or not such an agreement had an impact on competition in a relevant market) and increased the maximum punishment for offences such as price-fixing, bid-rigging and willful or deceitful false advertising from five to 14 years.

The new sentencing regime should also be considered in light of the dissatisfaction recently expressed by the Federal Court with joint sentencing recommendations for fines as part of agreements to plead guilty with respect to criminal offences under the Competition Act. In R. v Maxzone Auto Parts (Canada) Corp., a case involving a charge of criminal conspiracy under section 46 of the Competition Act (implementation of a foreign directed cartel), Chief Justice Crampton of the Federal Court observed that “… achieving effective general and specific deterrence requires that individuals face a very real prospect of serving time in prison if they are convicted for having engaged in such conduct”. Finding that past practice gave rise to “understandable expectations” regarding sentencing, the Chief Justice “reluctantly” imposed the jointly recommended sentence of a substantial fine in that case.

A move toward custodial sentences for criminal convictions under the Competition Act may have far-reaching implications for the Competition Bureau's enforcement regime, including participation in its Leniency Program, whereby an accused agrees to cooperate with an investigation in exchange for a prosecutorial recommendation of more lenient treatment. The removal of conditional sentences (and judicial discontent over fines instead of prison terms) may well discourage participation in the program, as accused persons weigh the risks of what "leniency" may entail. Indeed, if jail time is seen as the likely result of criminal conviction for competition offences, there may well be less cooperation, fewer guilty pleas and more contested trials on the horizon in Canada.
 

Under a “leniency exemption,” Public Works had permitted firms operating under leniency programs, such as the Bureau’s Leniency Program, to continue to act as suppliers. That has now changed.

On November 9, 2012, Public Works implemented Policy Notification PN-107, which revised the integrity provisions of the department’s Supply Manual and its Standard Acquisition Clauses and Conditions Manual. Most notably, Public Works has removed the leniency exemption from its integrity policy. Now, Public Works “will not enter into a contract or real property transaction, or accept bids from companies convicted of listed offences unless they have received a pardon, or capacities restored by Governor-in-Council”. The change is intended to “strengthen the integrity of procurement and real property transaction processes”.

As a result of this change, Public Works will no longer accept bids from companies like CRG that have been convicted of a listed offence (which includes criminal offences under the Competition Act), even if they participated in the Bureau’s Leniency Program. In addition, existing contracts with such suppliers will be subject to “heightened scrutiny and oversight”, with “rigorous controls” put in place in order to “protect taxpayers’ interests”.

The companies involved in the Chicoutimi hospital bid-rigging scheme were handed down the following fines by the Quebec Superior Court of Justice:

• Construction G.T.R.L. was ordered to pay a CDN $ 50,000 fine.
   
• Acoustique JCG Inc. and Entreprises de Construction: were each ordered to pay a CDN $ 25,000 fine.

In addition to the foregoing, the companies will be subject to a court order for 10 years following the date of conviction.

Bid-rigging, which is defined in section 47 of the Competition Act, prohibits bidders from entering into an agreement not to submit bids or to submit pre-arranged bids when responding to a bid or tender call. The criminal sanction under section 47 applies if the person calling for the bids is not made aware of the agreement at or before the time when the bid or tender is submitted or withdrawn. In this case, the Bureau’s investigation revealed that the parties entered into an agreement that pre-determined the winner of the contracts for the expansion of the emergency room at the Chicoutimi hospital in 2003.

The Commissioner of Competition, Melanie Aitken, commented on the harmful effects of bid-rigging, saying “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.”

We will continue to monitor civil and criminal enforcement actions under the Competition Act as they arise. For more information on Canada's Competition Act and Investment Canada Act, see our primer here.

Promécanic admitted to secretly arranging with its competitors to fix the price of the winning bids for ventilation systems contracts in the Montreal region. In addition to fining Promécanic C$425,000, the Quebec court issued a 10 year prohibition order against the company’s estimator, Joël Perreault, preventing him from engaging in acts that could lead to further contraventions of section 47.  Mr. Perreault was charged in 2006 with obstructing the Bureau’s investigation of Promécanic by destroying documents during the execution of a search warrant.  In exchange for his subsequent cooperation in the Bureau’s prosecution of the other seven defendants, the obstruction charges against Mr. Perreault were dropped.

The investigation and prosecution of cartels and related bid-rigging offences under Part VI of the Competition Act is a top priority for the Commissioner of Competition, Melanie Aitken. “The Competition Bureau will continue to vigorously seek prosecution against those who thwart the forces of competition” Aitken said. “Homeowners in the Montreal region were defrauded by this illegal scheme”, she commented, adding that “bid-rigging deprives Canadians of the benefits of a competitive market, including lower prices and product choice”.  The other seven companies facing charges in the Bureau’s bid-rigging investigation include Groupe SCV Inc., Les Entreprises de Ventilation Climasol Inc., Lys Air Mécanic Inc., Guaranteed Industries Ltd., Ventilation G.R., Kolostat Inc., and Ventilex Inc. More information can be found here

The bid-rigging charge against Electromega rested on the following evidence:

• Comments allegedly made by the deceased president of Electromega to various individuals relating to communications with Tassimco for the purpose of ensuring that Electromega would obtain the Quebec City contract;
• A Gelcore price list addressed to its distributor Electromega for various items required in the Quebec call for bids, which was allegedly found in the briefcase of Tassimco’s president during a search by the Competition Bureau;
• The bids submitted by the two competitors on certain items and more particularly, the prices submitted for these items which, according to the Crown, indicated an arrangement between the two competitors.

The court found that since Electromega and Tassimco were involved in projects other than the contract in Quebec City, it could not be said, beyond a reasonable doubt, that any price communications they may have had related specifically to the Quebec City contract.

With respect to the comments allegedly made by the deceased president of Electromega, the court found that given the passage of time, the witness testimonies presented by both the Crown and the defendant were often imprecise, fragmented, confusing, even contradictory in certain aspects, and as a result, affected in a substantial manner the reliability and the weight that could be attached to each version of facts.

As for the allegedly incriminating documents found during a search by the Competition Bureau, the court found that there was considerable uncertainty as to how these documents came into Tassimco’s possession.

Finally, although the court observed that Tassimco and Electromega were the lowest bidders on certain items and that they submitted identical bids for three items, this evidence was ambiguous and insufficient to prove an illegal agreement.

The court found that the Crown had not proven beyond a reasonable doubt that Electromega was guilty of conspiring to rig bids in Quebec, and consequently rendered an acquittal.