BID-RIGGING AWARENESS AND PREVENTION Pierre-Yves Guay and Jean-Sébastien Rivard Cartels and Deceptive Marketing Practices Branch Competition Bureau Building a prosperous and innovative Canada

Competition Bureau Headed by the Commissioner of Competition, the Bureau is an independent law enforcement agency responsible for the administration and enforcement of the Competition Act (the Act), a federal law that governs most business conduct in Canada The Bureau is also responsible for the Textile Labeling Act, the Consumer Packaging and Labeling Act (except as it relates to food) and the Precious Metals Marking Act The Bureau’s role is to help the Canadian marketplace be more competitive and innovative for the benefit of businesses and consumers through: Competition enforcement Competition promotion

Competition Bureau (continued) Headquarters located in Gatineau, Quebec Regional offices in Toronto, Montreal and Vancouver Approximately 370 employees Works closely with Competition Law Section of the Public Prosecution Service of Canada (PPSC) Competition Bureau Legal Services (Department of Justice)

Competition Bureau: Organizational Structure

Cartels and Deceptive Marketing Practices Branch Made up of the Cartels Directorate and the Deceptive Marketing Practices Directorate Cartels Directorate: investigates hard core cartels, including conspiracies- agreements or arrangements among competitors and potential competitors to fix prices, rig bids, allocate markets or restrict supply Deceptive Marketing Practices Directorate: investigates false or misleading representations and deceptive marketing practices Responsible for all investigations related to criminal provisions of the Act The Deceptive Marketing Practices Directorate is also responsible for certain civilly reviewable matters set out in Part VII.1 of the Act.

Criminal Enforcement Tools - Statutory Warrant for entry of premises (search warrant) s. 15 & s. 16 of the Competition Act s. 487.01 of the Criminal Code Order for oral examination, production or written return s. 11 of the Competition Act s. 487 of the Criminal Code Interception of electronic communications for certain offences under the Competition Act (wiretaps) s.183 of the Criminal Code Mutual Legal Assistance Treaties

Cartel Offences The Competition Bureau investigates cartels under the following criminal provisions Provision Title s. 45 Conspiracy s. 46 Foreign Directive s. 47 Bid-rigging s. 48 Conspiracy relating to professional sport s. 49 Agreements or arrangements of federal financial institutions

Bid-Rigging Offence: s. 47 There is a call for tenders Two or more competitors submit bids arrived at by agreement, or One or more competitors agree: (i) to not submit a bid, or (ii) to withdraw their bid Person calling for tenders is not informed of the agreement

Bid-Rigging Penalties No limit on fines Jail term up to 14 years for individuals Victims have a statutory right to sue perpetrators to recover damages caused by bid-rigging (s. 36) Criminal record will be registered with the Canadian Police Information Centre (CPIC)

All Industries are at Risk

Some Industries are More Susceptible Be especially vigilant when tender involves: Similar products Simple products or services Goods/services which have not seen significant technological advances/ changes Products with few or no close substitutes A small number of suppliers or customers Supplier base with few new entrants An active trade association

Common Forms of Bid-Rigging Cover bidding – fake bidding Bid suppression – withholding bids Bid rotation – rotating agreed best bid Market division – carving up the market More than one of these techniques may be used

Warning Signs Involving Bid Submissions and Outcomes Competitors’ bids are received together Identical irregularities in bids Suppliers meet before they submit tenders and you are not present Suppliers that would normally tender fail to do so Same supplier is often the successful bidder Winning bidder does not accept the contract Winning bidder subcontracts work to unsuccessful bidders Pattern suggesting rotation of successful bids among several suppliers

Warning Signs Involving Pricing Bids from local companies involve similar transportation costs as non-local bidders Identical bid amounts Large difference between price of winning bid and other bids Significant change from past price levels occurs after bid from new or infrequent supplier Range of quoted prices has moved suddenly, or existing discount arrangements have changed suddenly Only one bidder contacts consultants/wholesalers for necessary pricing information

Warning Signs from Suppliers’ Statements Use of the same terminology when explaining price increases References to “industry suggested prices” or “industry price schedules” Refusal to sell to you or in your area because of an agreement Knowledge of competitor’s confidential bid

Library and Archives Canada (LAC) In May 2014, the Bureau laid charges against one company and six individuals in relation to a bid-rigging conspiracy for federal government contracts for the supply of IT services to Library and Archives Canada (LAC). Three of the individuals allegedly involved in the conspiracy were employed by LAC at the time, and have been charged under subsection 80(1) of the Financial Administration Act for allegedly making opportunity for another person to defraud the government. In May 2015, one of the individuals charged under the Competition Act pleaded guilty to bid-rigging and received am 18-month conditional sentence, with the first six months to be served under house arrest. This individual was also fined $23,000 and ordered to perform 60 hours of community service.

Library and Archives Canada (continued) In August 2016, another individual charged under the Competition Act pleaded guilty and received a similar sentence. Her plea agreement also requires her to participate in two public presentations alongside Competition Bureau staff to raise awareness about compliance with the Competition Act. December 2016, one of the LAC employees pleaded guilty under the FAA for her involvement in the conspiracy. She received a criminal record with 15 months probation and 100 hours of community service. At this time, the remaining accused in this matter will stand trial.

Case Example: Bid Rigging in the Construction Industry In February 2011, the Québec provincial police force, the Sureté du Québec, created a Permanent Anti-Corruption Unit (UPAC) In June 2012, following a joint investigation by UPAC and the Bureau, a total of 77 charges were laid against nine companies and 11 individuals in the construction industry in connection with a collusion scheme in the Saint-Jean-sur-Richelieu region in Montreal These charges included 20 counts of bid-rigging against nine companies and 24 counts of bid-rigging against six individuals

Preventing Bid-Rigging Protect procurement integrity in key areas: Establishing bidding pool Drafting tender specifications Awarding contracts Training and auditing Disclosure of communications

Prevention: Establishing a Bidding Pool Maximize the pool of potential bidders Know your suppliers and their market prices Know prices in other departments Avoid obligatory bids Keep bids confidential – do not disclose specifics of the pool

Prevention: Drafting Tender Specifications Require disclosure regarding potential subcontractors and their pricing Allow for flexibility in tender specifications Avoid preferential treatment for a certain class of suppliers

Prevention: Awarding Contracts Avoid splitting contracts between suppliers with identical bids Ask questions if prices or bids don’t make sense

Prevention: Training and Auditing Ensure regular staff training on bid-rigging avoidance Start with Bureau’s online bid-rigging presentation Review tender history/results periodically, especially in susceptible industries Conduct interviews with Vendors who no longer offer supply Unsuccessful vendors

Prevention: Disclosure of Communications Use a “Certificate of Independent Bid Determination” Certificate requires disclosure of communications between bidders Certificate available online on the Competition Bureau’s website Establish a complaint mechanism for suppliers to convey competition concerns

Certificate of Independent Bid Determination (Excerpt)

If You Suspect Bid-Rigging Thoroughly record details of all relevant behaviour Do not discuss with suspected participants Decide whether or not to continue with the tender Contact the Competition Bureau

Conclusion Bid-rigging and other anti-competitive practices cause serious economic harm Awareness aids detection Reporting and prosecution deter criminal activity Working smart and together, we can help maintain a competitive marketplace, keeping costs down and quality and innovation high

How to Contact the Competition Bureau Website www.CompetitionBureau.gc.ca E-mail compbureau@cb-bc.gc.ca Fax 819.997.0324 Telephone Toll free: 1.800.348.5358 TDD service: 1.800.642.3844