Bid-rigging is a criminal offence and enforcement action against companies and individuals is a top priority of the Canadian Competition Bureau. For example:

  • In 2013, the Ontario Superior Court of Justice issued a $30-million fine – the largest ordered to date by a Canadian court – against Japanese auto parts maker Yazaki Corporation after it pleaded guilty to participating in an international bid-rigging scheme for motor vehicle components.
  • In 2014, criminal charges were laid against former employees of both Microtime Inc. and Library and Archives Canada for rigging bids related to IT services supplied to Library and Archives Canada, and also against an individual for his role in an agreement to rig bids for contracts involving infrastructure projects in Québec.

Here is what you need to know about bid-rigging in Canada:

  1. The Offence. Bid-rigging applies where a participant in response to a call or request for a bid or tender who agrees with another potential bidder: (i) not to submit a bid; (ii) about the content of a bid; or (iii) to withdraw a bid. The prosecution does not need to establish that the bid-rigging had, is having or is likely to have any anti-competitive effects.

  2. However, an offence only occurs if the arrangement is not made known to the person requesting the bids at or before the time the bid is made by a person who is party to the agreement.
  1. Must Be a "Call or Request For a Bid or Tender." The analysis of whether there was a "call or request for a bid or tender" focuses on the intention of the parties and whether they intended to enter into any contractual arrangements. As highlighted by the decisions of the Ontario Court of Appeal confirming the Superior Court's decision in R v. Dowdall and the Québec Court's decision in R v. Al Neshar et al, this may be a complex analysis of mixed law and fact.
  1. Typical Bid-Rigging Strategies. While bid-rigging may take many forms, below are common strategies employed by those seeking to subvert the competitive bidding process:
  • Cover bidding – suppliers agree to submit "courtesy" or "token" bids that are usually too high or contain unacceptable terms so as to give the impression of a competitive bidding process.
  • Bid suppression or withdrawal – suppliers agree to either abstain from bidding or to withdraw bids so that the designated supplier will win the contract.
  • Bid rotation – suppliers agree that a designated supplier will submit the lowest bid on a pre-arranged, rotating basis.
  • Market division – suppliers agree not to compete in designated geographic regions or for specific customers or products.
  1. Subject-Matter Jurisdiction. In stark contrast to certain provisions of the Competition Act, the bid-rigging provision does not explicitly state that the offence can be committed in a location outside of Canada, or that domestic entities may be prosecuted for unknowingly implementing foreign-hatched bid-rigging agreements by following "directives" issued by foreign affiliates. Yet, even where a bid-rigging offence occurs entirely outside of Canada's borders, the Bureau asserts that the effects of the bid-rigging on commerce in Canada (e.g., impacts the sale of an input which is then used in a product assembled and sold to a customer in Canada) constitutes a sufficient basis upon which to assert jurisdiction. The cases to date have involved guilty pleas, so the issue of subject-matter jurisdiction in Canada remains uncontested. Read more about subject-matter jurisdiction in our Osler Update.
  1. Immunity and Leniency Programs. Since bid-rigging schemes are covert, detection is usually difficult. Typically, the Bureau becomes aware of bid-rigging activity through information provided by buyers/procurement officers or sellers/bidders who believe a competitive process has been circumvented, or former or current employees of firms that have engaged in bid-rigging.

  2. The Bureau continues to rely on its Immunity and Leniency Programs to detect and enforce bid-rigging provisions of the Competition Act. For example, the Bureau obtained fines against two Japanese auto parts suppliers that pleaded guilty to bid-rigging charges under the Leniency Program. Furukawa was the first leniency applicant and agreed to a $5-million fine, which represented approximately 12% of its commerce in the products ($40.9 million). Yazaki was the second leniency applicant and received a fine of approximately 12% of its commerce in the relevant products ($30 million based on total sales of $260 million) over the period of the bid-rigging arrangements. Read more in our Osler Update.
  1. Outreach to the Public Sector. Providing outreach presentations to public procurement organizations at all levels of government has been, and continues to be, a priority for the Bureau. These presentations provide public sector procurement officials with the knowledge necessary to detect, prevent and report bid-rigging. In 2013, the Bureau and the Department of Public Works and Government Services Canada (PWGSC) signed a Memorandum of Understanding intended to strengthen the prevention, detection, reporting and investigation of possible cartel activity, including bid-rigging, for procurement processes and real property transactions that fall under the responsibility of PWGSC.
  1. Investigative Powers. The Bureau's investigative powers are significant and wide-ranging, and it is not reluctant to use its statutory powers to conduct search and seizures of physical and electronic records or to partner with other police forces and anti-corruption officials in Canada. For example, in 2012 the Bureau working with the Sûreté du Québec's Service des enquêtes sur la corruption, a division of the Unité permanente anticorruption (Québec's permanent anti-corruption squad known as UPAC), seized evidence from several Montréal-area construction firms as part of a probe into allegations of bid-rigging to obtain municipal contracts, mainly for infrastructure projects in Saint-Jean-sur-Richelieu, and ultimately laid a total of 77 charges (including over 20 counts of bid-rigging) against 11 individuals and nine companies.
  1. Penalties and Consequences. Penalties are severe:
  • The Competition Act provides for an unlimited fine and maximum 14 years imprisonment.
  • Exposure to private actions (individual and class basis) for damages which may be significantly higher than fines available under the Competition Act.
  • Exposure to debarment from federal government procurements for 10 years from the date of conviction. Importantly, applicants under the Bureau's Leniency Program are not exempted from the federal government's debarment regime (similar debarment policies also exist in Québec).

Bottom Line: Stakes are too high for businesses operating in Canada to be complacent — the potential legal, economic and reputational risks of non-compliance with the Competition Act are real and must be effectively managed by businesses as part of their overall risk-management strategy. Read more about the Bureau's detailed guidance on effective compliance programs in our recent Osler Update

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.