Canada: The Characterization Of A Procurement Process As A "Call Or Request For Bids Or Tenders" Under Section 47 Of The "Competition Act"

Last Updated: September 24 2014
Article by Pierre-Christian Collins Hoffman and Guy Pinsonnault

Courts have recently recognized that the law of tenders can provide useful indications as to what a "call or request for bids or tenders" should consist in for the purpose of section 47 of the Competition Act. In two preliminary inquiry judgments rendered in Quebec (Al Nashar/Industries Garanties) and Ontario (Dowdall) involving bid-rigging charges, courts have made reference to the contract A/contract B scheme of the law of tenders. They also had to assess the weight of "privilege clauses" (i.e. no obligation upon the owner to accept the lowest bid or any tender submitted) and post-selection negotiations in the characterization of a procurement process as an RFP. This paper aims to review these two decisions, along with other case law rendered under section 47 and the law of tendering, in an attempt to propose basic general criteria and a non-exhaustive set of indicia to determine whether a procurement process is contemplated under section 47 of the Competition Act. In particular, the authors assess the weight of the contract A/contract B paradigm, privilege clauses and negotiations in the characterization of a tendering process as a "call or request for bids or tenders."

I. Introduction

The Competition Act1 (the "Act") makes it a criminal offence for persons to agree not to submit or to withdraw a bid or tender in response to a "call or request for bids or tenders" ("RFP") or to present bids or tenders in response to a RFP where such bids or tenders result from an agreement between multiple bidders or tenderers.2 No offence is committed, however, where a party to such an arrangement either discloses same to the organization which placed the RFP (the "owner") at or before the time when the bid or tender is submitted or withdrawn,3 or where the arrangement occurs between bidders who are all affiliates of one another.4 Section 47 creates a per se offence, in that prosecution does not have to prove anti-competitive effects on the Canadian economy, which would generally require expert evidence. The offences under section 47(1) are punishable by a discretionary fine and imprisonment.5 Where a senior officer of the organization is at fault, the organization's criminal liability may also be engaged.6

In 2009, Parliament amended the Act by increasing the maximum term of imprisonment for an offence under section 47 from 5 to 14 years, thus recognizing the need for more severe penalties for those participating in bid-rigging schemes of significant size and effect. This increased maximum sentence eliminated the possibility of absolute/ conditional discharges under section 730 of the Criminal Code. Furthermore, with the entry into force of the Safe Streets and Communities Act,7 formerly known as Bill C-10, conditional sentencing is no longer possible for bid-rigging offences committed after November 20, 2012.8 In light of this tougher sentencing, the Federal Court has observed that "[p]rice fixing and other hard core cartel agreements therefore ought to be treated at least as severely as fraud and theft, if not even more severely than those offences."9

In recent years, the Competition Bureau has been increasingly aggressive in prosecuting individuals participating in price-fixing and bid-rigging schemes. In the past 5 years, more than 70 persons have been charged under sections 45 and 47 of the Act. Since the adoption of the 2009 amendments, such offenders face higher risks of conviction and imprisonment. Recently, a record-setting fine of $30 million was imposed on a Japanese auto parts maker that pleaded guilty to three counts of bid-rigging under section 47(1)(b).10 In Quebec, the Competition Bureau has been closely monitoring the allegations made during the "Charbonneau Commission,"11 a public inquiry into corruption in the management of public construction contracts. The evidence adduced will surely prompt the Bureau to investigate and have criminal proceedings brought against several individuals and corporations alleged to have colluded in obtaining construction contracts from the Quebec Government and municipalities.

Given that the Act provides no definition of the phrase "request for bids or tenders," courts have recently borrowed from the law of contracts and the principles developed in Canadian jurisprudence regarding the law of tenders to assess whether a procurement process is an RFP under section 47. Courts recently had to determine whether the absence of an obligation to accept compliant tenders or the option to negotiate the terms of the final contract could negate the characterization of a procurement as a "request or call for bids or tenders."

In the recent decision of R v Dowdall,12 the Ontario Court of Appeal confirmed a preliminary inquiry judgment rendered by the Ontario Court of Justice. The preliminary inquiry judge found that there was sufficient evidence adduced to support a finding that federal government RFPs were calls for bids or tenders within the meaning of section 47 of the Act. This decision was upheld by the Ontario Superior Court. The Court of Appeal endorsed the Superior Court's view that "[a] term permitting the party issuing the RFP to retain the discretion not to proceed to call up work or services is but one aspect of the analysis."13 The Court held that satisfactory evidence had been presented to ensure that a properly instructed trier of fact would be able to conclude that the appellants had made bids in response to a RFP under section 47.

Interestingly, a seemingly contradictory decision was rendered by the Court of Quebec about two months earlier pursuant to a preliminary inquiry into bid-rigging having regard to private construction contracts.14 Despots J.C.Q. noted that no RFP under section 47 exists where no obligation to enter into a contract stems from the submission of a tender or bid (i.e. a simple invitation to negotiate). A privilege clause stipulating that the company requesting tenders had no obligation to accept a bid and testimonies to the effect that contracts were not necessarily awarded to the lowest bidder convinced the Court that a properly instructed jury could not conclude as to the existence of an RFP. The Quebec Superior Court subsequently quashed this decision in April 2014 following the prosecution's successful application of certiorari.15 Vauclair J.S.C. held that the preliminary hearing judge exceeded her jurisdiction by concluding that detailed RFP documentation does not automatically lead to the conclusion that parties intended to enter into "contract A."16

This paper aims to review these two decisions, along with prior case law rendered under section 47 and the law of tendering, in an attempt to propose basic general criteria and a non-exhaustive set of indicia to determine whether a procurement process is contemplated under section 47 of the Act. Namely, the authors assess the weight of the contract A/contract B paradigm of the law of tenders, privilege clauses and negotiations in the characterization of a tendering process as a "call or request for bids or tenders."

II. Section 47 of the Competition Act

In general, the purpose of an RFP is to obtain the most competitive proposals for a contract, the essential terms of which the owner has specified, in a structured procurement process designed for his specific needs. Where tenderers collude to arrange their bids, the competitive and economic rationale of the procurement process is largely undermined. As the Ontario High Court of Justice has noted, "[ f]ailure to ensure freedom from such conduct can only militate much to the financial and other detriment of society."17 In the context of civil litigation, the Supreme Court of Canada has reasoned that the logical basis of the tender call process is to replace negotiation between parties by competition,18 which explains why competition law is interested in regulating RFPs. Section 47 of the Act reads as follows:

47. (1) In this section, "bid-rigging" means

  1. an agreement or arrangement between or among two or more persons whereby one or more of those persons agrees or undertakes not to submit a bid or tender in response to a call or request for bids or tenders, or agrees or undertakes to withdraw a bid or tender submitted in response to such a call or request, or
  2. the submission, in response to a call or request for bids or tenders, of bids or tenders that are arrived at by agreement or arrangement between or among two or more bidders or tenderers,

where the agreement or arrangement is not made known to the person calling for or requesting the bids or tenders at or before the time when any bid or tender is submitted or withdrawn, as the case may be, by any person who is a party to the agreement or arrangement.

(2) Every person who is a party to bid-rigging is guilty of an indictable offence and liable on conviction to a fine in the discretion of the court or to imprisonment for a term not exceeding 14 years, or to both.

(3) This section does not apply in respect of an agreement or arrangement that is entered into or a submission that is arrived at only by companies each of which is, in respect of every one of the others, an affiliate.

It should be noted that before 2009, the withdrawal of a tender pursuant to an arrangement with another tenderer did not constitute an offence.19 Parliament fixed this shortcoming by amending section 47(1) to specifically set out that concluding an arrangement or agreement with another bidder to withdraw a bid already submitted in response to an RFP is an offence. The Ontario High Court of Justice has qualified bid-rigging as "an offence per se."20 It is incumbent upon the prosecution to demonstrate five elements beyond a reasonable doubt21 for one to be condemned of bid-rigging charges under section 47:

  1. the existence of an agreement or arrangement between two or more persons;
  2. entered into intentionally and advertently;22
  3. either not to submit or to withdraw bids or tenders, or to submit pre-arranged bids or tenders;
  4. in response to a call or request for bids or tenders; and
  5. without the knowledge of the person calling for or requesting the bids or tenders.

The Act uses broad terms so as to encompass a wide range of circumstances and industries within its scope. Bid-rigging committed with respect to either governmental or private RFPs may lead to a conviction under section 47(2). The broad language of section 47 appears necessary to provide enough flexibility to incorporate tender calls entered into in both civil and common law provincial jurisdictions and to adapt to constantly evolving commercial and industry practices. The constitutionality of the criminal offence of bid-rigging has been upheld by the Ontario High Court of Justice having regard to a purported invasion of provincial legislative authority. In R v Charterways Transportation Ltd.,23 DuPont J. held that the offence fell "within the legislative competence of the federal Government to define criminal offences."24

The broad language of section 47 must not, however, be used in ways that could distort the nature of the offence. For bid-rigging to occur, there must be "a direct relationship, or nexus, between the person calling for the bids and tenders and the person submitting the tenders."25 Subparagraphs (a) and (b) of section 47(1) provide that the agreement to submit, not to submit or to withdraw must have been "in response" to an RFP. This means, in cases of submission or withdrawal, that the tender or bid must have been sent to the person who had requested the proposals. In Coastal Glass,26 the British Columbia Court of Appeal upheld the acquittal of two subcontractors accused of bid-rigging who had submitted arranged price quotations to candidates for the role of general contractor of a construction project rather than the building developer who had issued the RFP. The industry practice was that the Amalgamated Construction Association of British Columbia would circulate a construction bulletin listing candidates for the role of general contractor who had picked up tender applications for the developer's RFP. Subcontractors would then submit their price quotations to the candidates, who would in turn use such quotes in the submission of their sealed bids to the project developer.27 It appeared that the general contractors had not placed an RFP to obtain quotations from subcontractors, and that the subcontractors had not made a submission in response to the building developer's RFP.

Like several other prohibited practices set out under the Act, bid-rigging requires the entering into of an "arrangement" or "agreement" between two or more parties. It is incumbent upon the Crown to demonstrate the mutual arrival at an understanding to rig bids, as the mere accommodation of another bidder may not be sufficient to constitute an arrangement or agreement.28 However, this does not mean that the prosecution must prove all of the elements necessary for the existence of a contract as understood under the civil or common law. A "meeting of the minds" to rig bids inferred from the circumstances is sufficient to establish that an arrangement or agreement has taken place.29

Section 47(1) makes it a defence to notify the owner of the existence of the agreement or arrangement. The Ontario High Court of Justice has observed that bid-rigging fell "within the category of strict liability," in the sense that the notification defence can be available where one has "taken all reasonable care to make the agreement known."30 It is not a defence to argue that the owner was implicitly notified of the arrangement or agreement, by means of logical inference, following his opening of identical bids or tenders.31 Express notification is necessary.32

One may say that the aspect of section 47 that carries the highest degree of uncertainty is the scope of the phrase "call or request for bids or tenders." Since no definition has been provided for under the Act, practitioners and courts have recently relied on the law of tendering to determine whether a bid-rigging offence had been committed.

To read this article in full, please click here.

Originally published by Canadian Competition Law Review.

Footnotes

1 RSC 1985, c C-34 [Competition Act].

2 Ibid, s 47(1)(a)(b).

3 Ibid, s 47(1).

4 Ibid, s 47(3).

5 Ibid, s 47(2).

6 Criminal Code, RSC 1985, c C-46, s 22.2.

7 SC 2012, c 1.

8 The amendments are not retroactive as per s 11(i) of the Constitution Act, 1982, being Schedule B to the Canada Act 1982 (UK), 1982, c 11.

9 Canada v Maxzone Auto Parts (Canada) Corp., 2012 FC 1117 at para 56.

10 R v Yazaki Corp, 235 ACWS (3d) 670, 2013 CarswellOnt 15673 (WL Can).

11 Officially the Commission of Inquiry on the Awarding and Management of Public Contracts in the Construction Industry.

12 2013 ONCA 196, 107 WCB (2d) 91, 2013 CarswellOnt 3600 (WL Can) [Dowdall].

13 Ibid at para 6 [emphasis added].

14 R v Al Nashar et al. (1 February 2013), 500-73-0035350-104, 500-73-0035350- 102 (QC CQ) [Al Nashar].

15 R v Industries Garanties ltée, 2014 QCCS 1582 [Industries Garanties].

16 Ibid at paras 21-22.

17 R v Charterways Transportation Ltd., 32 OR (2d) 719, 123 DLR (3d) 159, 60 CCC (2d) 510, 57 CPR (2d) 230, 1981 CarswellOnt 1226 (WL Can) at para 73 [Charterways].

18 M.J.B. Enterprises Ltd. v Defence Construction (1951) Ltd, [1999] 1 SCR 619 at para 41 [M.J.B. Enterprises].

19 R v Rowe, 2003 CanLII 64246 (ON SC) at para 17.

20 Charterways, supra note 17 at para 73.

21 Ibid at para 74; R v McLellan Supply Ltd., 69 AR 132, 12 CPR (3d) 53, 1986 CarswellAlta 512 (WL Can) at para 23.

22 Charterways, supra note 17 at para 74.

23 Supra note 17.

24 Ibid at para 17.

25 R v Coastal Glass & Aluminium Ltd., 1986 CanLII 1160 (BC CA) at para 12 [Coastal Glass].

26 Ibid.

27 Ibid at para 4.

28 Ibid at para 18.

29 R v Bugdens Taxi, 2006 CanLII 31901 (NL PC), application for certiorari with mandamus in aid declined and denied: 269 Nfld & PEIR 233, , 817 APR 233, 54 MVR (5th) 282, 2007 CarswellNfld 286 (WL Can), (bid-rigging); R v Cominco Ltd., 1979 CanLII 1196 (AB QB) at para 37 (price fixing).

30 Charterways, supra note 17 at para 73.

31 Ibid at para 55; R v Travelways School Transit Ltd., 1982 CarswellIOnt 1353 at para 6 (ON CA) [Travelways].

32 Travelways, supra note 31 at para 6.

The foregoing provides only an overview and does not constitute legal advice. Readers are cautioned against making any decisions based on this material alone. Rather, specific legal advice should be obtained.

© McMillan LLP 2014

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Pierre-Christian Collins Hoffman
Guy Pinsonnault
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