On February 5, 2021 the Competition Bureau of Canada (the "Competition Bureau") released "Competitive bidding processes in the public sector: Procuring good value for taxpayer money" ("Competitive Bidding Processes"). Competitive Bidding Processes represents the Competition Bureau's most recent publication in the Competition Advocate in some time. Competitive Bidding Processes highlights the increased importance being placed on the framework for public procurement as governments across Canada enact stimulus measures in support of the country's economic recovery and outlines best practices and offers guidelines that all levels of government should be aware of in government procurement processes. These practices and guidelines help ensure that government procurement processes are competitive and fair, and favour competitive bidding processes to protect public value when procuring goods and services. In this article we provide a summary of Competitive Bidding Processes which discusses the importance of competitive bidding, what constitutes bid-rigging and how to recognize it and measures to ensure that bid-rigging does not take place.
Why the need for competitive bidding?
In its report, the Competition Bureau indicates that there are many benefits that stem from competitive bidding, including: lower prices, higher quality of goods and services being procured, incentivizing and increasing innovation, and building a resilient economy. Public procurement processes can account for 15% or more of a country's GDP, in normal times. As Canada moves further along the Covid-19 recovery process there are increased expectations that governments will need to urgently and substantially invest in designing and constructing large infrastructure projects to help stimulate the economy post Covid.
Simply put, bid-rigging is collusion. Under s. 47 of the Competition Act (Canada) bid-rigging is a criminal offence. Bid-rigging occurs when, in response to a call for bids or tenders, two or more potential bidders:
- submit bids containing content that the bidders determined through agreement or arrangement;
- agree that one or more parties will refrain from bidding or will withdraw a previously submitted bid.
In earlier publications the Competition Bureau discussed that bid-rigging can take many different forms including:
- Cover bidding - where competitors agree upfront on who will win. Losing bidders tweak their submission to ensure it's less attractive than the winner's.
- Bid suppression - a competitor agrees not to bid or to withdraw a bid so a specific bidder is most likely to win.
- Bid rotation - competitors agree to take turns at winning bids.
- Market division - competitors agree to divide territory, customers or product markets among themselves instead of competing.
The Competition Bureau notes that bid-rigging undermines the competitive bidding process because it allows suppliers, rather than market forces, to determine price and quality. The Competition Bureau claims that bid-rigging can increase the cost of multi-million dollar public procurements by over 30%, which in turn diverts public funds to colluding bidders.
There are no monetary limits on the fines that can be issued for bid-rigging as such decisions are left up to the discretion of the courts. Anyone convicted of bid-rigging can face a jail term up to 14 years, they will also have a criminal record that will be registered with the Canadian Police Information Centre. In addition to the criminal charges and fines, perpetrators of bid-rigging can face civil action from victims.
How can you detect bid-rigging?
Bid-rigging inherently involves backroom discussions and deal making, which makes it difficult to detect. The Competition Bureau has previously produced documents on detecting, preventing and reporting bid-rigging. Competitive Bidding Processes warns that public officials should be on the look out for the following warning signs:
- large price deviations between the winning bids and other bids;
- identical irregularities across independent bids;
- winning bidders refusing to accept a contract once awarded; and
- once awarded, winning bidders subcontracting to losing bidders
What can be done to deter bid-rigging?
In addition to its earlier publications about detecting, preventing and reporting bid-rigging, the Competition Bureau in Competitive Bidding Processes provides some guidance for all levels of governments to consider in their procurement processes that includes:
- maximizing the pool of potential bidders;
- building an understanding of potential bidder capabilities;
- requiring disclosure regarding potential subcontractors and their pricing;
- requiring bidders to submit a certificate of independent bid determination similar to or based on the Bureau's model certificate; and
- follow up interviews with unsuccessful vendors to understand their rationale in respect of their bids.
All of this suggests that potential bidders ought to avoid improper collaboration with their competitors, unless the parties are bidding as a joint venture. In that scenario, parties may wish to seek legal advice when considering any such collaboration or joint venture bids.
If anyone involved in the tendering process suspects that bid-rigging has or will take place they should; file a formal complaint with the Competition Bureau, participate in the Competition Bureau's whistleblowing initiative or leave an anonymous tip by filing online or contacting the Federal Contracting Fraud Tip Line by phone.
The adverse impact of Covid-19 on the economy will likely increase pressures on governments to expeditiously invest in public infrastructure and other publicly funded projects to stimulate and rebuild the economy. Competitive Bidding Process represents a signal to all levels of government and potential bidders that the Competition Bureau is acutely aware of these pressures and will be monitoring public procurement processes to ensure that all stakeholders act appropriately in the procurement process in order that Canada's economic investments can be completed without anti-competitive conduct by participants. If bidders or government procurement officers have any questions regarding whether aspects of the procurement processes or bid submissions may be breach of the Competition Act (Canada), they should seek legal advice immediately.
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.