Competition Bureau Releases Updated Guidelines on Procurement Processes

On February 5, 2021, the Canadian Competition Bureau (the “Bureau”) published Competitive bidding processes in the public sector: Procuring good value for taxpayer money (“Competitive Bidding Processes”), the latest edition of the Bureau’s Competition Advocate. This is a periodic publication that offers the Bureau’s views on industries that the Bureau believes may benefit from increased competition.

Competitive Bidding Processes is the Bureau’s first Competition Advocate publication in three years. It provides the Bureau’s best practices advice for ensuring government procurement processes are competitive, and highlights common warning signs of potential bid-rigging. The publication comes at a time when the Canadian public and all levels of government have increasingly turned their minds towards the country’s economic recovery. As procurement will play a significant role in stimulating economic growth, Competitive Bidding Processes is the Bureau’s reminder to government departments and agencies to exercise caution in procurement processes.

Defining Bid-Rigging

Under the Competition Act (the “Act”), bid-rigging occurs when two or more potential bidders, in response to a call for bids or tenders:

  • submit bids whose contents are determined through agreement or arrangement; or
  • agree that one of the bidders will either: (i) not submit a bid; or (ii) withdraw a previously-submitted bid.

Bid-rigging is a criminal offence under section 47 of the Act. Upon conviction, a bid-rigger may face up to 14 years in prison, a fine at the discretion of the court, or both.  (The highest fine imposed under the bid-rigging offence to date is $30 million.)  Notably, victims of bid-rigging also have a civil right of action against bid-riggers, pursuant to s. 36 of the Act. However, the Act provides a complete defence to bid-rigging where the tendering authority is expressly informed of the arrangement at or before bid submission. This may occur where two potential bidders collaborate in a joint venture to submit a bid, for example.

With Competitive Bidding Processes, the Bureau recognizes that procurement plays a critical role in the economic response by governments to COVID-19. The publication notes that “in normal times, [procurement] can account for 15% or more of a country’s GDP.” The outsized role of procurement in a post-COVID recovery therefore presents an attractive opportunity for potential bid-riggers.

Warning Signs of Bid-Rigging

The Bureau acknowledged in Competitive Bidding Processes that bid-rigging is inherently difficult to detect, and may become more difficult if procurement opportunities surge and are accompanied by an air of urgency. Nonetheless, the Bureau provided a list of red flags for public procurement officials, including:

  • large price deviations between the winning bid and the other bids;
  • identical irregularities across independent bids;
  • the winning bidder’s refusal to accept an awarded contract; or
  • once awarded, the winning bidder’s decision to subcontract the project to losing bidders.

These signals of bid-rigging are not exhaustive. The Bureau has written previously, at length, about warning signs that may be observed before and after a call for bids, as well as within the bids themselves.

Procurement Processes that Deter Bid-Rigging

In addition to highlighting warning signs in procurement bids, the Bureau provided suggestions that municipal, provincial and federal governments can incorporate into their procurement processes to deter bid-rigging. These include:

  • maximizing the pool of bidders and building an understanding of bidder capabilities;
  • requiring disclosures from bidders regarding potential subcontractors and their pricing;
  • requiring bidders to submit a Certificate of Independent Bid Determination (“CIBD”). The Bureau has prepared a model CIBD for use by governments and bidders; and
  • follow up interviews with unsuccessful vendors to understand the rationale behind their bids.

Ensuring Compliant Bids

The Bureau’s guidance suggests that stakeholders looking to submit a bid for a tender at any level of government should steer clear of any improper collaboration with competitors. As a best practice, liaising with industry competitors on bids is discouraged unless a bid is submitted as a joint venture.   Advice from competition law counsel should be sought where a company intends to collaborate with an unaffiliated third party — regardless of whether it is a competitor or not — in responding to a request for bids or tenders.[1]

Conclusion

As all levels of government move to stimulate an economy battered by the effects of COVID-19, Competitive Bidding Processes highlights the need for expediency in procurement to be balanced by awareness of bidders hoping to profit from government stimulus action. Competitive Bidding Processes may also send a warning signal to unscrupulous actors that the Bureau has its eye on public procurement, and will step in to ensure Canada’s economic recovery is not tainted by criminal action.

Clients trust McCarthy Tétrault’s Competition/Antitrust & Foreign Investment Group with their most strategic and critical competition, foreign investment and national security matters and foreign law firms trust us with their valued clients.  Whether as advisors or as litigators, our team has earned a stellar reputation both nationally and internationally, and works hard to maintain that reputation with every mandate.  We pride ourselves on being practical, business-friendly and responsive to clients’ timing and commercial requirements. Please contact Jason Gudofsky, Debbie Salzberger, or Casey Halladay if you have any questions or for assistance.

 

[1] Additionally, bidders should be aware that demanding, receiving or giving a financial advantage (from or to) another party bidding on a tender to supply the federal or a provincial government is separately prohibited under section 121(1)(f) of the Criminal Code of Canada.

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