Targeting bid-rigging to safeguard private and public sector procurement

Remarks by John Pecman, Commissioner of Competition

Ontario General Contractors Association Board of Directors Meeting

79^th AGM and Conference

October 21, 2017

Toronto, Ontario

(As prepared for delivery)

Introduction

Good morning, and thank you for inviting me to speak at your AGM.

I am here today to speak with you about the activities that the Competition Bureau has undertaken to combat bid-rigging, and to safeguard the procurement process for both private and public sector construction contracts.

According to your statistics, the OCGA is the largest representative association in the construction industry. Your members contribute an impressive amount to the provincial economy, with more than 200 member firms handling over $10 billion in projects annually, and accounting for more than 70 percent of industrial, commercial and institutional projects in Ontario.

The role that the OGCA plays for its members in advocating fairness and transparency in tendering practices and infrastructure procurement policies is an important one.

As Canada’s competition watchdog, the Competition Bureau shares your interest in fairness in tendering and public procurement, which is why I’m speaking to you today.

I will focus on three main topics:

• the Bureau’s enforcement of Canada’s bid-rigging laws;

• our bid-rigging detection and prevention efforts in partnership with the public procurement community; and

• how we promote compliance by helping businesses do their part to comply with the law.

The Competition Bureau

Before I start, let me share some background about the Competition Bureau.

As an independent law enforcement agency, the Bureau ensures that consumers and businesses prosper in a competitive and innovative marketplace.

Our actions are guided by the principle that competition is good for consumers and businesses. Competition drives innovation, and results in better product choices, higher quality services and more competitive prices.

We are active in promoting innovation and protecting competition in several key ways. This includes investigating anti-competitive business practices—such as bid-rigging and price-fixing.

We also promote competition-enhancing policies and practices in a few different ways. We advocate before all levels of government to promote the benefits of increased competition in regulated sectors of the economy. We also reach out to the business community—and representative groups like yours—with guidance and advice to help them comply with the law.

And throughout this work, we collaborate with partners in the enforcement and procurement communities—such as the OPP, the Toronto Police Service, the RCMP and Public Service and Procurement Canada.

Simply put, we crack down on anti-competitive business practices, and we work with others to promote the benefits of competitive markets and the benefits of complying with the law.

Compliance is a shared responsibility

Central to the Bureau’s overall approach is the view that compliance is a shared responsibility. This is where the Bureau comes together with the legal, procurement and business communities, and where each has a critical role to play.

The legal community works with their clients to make them aware of their obligations. The procurement community prevents and identifies bid-rigging schemes. The business community implements and abides by corporate compliance programs. And the Bureau uses a variety of tools, such as enforcement, outreach and advocacy to ensure compliance.

Enforcement

So, let’s talk about enforcement. The core mandate of the Competition Bureau is to enforce the law—the Competition Act—which includes cracking down on bid-rigging cartels.

As you all know, bid-rigging can cause substantial harm in the marketplace. Businesses can collude to eliminate competition between them or to block certain competitors from the market. In the private sector, bid-rigging means higher costs for contractors and potentially inferior services. On the public procurement side, it can cost taxpayers a lot of money; raising the amount spent on public contracts by up to 30 percent and significantly lowering the quality of public projects. Cartels reduce a government’s ability to get the best value for public spending, which, in turn, reduces the amount of spending on other public projects. And whether the target is private or public contracts, bid-rigging has a negative impact on the level of innovation and growth in the economy over the long term.

Anyone doing business in Canada should be aware that Canada’s penalties against individuals involved in illegal cartels are among the highest in the world. Penalties for colluding to fix prices, allocate markets or restrict supply can include fines of up to $25 million and up to 14 years in prison. Penalties for bid-rigging can be even tougher. While the maximum jail time is the same, there are no limits on fines. Currently, the record fine for bid-rigging is $30 million. In 2013, the Ontario Superior Court imposed it on a Japanese supplier of motor vehicle components for its participation in an international bid-rigging scheme.

Over the past few years, the Bureau has dedicated significant resources to combating cartels, which has resulted in record fines handed down by the courts.

From 2011 to 2017, 31 individuals and 41 companies have pleaded or were found guilty of cartel offences, resulting in almost $120 million in fines and 65 months of jail time.

We currently have a number of ongoing bid-rigging cases in the construction industry—involving both private and public sector contracts.

In the private contracting sector, for example, we have an ongoing case relating to bid-rigging on contracts for the installation of ventilation systems on high rise condominium projects in Montreal. After a Bureau investigation, charges were laid in 2010 against eight companies and five individuals. With another guilty plea in the case earlier this month, so far three companies and two individuals have pleaded guilty, and $700,000 in fines have been imposed by the courts. The case shows how general contractors can find their own projects targeted by bid-rigging conspiracies. You may also have heard that the Bureau has an active investigation into alleged anti-competitive practices in the supply of condo refurbishment services here in the GTA.

With respect to public procurement, we have an ongoing prosecution relating to bid-rigging on municipal sewer services contracts in Quebec. Following a Bureau investigation, criminal charges were laid in 2011 against six companies and five individuals for rigging bids on 37 calls for tenders in 2008 and 2009 with a value of more than $3 million. To date, five companies and one individual have pleaded guilty, with fines totaling nearly $270,000.

Bid-rigging prevention and detection

That brings me to my second topic: the Bureau’s bid-rigging detection and prevention efforts in partnership with the public procurement community.

As many of you know, the Government of Canada launched the “Investing in Canada” infrastructure plan, which will provide more than $180 billion over 12 years in public infrastructure investments across the country. This includes investments in public transit; green infrastructure; cultural and recreational infrastructure; trade and transportation infrastructure; and funding for rural and northern communities.

Recognizing the importance of this investment, in the past year, we have ramped up our efforts to prevent, detect, and deter bid-rigging on public contracts.

• We have delivered 34 bid-rigging awareness presentations to procurement officials and businesses across Canada;

• We are revamping our Immunity and Leniency Programs, which are among our most important tools in our fight against cartels;

• We collaborated with the RCMP and Public Services and Procurement Canada to launch the Federal Contracting Fraud Tip Line this past April;

• We are collaborating with enforcement and procurement partners to develop bid-screening algorithms that analyze bidding data for signs of collusion;

• We are promoting the use of Certificates of Independent Bid Determination by tendering authorities throughout Canada. That means bidders are required to sign a written confirmation that their bid has been developed independently from their competitors. These certificates have proven to be effective around the world at deterring bid-rigging by potential suppliers.

• We have also established a working group with domestic partners—including the RCMP, the OPP, Public Service and Procurement Canada and the Bureau de l’inspecteur general of Montreal—to share best practices and deepen ties; and

• Earlier this month, we were proud to host the International Competition Network Cartel Workshop in Ottawa, which focused on combatting price-fixing and bid-rigging in public procurement. The workshop was attended by approximately 250 representatives from 50 different jurisdictions around the world, as well as our domestic law enforcement and public procurement partners.

We are taking all of these actions against bid-rigging to promote competitive tendering and increase the likelihood that bid-riggers are caught and prosecuted.

The benefit is not only to taxpayers, but to the construction industry and the economy as a whole. Combatting cartels in private and public procurement is an important way to ensure economic growth, job creation, and broad-based prosperity for consumers and businesses alike.

Promoting compliance

Now, I would like to turn to my final topic–promoting compliance–and how we can help your members play their part.

To ensure compliance with the law, we are rolling out a compliance outreach program to businesses across Canada. We are travelling to every province and territory, where we are reaching out to federal and provincial governmental organizations, municipalities and business associations like yours.

As I mentioned earlier, the business community plays its role in promoting compliance by putting in place—and following—credible and effective corporate compliance programs.

So you may ask—what is a compliance program, and what makes it credible and effective?

Our key guidance tool for businesses is an information bulletin on Corporate Compliance Programs, which can be found on our website. It was launched in June 2015 and it earned the Bureau an International Compliance and Ethics Award in 2016.

The Bulletin lists the seven essential elements for a credible and effective program and provides concrete steps and suggestions for businesses to satisfy each element. For example, a compliance program requires the commitment and active support of management, training and education for employees, as well as monitoring, verification and reporting mechanisms.

Maintaining a credible and effective compliance program comes with a long list of direct benefits for businesses—benefits that apply to you and your staff, as well.

Let me list just a few:

• Reducing exposure to employees, management and the business itself to criminal or civil liability.

• Triggering early warnings of potential illegal conduct, and allowing a business to be proactive in addressing potential problems.

• Educating employees on how to deal with the Bureau if they uncover anti-competitive behaviour within their business, or how and when to avail themselves of the Bureau’s Immunity or Leniency programs.

• Helping employees identify anti-competitive behaviour in the market, among your competitors, suppliers or customers.

• Finally, in cases where a compliance program is a pre-requisite for a bidding process—something the Bureau recommends to all procurement authorities—it will allow a business to bid on those contracts.

As general contractors, you can use the same approach the Bureau recommends to procurement agencies when you are soliciting bids for your projects. Establish a pool of bidders who have presented proof of their compliance programs, and require a Certificate of Independent Bid Determination with each bid. You will find a certificate designed for your use on the Bureau’s website, along with our compliance tools.

By taking these steps, you will be protecting yourself from bid-rigging and avoiding becoming involved in a Bureau investigation and possible criminal prosecution.

I already mentioned that there are no limits on fines for bid-rigging, and possible prison sentences of up to 14 years. But businesses who collude can also face class action law suits for damages, which can cost you even more. And in the case of bid-rigging on public sector contracts, businesses can face debarment by public procurement agencies, and be cut off from bidding on future projects.

Opportunities for collaboration

While we will not hesitate to take strong enforcement measures to crack down on bid-rigging, collaboration is a key priority for the Bureau. The shared compliance approach recognizes that we can accomplish more together than we can alone.

The Bureau welcomes the opportunity to partner with the OGCA to promote its compliance tools and resources. I believe it is important for the OCGA to keep its members informed and to help us spread the word. I invite you and your members to consult the resources available on our website, and to contact us with any questions you may have. It would be our pleasure to offer bid-rigging awareness and compliance presentations to your member businesses.

Conclusion

Let me close by emphasizing that the Bureau will vigorously pursue those who take part in anti-competitive behavior. At the same time, we know that, in general, businesses want to comply with the law rather than becoming involved in a Bureau investigation. Wherever possible, we would like to work together in order to achieve our shared goal of fairness in tendering and infrastructure procurement practices.

I would like to thank you very sincerely for having me here today, and for your time.