Bid-rigging detection and prevention: ensuring a competitive and innovative procurement process

Speech

Remarks by Matthew Boswell, Senior Deputy Commissioner of Competition

Canadian Public Procurement Council Forum 2017: Innovation in Public Procurement

November 7, 2017

Ottawa, Ontario

(As prepared for delivery)

Introduction

I’m pleased to be here with you today.

Let me begin by telling you that I am going to speak fairly bluntly with you today. I will talk about a subject that you might find a bit surprising and unusual in a roomful of public servants who work diligently in procurement. But it is exactly because of your important roles in procurement that you’ll appreciate what I have to say.

I will discuss an issue where criminal charges have been laid, and where companies and individuals have been prosecuted. It’s an issue that involves unlawful activity that can have a significant impact on our economy. It’s about conduct that, left unchecked, can undermine the integrity of how you do business as dedicated procurement officials.

So—what is it that I am talking about?

The criminal offence of bid-rigging.

Today, I will explain what bid-rigging is, and why it’s a serious matter that has the potential to affect everyone in this room.

To drive the message home, I will give you some real examples of bid-rigging in public procurement—examples ripped from the news headlines. I will also show you how the harm of bid-rigging translates into actual dollars lost—taxpayer dollars. And I will talk about what we at the Competition Bureau are doing—and will continue to do—to work with you to help safeguard against this deeply harmful, criminal activity. That includes showcasing innovations at work in this field, consistent with the innovation theme of this gathering.

So, let’s get started.

Bid-rigging in brief

The term bid-rigging seems self-explanatory, but details here are important. So let me begin with what the criminal law in Canada says bid-rigging is:

Where there’s a call or request for tenders, it’s unlawful for two or more bidders to:

  • submit bids that are arrived at by agreement or arrangement;
  • agree or arrange that one (or more) party will refrain from bidding; or
  • to agree that one party (or more) will withdraw a previously submitted bid.

In each of these types of agreements, it’s done without informing the person calling for the bids.

Where this happens, it’s a criminal conspiracy and a criminal offence under the Competition Act—a federal law governing most business conduct in Canada. It also means that a cartel is at work: suppliers whose goal is to increase their collective profits by raising prices.

Companies and individuals engage in this activity as a choice. They do it instead of competing against each other honestly to win a tender.

So, why does this matter and what does it have to do with you?

In short: it matters because it’s a criminal offence and it could affect your work, your reputation, and the reputation of your organization. It is that serious.

The harm cause by bid-rigging

Bid-rigging is defined as a criminal offence for very good reasons. Because of the harm it can inflict on the economy, on the integrity of procurement, on businesses and on citizens.

First, it has serious consequences for our economy. It distorts prices. It inflates costs while potentially undermining the quality of products and services procured. It deprives consumers of the benefits of competitive markets, such as lower prices and increased product choice. It also damages Canada’s reputation abroad as fair place to do business.

Second, it has serious consequences for the integrity of our fair and competitive bidding process, as well as for those of you who are responsible for managing it.

Third, bid-rigging schemes can hurt all of the other honest, hardworking businesses who are not part of these bid-rigging activities. Procurers will pay more where bid-rigging exists. This will mean they will have less money available for other projects where honest businesses might be looking to bid. It is those honest firms that you want to be doing business with. Bid-rigging can impede that from happening.

Finally, bid-rigging in public procurement is proven to be extremely harmful to taxpayers—the people who ultimately pay for all government procurement. It cheats all of us who are working hard and paying our taxes. It can push up prices and could also push down the quality of goods and services we receive. It can distort the value for money of what’s being purchased or contracted for.

Real examples

As dedicated public servants who are involved in public procurement, you play a key role in the competitive bidding process in Canada. The Competition Bureau is responsible for the enforcement of the Competition Act and, more specifically, for the detection, investigation and referral for prosecution of bid-rigging offences. We are also here to help our colleagues in the procurement community who are on the front lines of this issue. We do that by raising awareness and striving to develop and employ the latest innovations to detect, deter and prevent bid-rigging.

With that in mind, let’s talk about some real case examples. Because they will show you exactly why this is something you have to watch out for in your work. It also shows you just how much this criminal activity costs us all.

First, there’s the case involving procurement done by Library and Archives Canada (or LAC) here in the National Capital Region. In this case, not only was a supplier charged for allegedly conspiring, through bid-rigging, to ensure specific IT consultants won valuable government contracts, contracts worth $3.5 million. Procurement officials were also charged. The procurement officials were not charged with bid-rigging, but charged under the federal Financial Administration Act with allegedly making opportunity for another person to defraud the government.

The Financial Administration Act applies to many of you in this room and others will be governed by similar laws in place across the country.

To date, the Bureau’s investigation relating to this conspiracy has led to three individuals pleading guilty. It’s resulted in $43,000 in fines, 36 months in conditional sentences—also known as house arrest sentences—and 250 hours of community service. Charges against three individuals and one company are still before the courts.

Here’s another example. This one involves an ongoing prosecution in a case relating to bid-rigging on municipal sewer service contracts in Quebec.

As a result of a Bureau investigation, criminal charges were laid against six companies and five individuals for rigging bids on 37 calls for tenders totalling more than $3 million in value. To date, five companies and one individual have pleaded guilty, with fines totaling nearly $270,000.

So far, I’ve talked about bid-rigging in the context of the value of the contracts involved. But there’s also the matter of how much the bid-rigging itself costs tax payers.

Bid-rigging can raise public spending on contracts by 30 percent or more. Not only does that fact come from studies, it is also backed by real and recent evidence in Canada. That includes very frank testimony at the Charbonneau Commission, which looked at collusion and corruption in public procurement in the construction industry in the Province of Quebec.

During testimony at the Charbonneau Commission, a retired engineer working for the City of Montreal confessed to accepting over $700,000 in payoffs from construction contractors as part of a system of collusion. In his testimony, he said the average cost of the city’s sewer, water main, paving and sidewalk contracts jumped by at least 20% as a result of the schemes. In some cases, costs even doubled as a result of the collusion and corruption. That’s real dollars out of taxpayers’ pockets.

In another case, another engineer working for the City of Montreal testified that he had accepted half a million in cash kickbacks and explained that the money he received represented 25% of the total value of false extras added to contracts. Again, real dollars.

In other words: it’s not just that bid-rigging involves collusion and cartels. There is a real financial cost too. We all pay for that.

So you can see what bid-rigging does.

It undermines the integrity of a competitive marketplace. It could discourage market entry by potential competitors. And it diverts resources away from procurers.

With bid-rigging, everyone loses: including those who engage in this unlawful activity. Getting caught or implicated in a bid-rigging scheme can be an expensive, publicly embarrassing career-ender. And as anyone in law enforcement will tell you, those involved in illegal activity tend to get found out in the end, one way or another.

Protecting our competitive bidding system

I know that everyone here today values the trust that Canadians put in you as public administrators. We all also know that competition is the hallmark of a free market. We all benefit from healthy competition as it brings increased innovation, better prices and better product choices. It also means that each of you, as procurers and as taxpayers, obtains quality services or goods at competitive and honest prices.

A competitive bidding process brings maximum value for money. This allows you to do more and get more. It means higher-quality projects that fit within your budget. It means serving citizens well: the way we expect to be treated ourselves.

The procurement systems that we have are worth fighting hard to protect. These properly functioning systems are good for procurers, for taxpayers, for businesses, and for Canada’s economy.

We need to work together to protect our competitive procurement processes.

How we work with you

The legal framework we have in Canada to tackle bid-rigging is very robust. Potential penalties for individuals convicted of bid-rigging are among the highest in the world. On conviction, a person could be sentenced up to 14 years in jail. And there are no limits on the criminal fines that courts can impose on companies or individuals. The record fine handed down for bid-rigging under the Competition Act is $30 million. It was handed down by an Ontario court in 2013 against a Japanese car parts company convicted of bid-rigging on contracts to supply car parts to Honda and Toyota in Canada.

For many years, the Bureau has dedicated significant resources to combating cartels and tackling bid-rigging activities. And the outcome speaks for itself. Over the last seven years, 31 individuals and 41 companies have pleaded or were found guilty of cartel offences. That has resulted in almost $120 million in fines, including record fines, and sentences of house arrest for individuals totalling 65 months.

In the past several years, we have also ramped up our efforts to equip the public procurement community with tools to prevent, detect, and deter bid-rigging on public contracts.

So why the increased activity? Because a lot is at stake. That includes safeguarding the federal government’s Investing in Canada infrastructure plan, which involves more than $180 billion dollars of planned expenditures on public infrastructure projects over the next 12 years. These projects will affect nearly all Canadians as they include projects for public transit, green infrastructure, cultural and recreational facilities, and projects related to trade and transportation. Of course, this initiative is not limited to large cities, it also provides for investments in rural and northern communities.

The integrity of our fair and competitive procurement system is at stake. We owe it to every Canadian to make sure we get this done right. Working together is key.

The Competition Bureau works with you, in partnership, to promote competitive tendering and increase the likelihood that bid riggers are detected, investigated and prosecuted.

How can we make that happen? It’s about promoting awareness, collaboration and innovation.

On the awareness side, we have redoubled our outreach efforts through our bid-rigging awareness presentations. In the past year and a half, we’ve delivered 50 of these presentations to groups of procurement officials and businesses across Canada. Fifty-one if we count the one you can all attend this afternoon with my incredibly knowledgeable colleagues, Messrs. Guay and Rivard.

With respect to collaboration, we are working with a number of enforcement and procurement partners. As an example, on the detection side we work with the RCMP and Public Services and Procurement Canada in running the Federal Contracting Fraud Tip Line. We launched it this past April. With this Tip Line, our joint message is clear: contact us if you suspect collusion, fraud or corruption in federal contracting. In response, we’ve received direct tips from Canadians, including public servants from many regions across the country, and at all levels of government.

Our collaboration work doesn’t stop there. We are also promoting the use of Certificates of Independent Bid Determination by all tendering authorities in Canada. These Certificates mean that bidders must sign a written confirmation that their bid has been developed independently from their competitors. These have proven to be effective around the world at deterring bid-rigging by potential suppliers. They are a recommended best practice by the OECD, and we believe in them. On the Competition Bureau’s website, we have a sample of such a Certificate that you can review and modify for use in your work.

Complementing this work, we are updating and enhancing our Immunity and Leniency Programs. These are among our most important tools to detect bid-rigging. They provide incentives for guilty parties to come forward to secure immunity or leniency in return for their cooperation against others involved in the cartel.

We are also leveraging the expertise of the international enforcement community. Last month, we hosted the International Competition Network Cartel Workshop in Ottawa. The workshop focussed on fighting cartels in public procurement and attracted some 250 attendees from 50 different jurisdictions around the world, as well as from our Canadian law enforcement and public procurement partners. Discussions there included exploring innovative new technologies to prevent and detect bid-rigging.

Innovation in bid-rigging detection and prevention

Which brings me to our third and final area of action: innovation. As I mentioned at the start, our work here ties in with the theme of your conference. So let me showcase the innovative work we are doing to tackle bid-rigging.

The Bureau uses a wide range of tools and approaches to fight cartels, and that includes working to leverage new technology. For detecting bid-rigging, that means the development of bid-screening algorithms—algorithms that are able to sift through electronic bidding data for possible signs of collusion.

We are currently developing pilot programs of these screens with both Public Service and Procurement Canada and the Office of the Inspector General of Montreal. We are also looking for opportunities to collaborate with other domestic and international partners in this area.

Canada isn’t alone in this. Bid-rigging detections screens are also being developed and implemented in a number of jurisdictions including Brazil, Mexico, the U.K. and South Korea.

Brazil’s competition authority, for example, has been mandated to access all public procurement bid data, so they can run screens to detect potential bid-rigging issues.

In the UK, the competition authority is advocating getting the screens out of the hands of the enforcers and into the hands of the procurement officials. They do this by having open screening software that procurement agencies can use to test its effectiveness. Doing so not only gets the prototype screen closer to those who know their business and data best, but it educates procurement officials about collusion. That awareness is often just as important as the screen: the same principle drives our outreach to you. We want to get you the knowledge and the tools you need to detect and prevent bid-rigging.

Our work on screens is still in its early stage, but we believe there is tremendous potential for success. Screens—if they can be designed and built effectively—have the potential to prevent harm from occurring in the first place by picking up signs of bid-rigging and allowing procurers and, possibly, enforcers to take a closer look. The Immunity and Leniency Programs I mentioned earlier are, and have been for many years, among our most effective enforcement tools. But they only come into play after the harm has been done.

Conclusion

Everyone in this room has a significant stake in combatting bid-rigging in the public procurement process. You also have an important job to do in taking steps to detect and prevent it from happening in the first place.

But you are not on your own in that pursuit. The Competition Bureau can, and wants, to help you. Through awareness, through collaboration and through innovation.

To that end, I welcome you to attend our bid-rigging detection and prevention session this afternoon. It’s at 2 o’clock, right after the lunch break. There, you’ll learn more about how you can protect your procurement processes, protect yourself, protect your organization, protect taxpayer dollars and protect the public trust against the very damaging criminal activity that takes place when companies and individuals choose to break the law and rig bids.

Thank you very much for your attention today.


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