Transcript: Bid Rigging Under the Spotlight
Paul Dorion: Hi, I'm Paul Dorion, manager of Workforce Professionalization at PSPC and your guest host for today's podcast. Before we start, I'd like to hear from our two guests that will be joining me today to talk about bid-rigging.
Joel Fisher: Good morning. I'm Joel Fisher and I'm a procurement specialist and regional procurement manager for Defence Construction Canada.
Sharon Burnett: And I'm Sharon Burnett. I'm a competition law officer in the Cartels Directorate of the Competition Bureau. The Competition Bureau is an independent federal law enforcement agency, and the Cartels Directorate is responsible for, among other things, investigating bid-rigging.
Paul Dorion: Thank you both for joining me today. Bid-rigging is not often talked about because, thankfully, it is an unlawful practice that doesn't happen too regularly in procurement. However, it can't be left unchecked because, as we'll discuss later, its impact is quite significant. On today's podcast, we have the opportunity to do a deep dive into this issue. It's also rarely covered from the perspective of a procurement specialist, so I'm thrilled that Joel has accepted to join us to share his experience dealing with a potential bid-rigging situation. With Joel's procurement perspective and Sharon's work in preventing, detecting and investigating bid-rigging, I think we're on to a very interesting and well-rounded discussion. Just a heads-up to our listeners that, because of legal and privacy matters, we can't talk about the procurement and the suppliers involved in Joel's procurement in specific terms. We'll try our best to provide enough details so that you understand the procurement and its context.
Paul Dorion: So, Joel, let's start with you. Can you tell us a little bit about this procurement?
Joel Fisher: Thanks, Paul—and without getting into too much specific details due to the sensitivity of the case we're talking about—what we are doing is we do procurements on behalf of National Defence and the Canadian Forces Housing Agency, and the specific procurement that we're talking about what happened or five years ago. But... but... it's one that stands out in my mind, because it was the first apparent case, though, of something going, or apparently going, wrong that we look out for as procurement officers every day. And what we are doing is procuring for a services contract to support an ongoing and upcoming program within DND, National Defence. And throughout the procurement, I was... I was required to be the procurement manager and have the delegated authority for this procurement.
Paul Dorion: Is there anything in that activity, or that procurement, Joel, that made you feel suspicious?
Joel Fisher: On the outset itself, I hadn't seen anything that was suspicious. It was the contract... similar contract that we had tendered a number of times. The thing being it... it's a repetitive service, I guess; there is the potential for different incumbent advantages. But we reviewed that one when we were initiating the procurement to make sure that we had covered off those bases as much as possible.
Paul Dorion: OK, so what sort of triggered your suspicion?
Joel Fisher: So, on this one specifically, it was... it was probably one of the more outright or blatant forms of triggers, I guess you would call it, when I actually had a knock on the door in our office, and in my office is in Kingston, Ontario. I had an individual who came into the office and said that they were quite upset about what's happening on this procurement. And I said, "Well, what do you mean, what's happening on this procurement?" Because we monitor bidders' questions, we monitor the plans takers during the procurement and make sure that things are biddable, things are buildable, and any technical items are addressed through amendment or through a clarification. But, in this instance, I actually had someone come to the office, like I said, and they stood there quite upset about what's happening. An actual phone message recording and the phone message, it was a quite a long phone message, but in essence, it was one of the bidders asking this bidder not to submit a bid. And they went so far as to say: "Don't submit a bid and, if you don't bid, I'll promise you the work."
Paul Dorion: So that is a pretty obvious trigger for sure. Sharon? I guess that Joel's suspicions were well founded.
Sharon Burnett: Absolutely. And you know, really, any indication of communication between competitors in a bidding process should make a procurement officer's ears perk up. You know, it's not necessarily the case that any contact between competitors is inherently problematic. But, in this context, in a bidding context, it probably always merits further inquiry by the procurement officer and then possibly also by the Competition Bureau. In this case, the scenario that Joel just described to us is pretty blatantly problematic.
Paul Dorion: So, so classic bid-rigging, essentially.
Sharon Burnett: Yeah, it's, you know, one competitor asking another not to submit a bid is what we call bid suppression, and it's a common form of bid-rigging, for sure.
Paul Dorion: And... so could you maybe expand a bit on why this is such a big deal and why the government is working so hard to detect it, prevent it and, ultimately, prosecute it?
Sharon Burnett: For sure. I think what I'd say first is, I sort of just hinted at it about bids suppression, but there are actually... there's a little bit more to make up the offence of bid-rigging. It is pretty easy to understand, although it can often be quite difficult to prosecute. But, it has three basic parts. So, there needs to be a call for bids or tenders—which Joel described already that there was—then one of the following needs to occur. So, two or more bidders need to make an agreement either not to submit a bid—so that's the scenario that Joel was describing—or to withdraw a bid that's already been submitted, or they make an agreement about the substance of their bid, probably the price. And then the third part of the offence is that the person calling for the bids or tenders—the procurement authority is what I usually call them—is not informed of the agreement. So, if bidders tell the tendering authority about their agreement, the offence of bid-rigging cannot be made out. So, that's bid-rigging, those three parts. But perhaps more importantly, the consequences of bid-rigging are extremely serious. It carries with it a potential prison term of up to 14 years and/or a fine, that's at the discretion of the court. Someone convicted of bid-rigging can be ordered to pay. Furthermore, for individuals who are convicted of bid-rigging, rather than corporations—because corporations can also be convicted—but if you're talking about an individual, this also means that the person then has a criminal record and all of the consequences that go along with that. Why it's a problem... the Competition Bureau in this case works so hard to detect it and prevent it? Basically, we consider it wrong because it's an agreement between competitors and, as consumers, we expect and the law requires that competitors do exactly that, right? We expect that they compete. We do not expect that they make secret agreements among themselves that mean they aren't truly competing. So, that's a big part of it. But the other big part of it is that there are particular sensitivities around the fact that bid-rigging often involves public funds, right? Taxpayer money. Municipal, provincial, territorial and the federal government often put out projects—infrastructure projects or service projects—often put them out to tender because, in theory, this can be a very efficient and very fair way of getting this kind of work done. But when bid-rigging occurs, it means the taxpayers actually pay more for this work than they should have.
Paul Dorion: Joel, coming back to you, what was your next step when you were made aware of this situation?
Joel Fisher: When the person was in my office and they had the recording, I luckily enough asked, "Can you send me that recording?" I got a sound file emailed to me with the recording and I asked if they could sort of summarize the events that had happened. I think the final trigger of what brought this person into my office was that they had a family member that was actually working for this competitor, and the competitors said, not only, "If you don't bid, I'll give you the work," but, "If you do bid, I'm going to fire your family member." And that's exactly what happened. They fired the family member, which drove the frustration level to the point which they reported on the company. So, that all came into the summary that was written, along with the attached file in the email. And I summarized the experience that I had... you know, the person coming to my office, and I forwarded that to my vice president of procurement, and we immediately had a discussion. And then, subsequent to that, the matter was referred to the Competition Bureau.
Paul Dorion: So, Sharon, was that the right approach? Should Joel have done something different, or did he pretty much follow the right course here?
Sharon Burnett: No, I think that was absolutely the right approach in this scenario and it was the right approach to bring these facts to the Bureau. You know, I think it's safe to say that we would rather conduct... be brought to our attention that maybe in the end... didn't quite constitute bid-rigging or where the offence can't quite be made out for one reason or another. We would prefer that scenario than the scenario where procurement officers don't reach out to us at all because they're not absolutely sure it was one hundred percent bid-rigging. We would encourage people to err on the side of bringing this sort of thing to our attention. And the fact that Joel had these pieces of evidence provided to him and then provided them to us? That's great.
Paul Dorion: So, obviously, this is a pretty blatant case of bid-rigging behaviour and the evidence is sort of overwhelming in the sense that it should drive the procurement officer to make that call. There are obviously times when it's not as easy to sort of perceive, and I was wondering if there's anything that procurement specialist should be looking for when trying to recognize that kind of situation of bid-rigging? Where the circumstances aren't as obvious as in this case?
Sharon Burnett: Yeah, I think the circumstances are often not going to be as obvious as they were in this case. But, there are definitely things that procurement officers can be on the lookout for. You can think of them kind of as red flags, right? Just things that maybe merits closer examination. So, one example would be that competitors' bids... or receive together. That seems strange, right? Why would they come in together? Another example is if you see identical irregularities in bids. Why would a bid package have the same typos as another bid package if there wasn't some copying and pasting going on? Right? That seems strange. Other red flags might be if you have information that the suppliers met before they submitted their tenders... if you have a regular supplier that you would have expected to tender for this work or to bid for this work, but they don't. That may be a potential red flag. Why didn't they do that? That could be an example of the kind of bid suppression that was being proposed here. Other things to maybe look out for are if the winning bidder declines to accept the contract or if the winning bidder subcontracts to unsuccessful bidders. And that's something that Joel's fact scenario also sort of highlighted, right? That... what was being proposed was that the winning bidder would subcontract work to the unsuccessful bidder. It's kind of the quid pro quo for making the agreement. Other things to watch out for is maybe if the same supplier is often successful or if you can see some sort of pattern or rotation in who the successful bidder is. And, obviously, some of these really only start to stand out when you're dealing with recurring contracts.
Paul Dorion: So, yeah, there are... there are actually actions and inactions that we should look out for that.
Sharon Burnett: Mm hmm.
Paul Dorion: How can procurement specialists—in the conduct of our work—try to prevent these kinds of things from occurring?
Sharon Burnett: There are steps that you can take to help minimize your organization's risk of being victimized by bid-rigging. And, in very general terms, they include things like maximizing your pool of potential bidders, because the bigger the pool—the more bidders there are—the harder it is going to be for them to form and carry out an agreement. Another thing to do is just to learn as much about your bidding pool as you can, right? Knowledge is power. And, that way, certain things will stand out, too. If you're really knowledgeable about your pool, you'll know. "Well, I would have expected company A to bid on this work, and they didn't like that. Strange. I know they have the capacity to do it. Why didn't they bid?" That kind of idea or thinking can only really come about when you get to know your bidding pool. Another thing you can do when drafting tender specifications is to try and focus on specific performance. So, focus on what you actually need to get out of this contract and not other things that may kind of eliminate people from contention. In terms of... further on in the process, when you're awarding the contract, avoid splitting contracts between bidders with identical bids. That kind of is... just like rewarding bad behaviour, because if two competitors make an agreement: "We will submit exactly the same bid down to the dollar, and so... well, we'll both get it. They won't be able to pick between us." And if you reward that by, in fact, splitting the bid between them, that encourages that kind of behaviour. And another thing is to engage in training for procurement officers. The Bureau is happy to come and give training sessions on how to spot bid-rigging and how to prevent it... much more... sort of comprehensive versions of the types of things we're talking about today. And also auditing. And I know it can be hard to find time to do this sort of thing—because we're always moving on to the next project—but, if you can take the time to look back at your past bidding processes, that's probably when you're going to be able to see some sort of pattern or trend that might be indicative of an illegal bid-rigging agreement.
Paul Dorion: Just to sort put that into a nutshell, Sharon: know your industry, its capabilities, its constraints, its competencies and its behaviours. Know your requirement and focus on the essentials of that requirement. And collect and analyze data about the commodity and the procurements that occur in that commodity. Is that a pretty decent summary there?
Sharon Burnett: Absolutely. Yeah, you got it. You're much more succinct than I am. And then the only other thing I would add is that the Bureau also recommends the use of something called a Certificate of Independent Bid Determination. And we have one on our website that could be just copied right from us, exactly. But the form really isn't what's important. And tendering authorities could make up their own version for their own use. The point is that it requires bidders to set out all the details of any communications or arrangements they've made with other bidders regarding this tender. So, it just requires them to lay it all out there. And this ensures that tendering authority is aware of any communications or arrangements. And also has the effect of letting bidders know what is and isn't acceptable, and that the tendering authority is paying attention to this kind of thing. If you require your bidders to lay this all out there, you're letting them know that you're thinking about these things.
Paul Dorion: OK, so Joel, after reporting this, after going through all of these hoops, what happened?
Joel Fisher: It was actually quite interesting from a procurement officer standpoint. Once the matter was referred to the Competition Bureau, there was an investigation that was initiated and there were investigators that came from Ottawa to my office in Kingston. And they actually interviewed me, like a legal-type of an interview where they showed me their badges and explained what legal powers they have. And so I went through the specific details of what happened and gave them a play-by-play to what you would expect in a real investigation. They had all the information with them... there's binders upon binders that the Competition Bureau brought to the interview that day, along with all the emails that I had passed along. So there was quite a bit of work that obviously had happened on the Competition Bureau's side prior to the interview process, and once the interviews were concluded, they said that these investigations are very complex and that it will take some time for them to conduct the remainder of their investigation. As far as I know, that's where we're at. I don't know if there's been a conclusion or not, but I know it was... it was dealt with or is being dealt with by the Competition Bureau.
Paul Dorion: What is the strongest memory you hold of this entire situation and how it unfolded?
Joel Fisher: For me, two things. The one was the person coming to my office and kind of laying it out there for me, and I was like, "Holy Jesus, this is actually happening." So, there was a strange conversation to have, but I'm glad I invited them in to have a talk. And I do encourage anybody who has this suspicion to raise that up. And I do encourage... especially to listen to the industry, because quite often they want to police themselves and they don't support any type of anti-competitive behaviour. If there... there's some kind of complaint, then I think it's really important that we ask a few questions. But the second thing that stands out in my mind is the actual interview by the Competition Bureau. And that was really interesting—being a procurement officer for a number of years—to see what the process is and understand that there is an agency out there that really does take it seriously. Not that I suspected there wasn't, but there is actually somebody out there that's going to pursue this thing and there could be potentially charges down the line someday.
Paul Dorion: Yeah, and the fact that it's taken seriously, I think, is a good indication of the reason why we have to think about reporting it when we get that gut feeling. So, coming back to you, Sharon, I was wondering if there were certain circumstances or industries where bid-rigging is more prevalent?
Sharon Burnett: There are characteristics that can make an industry more susceptible to bid-rigging. So, they include things like what you're putting out for tender is a product or service with very few or even no close substitutes. Or if you're dealing with a very simple product or service where there tends to not be significant technological advancements, for instance, those types of things are perhaps easier to form agreements around because they're not changing. The work is kind of repetitive and constant and, in the situation Joel described, being redone kind of regularly in the same way... that's going to make bid-rigging easier, theoretically. Also, things like, if the market is very small and has few new entrants, not a lot of new companies coming in to do a certain type of work, that might make bid-rigging more likely, because the existing competitors or the existing suppliers get to know each other. They know who their competition is. It's easier for them to potentially form an agreement.
Paul Dorion: Would you say that it occurs more frequently in areas like services or goods or construction? Where are the areas where this is just a bit more prevalent?
Sharon Burnett: It's an interesting question. Certainly, bid-rigging happens in both contexts. I think people in Canada, maybe particularly in Quebec, think about construction a lot because... and kind of infrastructure projects... because of the Charbonneau Commission that happened here that investigated a ton of that kind of conduct in that industry. But, it also happens with products. There were huge... One of, probably still, the biggest bid-rigging case to happen around the world was with respect to car parts. Right? And those were companies that manufactured car parts and then sold the parts to car manufacturers. But, that was all tended to be done through bidding processes. And so, in Canada, at least, it was pursued under section 47 of the act, which is the bid-rigging provision. And so that... that was a big, big example of products as opposed to services.
Paul Dorion: So, Sharon, can you tell me a bit more about how Joel's experience is reflective of how bid-rigging situations are usually handled?
Sharon Burnett: Yeah, I think the Competition Bureau is always going to follow up if we hear from a procurement authority that they have concerns that bid-rigging may have taken place. And what Joel experienced was very typical. First part of that, we're going to want to come in and talk to the people that, at this stage, have the most information, which is the procurement officer that that flagged this. We're probably going to be gathering some open-source intelligence on the parties involved. Which just means we're going to find out what we can about them that's out in the public realm. And we refer to that part of our process as the preliminary inquiry. And then, if, after that part of our investigation, the Commissioner of Competition has reason to believe that bid-rigging has occurred, he can commence a formal inquiry. And it's moving to that stage that allows us to use our formal investigative tools, like search warrants, production orders or even wiretaps. And that is sort of how we move into the next phase of collecting information about what happened. But unfortunately, or maybe a bit frustratingly for Joel and other people in his position, is... the Competition Act requires that the Bureau conducts its investigations in private. So, even with the agency that started us down this road, we can't share what happens with the investigation as it proceeds.
Paul Dorion: Joel, what ultimately happened in this procurement? What happened to the parties involved? What happened to the contract?
Joel Fisher: So, given the circumstance we were in and knowing that there was at least potentially something... you know, until it's proven, we owed it to the industry, to the bidding community, to halt the procurement. So that's what we did. We took a step back to re-evaluate what was happening. And so, some of the services were done through a different way for a period of time until we could retool—repackage—the procurement so that it was still providing the same services, but tendered a completely different way, awarded using completely different metrics. So, eventually... after a number of months, that's what we ended up doing. We had to retool the procurement. But, for the procurement in question, we stopped it and did not go to award.
Paul Dorion: Are we still waiting to know what happened to everyone involved or is this concluded?
Joel Fisher: As far as I know, like Sharon mentioned earlier, the investigation is being conducted behind closed doors. And I'm not aware of what has happened or what is happening.
Paul Dorion: Sharon, could you tell us a little bit more about how these bid-rigging situations are typically resolved?
Sharon Burnett: Yeah, absolutely. It really depends on what the evidence ends up showing us. So, one possibility is that the Bureau could lay charges and then formally refer the matter to the Public Prosecution Service of Canada for prosecution. But that's not always going to be appropriate without really getting into their role, because it's separate from ours as investigators. But, to pursue a prosecution, the PPSC has to believe that a prosecution is in the public interest and that there's a reasonable prospect of conviction. So, there are some situations where charges and a prosecution are not going to be the most appropriate course of action. And those may be situations where maybe there was little or no economic impact to the crime, the parties involved have no history of engaging in this kind of behaviour, and where we think another kind of measure will have a sufficient deterrent effect on their behaviour. So, those are kinds of situations we will resolve using what we refer to as "alternative case resolution." It's basically a category of tools we use to ensure that the parties involved in the conduct are aware that their behaviour is prohibited by the Competition Act and that they're aware of the severe potential consequences of engaging in this kind of behaviour. So, really, it includes things like information letters and information visits. If maybe things were a little more on the severe side in terms of the conduct, kind of warning letters to the parties that engaged in the conduct or warning visits by Bureau officers, who will go to the company and speak to the individuals involved and to make it very clear about the seriousness of this kind of conduct. And, of course, the final possibility is that the evidence doesn't show that bid-rigging actually occurred. In which case, the Bureau will discontinue its inquiry.
Paul Dorion: How often bid-rigging... actually does happen?
Sharon Burnett: It's really difficult to know how often bid-rigging occurs, and that's—at least partly because by definition—it's a secret agreement between competitors. Because remember that if the tendering authority is aware of the agreement, the offence of bid-rigging can't be made out. If your bidders have told you, "We did this during the process of preparing our bids," and the tendering authority sort of goes along with it and awards the contract... bid-rigging hasn't happened, because the tendering authority had that information. But, history has shown that bid-rigging occurs in all sorts of different sectors, and any industry, any market where products or services are procured in this way, is potentially susceptible.
Paul Dorion: So, basically... hard to tell how often it occurs, but it occurs often enough to keep you guys busy?
Sharon Burnett: Yeah, yeah, absolutely. That's a good way of putting it.
Paul Dorion: Thanks, Sharon.
Paul Dorion: Joel, in hindsight, is there anything you would have done differently?
Joel Fisher: In this case, I think I got a little bit lucky. And I think I did the right thing by having the conversation and then just asking for an email of the recordings. In this case, I wouldn't have done anything differently. In general, it prompted me to be much more aware of this stuff is potentially happening. And, for the procurement officers that work for me in the province of Ontario, I shared the experience—not in specific detail—but increased their awareness on potential bid-rigging, and made it a point in monthly calls, in discussions and in training materials to go over bid-rigging and have everybody on the lookout and to stay diligent. And, as Sharon mentioned, I passed the same message to the procurement officers: "If you think there's something, don't try and reason it out. If you think there is, call me or send me an email and we will evaluate." I would rather there be no issue at the end of the day than had there... would be an issue, and we kind of just let it go because everybody's busy and it didn't really seem that big of a deal or anything like that at the time... So, that's my key takeaway. And I think it's served us well because I certainly got the phone call of someone saying, "Hey, I got this call from a bidder. What do you think?" And I've appreciated that. And I think that's helped us potentially find other cases, as you know, over the years, by just by being a little bit more aware.
Paul Dorion: So it will essentially... be aware, be vigilant. Pay attention to what's going on. Anything else, Sharon?
Sharon Burnett: I think Joel's approaches is really great, and that makes... it warms my heart to hear that they're being thoughtful about it. And, just talking about this issue, I think his approach sounds great in terms of what, from our perspective, we would want people listening to know: bid-rigging happens and it happens more than you think, but there are things you can do to help make your organization less likely to be a victim of bid-rigging, things you can learn to watch out for. And, if you feel it would help you or your organization, you can contact the Competition Bureau and request a presentation about bid-rigging prevention and awareness. These presentations cover some of these ideas in much more detail in terms of warning signs and things you can do to structure your processes kind of more safely.
Paul Dorion: Well, I think that pretty much wraps it up for today.
Paul Dorion: I'd like to thank both of you, Joel and Sharon, for taking part in this podcast led by the Canada School of Public Service. And I also want to thank our listeners for tuning in. If you have any questions, we invite you to get in touch with the Competition Bureau and follow up with them.
Sharon Burnett: Thanks very much for having me today, Paul.
Joel Fisher: Thank you, Paul.