A group of Ottawa-based technology providers were found not guilty of 60 charges of bid-rigging and conspiracy to rig bids by a jury after an eight-month criminal trial in a case that provides guidance and brings greater clarity over the reach of Canadian bid-rigging laws.
Following the decisive setback for the Competition Bureau and the Public Prosecution Service of Canada (PPSC), the Crown has decided not to appeal the verdict, dropped an earlier appeal in a related case against a directed verdict of former defendant David Watts, who also was charged with bid-rigging, and stayed bid-rigging charges in a related action against five other defendants in a case that was scheduled to be heard this August in a judge-only trial, confirmed PPSC spokesperson Sujata Raisinghani.
“Investigators from the Competition Bureau were very inexperienced and never understood the business, and it’s the same for prosecutors as well,” remarked Patrick McCann, an Ottawa lawyer with Fasken Martineau DuMoulin LLP, who along with Peter Mantas successfully plead the case. “They don’t have the background, and I don’t think they make the effort to really understand the business before laying charges. It really is a problem that is recurring in a lot of major cases dealing with complex business issues.”
The case dates back to 2006 when the Competition Bureau launched a criminal inquiry into bid-rigging allegations against 14 individuals and seven companies following complaints made by competitors. Three years later, the Attorney General filed charges, accusing the individuals and the IT firms of colluding in the summer and fall of 2005 to win and divide contracts for information technology services worth more than $60 million at three federal departments. All of the accused were charged with bid-rigging under section 47(2) of the Competition Act (Act), conspiracy to bid-rig under section 465 (1)(c) of the Criminal Code, and counselling an individual to bid-rig under section 464 (a) of the Criminal Code. Under section 47(2) of the Act, it is a criminal offense to submit bids or tenders that are “arrived at by agreement or arrangement” between two or more bidders or tenderers where the agreement is “’not made known” to the person calling for or requesting the bid or tender. Following the Bureau’s investigation, one corporation had sought immunity from the Competition Bureau under its immunity program, two individuals plead guilty, and prior to the preliminary inquiry, the Crown had dropped charges against one individual.
At trial Crown prosecutors tried to establish that TPG Technology Consulting (McCann’s and Mantas’ client) and other companies committed bid-rigging because they agreed to share contractors to fulfill a government IT job and did not inform federal government contracting officials, contrary to section 47 of the Act. The defendants in turn argued that they were responding to requests for proposals, and not bids or tenders. Winning a request for proposal does not result in an actual contract for services, they added. Only when the government issues a so-called task authorization can they actually bill for services. If however, requests for proposals are indeed the first of a two-step process that results in a contract, the defendants submitted that it was “mistake of fact.” In other words, they honestly believed they were not submitting a bid or tender. Finally, they argued that contrary to the Crown’s position, the defendants actually did take steps to inform or “make known” their teaming arrangements to government managers.
After deliberating for six days, the jury acquitted six individuals and three Ottawa IT companies on all 60 charges of bid-rigging and conspiracy to bid rigs. Since the jury does not have to provide reasons, it is not clear what prompted the jury to acquit. Still, says Mantas and McCann, there are invaluable lessons that can be drawn from the case, beginning with the 300-page instruction by Ontario Superior Court Justice Bonnie Warkentin to the jury. “Given that the Crown has decided not to appeal, the importance of her various rulings on aspects of bid-rigging law in Canada assume a very big importance,” said Mantas.
Besides providing a synopsis of the facts of the case, Justice Warkentin’s instructions contained guidance on section 47 of the Act, some of which broke new ground. “She pretty much accepted the defence position that intermediate steps in putting together the bid would not be illegal,” explained McCann. “Only the final product would be illegal if it was arrived by final agreement.”
This finding highlights that there is clearly latitude for parties that are cooperating on bids to share and exchange information as well as to cooperate, short of an agreement, according to Steve Szentesi, a Toronto lawyer specializing in competition law. “There have been cases, and this appears to be another case, where parties can cooperate to a fairly significant extent, including sharing resources, and an agreement may not be found,” said Szentesi. “The offense is not talking about the terms of the bid. The offense is not cooperating on the bid. The offense is not exchanging information, even competitive sensitive information. The offense is two or more bidders entering into an agreement that is prohibited by the Act.”
Justice Warkentin also provided guidance on the issue of “made known.” The Act stipulates that if an agreement or arrangement was “made known” to the party calling for or requesting the bids or tenders, then that is a complete defence. However, what a party has to make known or what they should make known is not clear in the Act, noted Mantas. The Crown maintained such declarations had to be explicit and made known to Public Works, the government’s central contracting agent. The defendants on the other hand argued that if the body that is calling for the bids knows and they know in advance of the bids being filed then that satisfies the made known requirement.
“In other words, you don’t have to (explicitly) make known that which is already known,” explained Mantas. That issue has been clarified following Justice Warkentin’s instructions as she agreed with the defendant’s position. “That is a slight departure from earlier law or at least brought clarity to the law, and has suddenly made the ‘made known’ defence a much more interesting tool for companies,” added Mantas.
Justice Warkentin yielded more guidance over the reach of the Competition Act in a pre-trial ruling. Under section 69 (2) of the Act, persons who face proceedings instituted under the Act are presumed to have knowledge of records and its contents. In this case, that meant that defendants were presumed to have read the emails and the thousands of documents that were seized during searches of their homes and business premises. The defendants argued that using section 69 (2) in this manner violated their presumption of innocence under sections 11 (d) and 7 of the Canadian Charter of Rights and Freedoms by shifting the burden of proof onto the accused. They also argued that modern business receive so many emails and attachments that it is no longer reasonable to assume that they were read. Justice Warkentin concurred.
“We argued successfully that it worked at the time the law had passed, which was in the 1940s, but today it just doesn’t work,” said Mantas. “You can’t have a deeming provision of that nature considering the emails that are just flooding us all the time, and we can’t be expected to have read and accepted it all. That is also an important finding that she made.”
The acquittal highlights that business should not necessarily throw in the towel and settle when facing charges by the Competition Bureau, said James Musgrove, the co-chair of the competition and anti-trust practice at McMillan LLP in Toronto. “You needn’t roll over,” said Musgrove. “But everything is risk analysis when you’re in that situation. When you cut a deal, you know what the risks are. If you don’t, you may have a big victory or a big loss.”
Chances are that a growing number of companies will now fight charges laid against them by the Competition Bureau following the strong stance taken by the Public Works and Government Services Canada (PWGSC) Integrity Framework. Suppliers will be ineligible to do business with PWGSC following a conviction or a guilty plea for corruption, collusion, bid-rigging or any other anti-competitive activity under the Competition Act. “These changes make it a lot harder to plead guilty and take your medicine and move on,” remarked Musgrove. “So more people, especially if the key part of their business is with the federal government, will be fighting the charges because the penalties are bigger. So the calculus has changed.”
The case also underscores the importance of compliance programs, according to Stephen Nattrass of Norton Rose Fulbright Canada LLP. “Companies may be better off to think about compliance policies and programs at the outset so that they don’t end up in a situation that these companies ended up,” said Nattrass. “Think of how it applies to you and your business and ensure compliance before you end up in the magnifying glass of the Competition Bureau.”