Legal

June 24, 2024 Published by Toronto and Area Chapter - By Katrina Paray, Bharat Kapoor

Bid Rigging

From the Spring 2024 issue of CCI Toronto Condovoice Magazine.

Bid Rigging Is The Illegal Practice Of Fixing The Bids Resulting In Negative Consequences For Condominiums

What is bid rigging?

Bid rigging is an unlawful activity where competitors conspire to predetermine the outcome of a bidding process, deciding in advance which party will emerge victorious. Essentially, the participants fix the bidding in favor of one. The consequences of bid rigging often include inflated prices and/or subpar services. The reason bid rigging is highly illegal is because it has the detrimental effect of distorting prices and deprives consumers of the benefits of competitive markets, such as lower prices and more varied choices in product. On an international level, it also damages Canada’s reputation as a fair place to do business. According to Matthew Boswell, the Commissioner of Competition, “Criminal conspiracies that undermine competitive markets can cause extreme damage to our economy. The message should be loud and clear: if you enter into criminal agreements with your competitors, we will do everything in our power to uncover the facts and bring the evidence to court.”

Around March of 2021, the Competition Bureau announced that it laid multiple charges against four (4) companies and three (3) individuals in connection with an alleged conspiracy to commit fraud and bid rigging for condominium refurbishment services within the Greater Toronto Area (“GTA”).

Background

One of the companies plead guilty to criminal charges under the conspiracy provision of the Competition Act on January 17, 2022. As part of a guilty plea, the company paid a fine of $761,967.00 and further agreed to pay $550,000 into a class action settlement fund (which received settlement approval on December 28, 2022, by Justice Little) all whilst agreeing to provide helpful information to a civil lawsuit against the remaining defendants. Think that these amounts sound lavish? Think again, as these amounts pale in comparison to the value of the company’s 31 contracts from 2009 to 2014 totalling more than $19  million, also noting that if it did not agree to provide information, it would have been fined at least a million dollars more. Turns out that the cost of collaboration is not cheap. Although affected condominium corporations should be aware of this issue since the competition bureau required 141 condo corporations to turn over their records, if you are unsure, you can consult your condo’s records between 2009 to 2014 to see if there were any bids for interior refurbishment with any of the respective companies. It is important that managers and boards do their respective due diligence to reduce their condominium’s exposure to bid rigging, with the bigger scope in mind that bid rigging can potentially happen with any larger scale condominium contract.

What is the Latest Scoop On This Case?

On October 18, 2023, it was announced that the case will not be prosecuted criminally as crown counsel, Moray Welch of the Public Prosecution Service Canada (PPSC) requested that the charges be stayed (which means that the accused were neither found innocent nor guilty) given that there was no intention to resume the proceedings as it was found that there was “no longer a reasonable prospect of conviction”. Ultimately, the emphasis in this case was placed on the timing for the date of trial and not the evidence at hand. This was due to the fact that the statutory limitation period was quickly approaching and there was not enough time to complete the trial on its merits within the allocated time frame.

In Canada, cases must be heard within a reasonable time and from the precedent case known as R v Jordan timely trials are important to maintaining overall public confidence in the administration of justice, otherwise known as the fundamental Charter right, (section 11(d)) to a fair trial. As such, matters that are to be tried in a provincial court such as this have a statutory limitation period of 18 months.

Although the matter may not proceed criminally, the civil class action lawsuit which was commenced on April 27, 2021, is still ongoing, so stay tuned. Should you wish to receive further information or updates about the case you can register at the following website: www.sotosclassactions.com

Bid rigging is a criminal offence under the Competition Act (a federal law that governs most business conduct in Canada) because the victims of these schemes are innocent consumers, in this case, condominium owners, who fall victim by inadvertently being forced to pay overinflated prices for goods and services. In an already over-inflated economy, this is surely unwelcome. Due to the recent rise in fraudulent activities in the real estate sector, there is a growing demand for boards to safeguard their communities against these malefactors. However, detecting such crimes can be challenging without the aid of a whistleblower, which is how this issue was brought to the Bureau's notice.

Solutions to Help Mitigate the Risk of Bid-Rigging

The ultimate aim is for the management team and board to collaborate seamlessly with professional hires to ensure projects are executed proficiently, with high quality and remain within budgetary constraints. Below, we outline some strategies that we believe could potentially mitigate the risk of condominiums falling prey to bid rigging.

1. Confidentiality: Keeping bid information confidential is crucial. Securing the confidentiality of all bid submissions is key to preventing the bidding process from being compromised. The adage "knowledge is power" is particularly apt here. Limit knowledge of bid details to the board, condominium management, and any consulting parties to ensure the board can maintain its commitment to serving the community fairly.
2. Rely on Experts: Entrust projects to the experts. Employing professionals for reserve fund projects, ensuring contracts are carefully drafted, tendered, managed, and fulfilled, can decrease the likelihood of encountering fixed bids.
3. Screening: Engaging consultancy or management firms to screen industry professionals can be an invaluable asset for condos in the vendor selection process. However, for high-cost projects, boards should make it a point to interview potential vendors themselves.
4. Bidders List: The bidder’s list should be determined from multiple sources and not just condensed to only one source as this may in turn lend itself to collusion more easily.
5. Board Education: Boards should continually seek to educate themselves and stay informed about the latest practices in accountability and due diligence concerning bid-rigging prevention.

Katrina Paray, Horlick Condominium Law

Bharat Kapoor, Horlick Condominium Law