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Atypical Cartels: The Use of Shadow Companies in Bid-Rigging Schemes

Learn about the use of shadow companies in bid-rigging schemes, the penalties for bid-rigging, and real-life examples. Understand the importance of outreach with procurement authorities to combat cartel activity.

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Atypical Cartels: The Use of Shadow Companies in Bid-Rigging Schemes

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  1. Remarks of Kristen PinheyCompetition Law OfficerCompetition Bureau Canada Atypical Cartels: The Use of Shadow Companies in Bid-Rigging Schemes Cartel Working Group SG 1 Teleconference on Atypical Cartels January 21, 2014

  2. Competition Act • The Competition Bureau is responsible for the administration and enforcement of the Competition Act • The Competition Act applies to both businesses and individuals, and contains criminal and civil provisions • Criminal penalties include fines and imprisonment

  3. Bid-Rigging – Section 47 • Bid Rigging is an agreement or arrangement between two or more persons whereby one or more of those persons agrees or undertakes: • Not to submit a bid or tender in response to a call or request for bids • To submit a bid or tender that is arrived at by agreement or arrangement between or among two or more bidders or tenderers • To withdraw a bid or tender in response to a call or request for bids • The agreement or arrangement is not made known to the person calling for, or requesting, the bids or tenders • Section 47 does not apply in respect of agreements between affiliated corporations

  4. Bid-Rigging Penalties • Imprisonment of up to 14 years • Fine at the discretion of the court • Civil damages recovery • Criminal record for convicted individuals

  5. Common Forms of Bid-Rigging • Cover bidding – fake bidding • Bid suppression – withholding bids • Bid rotation – rotating agreed best bid • Market allocation – carving up the market

  6. The Use of Shadow Companies • In several recent cases, the Bureau has seen the use of ‘shadow’ or ‘shell’ companies to facilitate bid-rigging schemes • These types of bid-rigging arrangements normally involve public tender contracts where there is more than one potential winner • Bidders have been using ‘shadow’ or ‘shell’ companies to gain a larger market share or higher prices

  7. Example 1: Real Estate Advisory Services • In May 2009, the Bureau received a complaint from Public Works and Government Services Canada (PWGSC), the principal procurement agency of the Canadian Federal government • The complaint involved a contract for real estate advisory services, which could have 3 potential winners • The Bureau’s investigation revealed that CRG and Louis Facchini, carrying on business as First Porter Consultancy, agreed to rig bids • CRG invoiced PWGSC $312,000 under the work package that was subject to the Bureau’s investigation

  8. Example 1: Real Estate Advisory Services (cont) • In July 2012, the Corporate Research Group Ltd. (CRG) pleaded guilty to a criminal charge of bid-rigging and was fined $125,000 • On June 13, 2013, Louis Facchini, an individual was charged with bid-rigging and also faces one count of fraud under the Criminal Code for allegedly submitting a false invoice with a value exceeding $5,000 to PWGSC • Criminal proceedings are ongoing with respect to Mr. Facchini

  9. Example 2: Information Technology Services • In 2009, the Bureau received a complaint from another government department regarding contracts in the information technology ("IT") services sector • The two companies involved in the allegations were IT consulting services firms • The complaint alleged that Company A, the incumbent supplier, entered into an agreement with Company B: that Company A would ensure that Company B was invited to the procurement process and that Company A would not submit a bid in response to several calls for tenders

  10. Example 2: Information Technology Services (cont) • As the incumbent, Company A was restricted by the prices of its ceiling rates from a pre-qualified suppliers list as to how much it could increase its rates, whereas Company B's rates were higher • Company A agreed to provide all its consultants and the completed bid submissions to Company B, who bid those consultants at higher rates • The investigation is ongoing

  11. Importance of Outreach with Procurement Authorities • The Bureau provides anti bid-rigging presentations to all levels of government, including PWGSC • These outreach presentations provide procurement authorities with knowledge of how to detect, deter and report bid-rigging • The Bureau recently entered into a Memorandum of Understanding with PWGSC, outlining that the two agencies will work together to combat cartel activity in procurement processes and real property transaction processes under the responsibility of PWGSC

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