Global Investigations Review - The law and practice of international investigations

The Investigations Review of the Americas 2017

Canada: 'R v Durward', the fallout

08 August 2016

Fasken Martineau

This article is a follow-up on the article on the Durward bid-rigging trial published in last year’s edition and addresses the potential impact of that case on two similar cases in which Fasken Martineau’s Ottawa office has been involved.

As explained in our previous article, since R v Durward was a jury trial, there is no judgment and therefore no way of knowing what issues led the jurors to a reasonable doubt. Although we do not have any quotable jurisprudence, we do have the trial judge’s charge to the jury in which she defined or provided an explanation of many of the broadly worded terms in section 47 of the Competition Act. The instructions given in that charge have now been generally accepted as the most authoritative statement of the current law in this area. Justice Warkinton left four issues for the jury to decide and explained the law relating to them. Those issues were:  

  • Were the RFPs in question calls for bids or tenders?  
  • Did the accused honestly believe they were not calls for bids or tenders?   
  • Were the proposals submitted arrived at by arrangement or agreement?    
  • Were any arrangements or agreements made known to the persons calling for the bids or tenders?

Bids or tenders?

Justice Warkentin began this section with an explanation of the legal requirements for a contract including the necessity of consideration. She then gave a general description of a call for bids or tenders pointing out that the two terms have the same meaning. She explained a call for bids or tenders as:

[A]n invitation by the person making the call for bids or tenders, for offers from vendors or contractors, to enter into a subsequent contract on the terms specified in the invitation, to undertake the services for a price specified by the contractor.

Whether or not the procurement process is a call for bids or tenders will depend on whether the call gives rise to contractual obligations, quite apart from any resulting contract. If it does, then it is a call for bids or tenders. Conversely, where a call or request for bids of tenders lacks contractual intent, the process will not be deemed a call or request for bids and tenders.

Mistake of fact

There was ample evidence that the accused all believed the RFPs were requests for supply arrangements or standing offers, neither of which led to a contract for work. The committing judge and the reviewing judge held that there was sufficient evidence for a jury to find that the RFPs were calls for bids or tenders. This was eventually the basis on which the Ontario Court of Appeal rejected the appeal of the certiorari decision. The last lines of the judgment from the Court of Appeal read:

[T]here is some evidence on the basis of which a properly instructed trier of fact could find that the appellants had made ‘bids’ in response to ‘a call or request for bids or tenders’ within the meaning of s. 47.

The issue was therefore a question of fact, not law, as the defence had argued throughout the earlier proceedings. That being the case, there was evidence from which the jury could find that the accused honestly believed from the facts before them that they were not responding to a call for bids or tenders.

Arrangement or agreement

Of particular significance are the following comments made by the judge on this issue:

The agreement or arrangement does not have to be in relation to all aspects of the bids to be submitted; however, it must be an impermissible agreement made with the intent to commit the offence of bid-rigging. On the facts of this case, the agreement or arrangement must be between more than one of the accused and their competitors working together as a team to simply recruit the resources needed for their bids. These agreements or arrangements are permissible. The evidence presented in this trial by both [Public Works and Government Services Canada (PWGSC) and Canada Border Services Agency (CBSA)] was that the these government departments knew that small- and medium sized companies would not be able to submit compliant responses to the CBSA RFPs without working together to recruit the resources for the categories demanded by the CBSA RFPs. Also the evidence establishes that the government was aware of and permitted prime/sub relationships and permitted subs to submit their own prime proposals. An agreement consisting of a mutual prime-sub relationship in itself is not an impermissible agreement as long as the prime and the sub do not arrive at an impermissible agreement regarding their respective bids to be submitted.

      Since the bids must be ‘arrived at’ by agreement or arrangement, the outcome of the impermissible agreement or arrangement must lead to the bid and not simply relate to steps in the preparation of the bid.

Made known

The Crown took the position that Regina v Lorne Wilson Transportation ([1982] O.J. No. 3590) required formal notification to the PWGSC contracting officer of any agreement or arrangement. The defence position was that PWGSC was simply acting as agent for the agencies that had the requirement for the services and wrote the technical specifications. Simply establishing that the contracting officers were not formally advised did not prove that any arrangement or agreement was not made known.

In her instructions Justice Warkentin simply left it to the jury to decide on the evidence who the person was calling for bids or tenders. In explaining how any agreement could be made known, after telling the jury that notification must be express, the judge described how this could be done in the following terms:

Express notification must be notification that is made orally or in writing. You may find evidence of this notification from the direct evidence or the circumstantial evidence. The person calling for bids or tenders must be aware of the impermissible agreement or arrangement.

      In this case, implied notification of legitimate teaming relationships between vendor companies may be inferred based upon the evidence at trial.

Effect of Durward on subsequent bid-rigging cases

R v Facchini

Mr Facchini was also charged with bid rigging under section 47 of the Competition Act. His charge related to the federal government procurement of real estate advisory services.

Louis Facchini had worked as a resource consultant for CRG, a real estate consulting firm owned by Brian Card. Mr Facchini worked in connection with federal government real property financial analysis standing offers since 2001. While working as a contractor for the government, Mr Facchini operated under the unincorporated business name, First Porter Consultants.

For a number of years CRG had succeeded in exclusively winning the request for standing offer (RFSO) for real estate advisory services for the federal government. In 2007–2008 the government changed the RFSO to award standing offers to three companies rather than one. The first-ranked proponent would receive 50 per cent of the call-ups, the second 30 per cent and the third 20 per cent. CRG made unsuccessful attempts to get PWGSC to revert to the one award system, which it had consistently won in the past. Brian Card, on behalf of CRG, then asked if the same sub-consultant could be submitted on multiple bids. This resulted in a revision to the RFSA which confirmed that there was no exclusivity requirement for resources and that a prime consultant could submit an offer and be a proposed sub-consultant on the same work package submitted by another offeror. Specifically the revision to the RFSA stated:

Consultant can bid as an Offeror on a work package and, as individual consultant, be named a Proposed Consultant in the same work package submitted by another Offeror. Each Offeror’s proposal will be evaluated based on its own merit using the evaluation criteria stipulated in the RFSO.

Paul Knowlton, a vice president of CRG, approached Mr Facchini and suggested he put in a separate offer using CRG’s consultants. Knowlton assured him that it was not a problem. He showed Mr Facchini the Q&As and revision, which confirmed that Mr Facchini could submit the same sub-consultants as CRG and that, in addition to submitting his own offer, he could also be a named a sub-consultant on CRG’s offer.

Knowlton offered to prepare the technical submissions using subs that were also being submitted by CRG. Mr Knowlton then, in consultation with Mr Facchini, prepared the technical response using resumes and work histories of sub-consultants submitted on CRG’s offer by simply copying their curricula vitae and technical data into the First Porter offer.

Once the technical submission was complete, Mr Facchini prepared his own financial submission independently and without any input by anyone associated with CRG. The resulting submission, not surprisingly, was obviously very similar to that of CRG. This was noted and questioned by the team doing the technical evaluations.

The lead coordinator requested advice as to whether this was acceptable and received a positive response from the author of the answers contained in the revision. CRG placed first with First Porter (Facchini) placing second.

In December 2010, investigators from the Competition Bureau executed a search warrant on Mr Facchini’s home for documents in connection with what they claimed was bid rigging in the 2007 proposal. At the same time search warrants were executed at the offices of CRG.

Following this, Mr Facchini retained counsel who met with counsel for the Public Prosecution Service to discuss Mr Facchini’s situation. It was counsel’s view that no offence was committed. He offered to make Mr Facchini available to the investigators to answer any questions they had. That offer was repeated several times during the next three years. Ultimately, in April, 2013, Crown counsel advised that the investigators did not wish to meet with Mr Facchini and that he would be charged.

In the meantime, it appears that counsel on behalf of CRG, Brian Card and Paul Knowlton had made a ‘proffer’ to the investigators under the leniency programme devised by the Competition Bureau, whereby if a potential accused provides evidence against another potential accused and admits wrongdoing, that individual or corporation is dealt with more leniently and is not automatically debarred from government contracting by PWGSC. Card and Knowlton, who convinced Mr Facchini that the submission using the same sub-consultants was permitted, provided statements which then formed the core of the case against Mr Facchini. As a result of this cooperation, no charges were laid against Card and Knowlton and CRG was permitted to plead guilty for a fine.

The end result was that Card and Knowlton who devised the plan (albeit apparently with the approval of the contracting authority) walked away from the investigation unscathed and became prosecution witnesses against Louis Facchini, who they recruited to ensure that CRG, through their employees and consultants would be getting most of the work.

Throughout it all Mr Facchini was under the impression from the Q&As reinforced by Paul Knowlton and his own inquiries, that his proposal was perfectly legal. In fact it probably was.

In January 2014, witnesses from CRG and PWGSC testified at discoveries that were held in lieu of a preliminary inquiry. Their evidence was unanimous that the wording of the revision Q&As permitted CRG and Mr Facchini to submit offers as prime consultants, both using CRG sub-consultants and that this necessarily entailed discussions between Mr Facchini and CRG personnel in relation to the technical part of the submission and the provision of resumes and work experience. The evidence also confirmed that it would consequently be expected that the two technical submissions would include virtually identical resumes and project experience for the shared sub-consultants. Paul Knowlton, who dealt directly with Mr Facchini, testified that there were absolutely no discussions on pricing.

In spite of the obvious unfairness, the Crown vigorously pursued the prosecution of Mr Facchini until two months after the Durward acquittals. Citing the charge to the jury where Justice Warkinton said that an agreement or arrangement between two or more competitors working together as a team to simply recruit the resources needed for their bids is permissible, the Crown withdrew the charge against Mr Facchini.

R v Beland et al

While the Durward case was working its way through the courts, the Competition Bureau laid charges against a corporation (Microtime) and two of its employees as well as two government employees of the client government department, Library and Archives Canada (LAC) in relation to the procurement of IT professional services. Since this case has not yet been resolved, I will not go into too much detail, but simply identify two of the issues which bear some similarity to those in Durward.

Agreement or arrangement

LAC needed to renew its IT contract which was held by Microtime. The subcontractors were all Microtime resources. The IT manager at LAC wanted to keep the same people and made sure that the technical requirements in the RFP were designed to accomplish that. Microtime was limited by ceiling rates under its existing supply arrangements and therefore could not cover the increased rates being demanded by the resources. To get around that they entered into a teaming agreement with another supplier, ADRM-TEC, whereby they would pass their resources through ADRM-TEC using their higher ceiling rates in return for a 2 per cent pass through rate.

The case was investigated by the same two Competition Bureau investigators as investigated the Durward case. Both were extensively cross-examined at the Durward trial on their inexperience and reliance on formalised understanding of the law. As with the Durward case, they took the view that any agreement in formulating a bid amounted to a violation of section 47 of the Competition Act. As in Durward, the facts in the case clearly engage the issue of whether the teaming agreement was a permissible agreement.

Made known

The IT manager at LAC was fully aware of the arrangement between Microtime and ADRM-TEC. The actual contracting authority at LAC, however, was not formally advised. As with Durward, the investigators took the view that only formal notice to the contracting authority would suffice to satisfy the ‘made known’ requirement. In Durward, Justice Warkinton left it to the jury to decide whether it was the agency for which the procurement was requested (the client), or the individual contracting authority that had to have the knowledge of an agreement. The court in Beland will have to decide whether knowledge on the part of the client IT manager is sufficient.

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