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The Impact of Bid-Rigging
What is Bid Rigging and How to Reduce the Risk
In 2012, the Competition Bureau began a probe into a potential bid-rigging cartel by four companies specializing in condominium common element refurbishment projects. On January 17, 2022 CPL Interiors Ltd., pled guilty to criminal charges of violating the Competition Act. As part of its guilty plea, CPL agreed to pay a fine of just under $800,000 (for full details, please view reference #2, below) and agreed to pay $550,000 into a class action settlement fund. While court proceedings are still ongoing against the three remaining accused companies, the fine paid by CPL Interiors Ltd. pales in comparison to the $19 million worth of contracts which were subject to bid-rigging and which were completed between 2009 and 2014. In light of this malfeasance, including the fact that some or all of these companies continue to carry on business under different names, the condominium management industry and the Condominium Management Regulatory Authority of Ontario have not publicized the investigation, subsequent charges, and what it means to condominium buildings and their Boards.
What is Bid-Rigging?
In order to fully appreciate the impact of this case, we must first define what bidrigging is and how it works. Bid-rigging is a scheme in which companies manipulate the tender process to contrive a desired outcome. It is defined as the submission of a bid or tender that is arrived at by agreement between 2 or more tenderers where the agreement is not made known to the person calling for the bids or tenders. Victims in these types of situations are consumers, who are forced to pay over-inflated prices. In this instance, it was condominium homeowners who suffered the consequences.
Bid-rigging can take many forms, and is often very difficult to detect. The Competition Bureau identifies four types of rigging schemes: cover bidding, bid suppression, bid rotation, and market division (for full details, please view reference #3, below). With growing sophistication of malfeasance across all industries, Boards are expected to do more to protect their communities against collusive and predatory firms.
The scope of condominium governance has increased exponentially with the implementation of the Condominium Authority of Ontario (CAO). Condominium directors now have to take training through the CAO; this course provides high-level education covering foundational knowledge, which is a starting point to what directors need to know. As bid-rigging is relatively rare, this topic is not covered by the CAO course.
Nonetheless, there has been a marked increase in homeowner expectations from elected Boards in terms of due diligence and accountability. Boards should be aware of potential bid-rigging, especially when planning high-value reserve fund projects.
In order to prevent corporations from being victimized by collusive and predatory firms, condominium Boards, along with their management provider, can consider several strategies and apply them to the projects they are undergoing.
Recommended strategies will depend largely on the scope and cost of the project. With higher stakes, Boards may consider implementing some or all of the techniques discussed below.
Reserve fund projects are outlined in the reserve fund study, typically by an engineer. The Condominium Act in subsection 37(3) specifically exempts Directors from liability if they rely in good faith upon professionals. It is recommended for Directors to engage professionals, such as engineers, when embarking on complex or high-cost reserve fund projects so that prospective contracts are properly planned, tendered, managed, and completed. This practice will assist in reducing the risk of bid-rigging.
Vendor Vetting Programs
Hired consultants and management firms normally maintain a roster of vetted companies, which demonstrate a degree of quality in the work they provide. Condominium Boards may refer to multiple sources for vetted vendors, such as incumbent engineers, consultants, management firms, and industry associations. Having said this, choosing from a list of vendors from various sources may prove to be prudent.
Beyond sourcing a list of verified firms, it is important to review references as well. Condominium managers may look to other managers who worked with selected vendors for testimonials. Boards may choose to conduct their own vendor reference-checks by reaching out to other condominium Boards.
Whether references are manager-tomanager or board-to-board, some suggested questions are:
- Was suspicious behaviour observed during the bidding process?
- Who were the competitive bidders?
- Were the bidders provided by one source?
- Did all bidders attend the site prior to providing a bid?
Additionally, for high cost and scope projects, Boards should consider interviewing prospective vendors directly.
Sealed Bid Process
The Competition Bureau makes several suggestions on how to prevent bid-rigging. One of those recommendations, is the implementation of a tender process. Condominium Boards can mitigate the risk of bid-rigging by engaging in a "sealed bid" process. Whether facilitated by a professional or performed internally, it can include the following steps:
1. Defining the scope of work - it is important to identify the scope of work to the best of the ability of the individual facilitating the procurement process.
2. Price Breakdown – breaking price by category (including design fees) will help in comparing the bids.
3. Invitation to bid on the project - prospective and vetted vendors are invited to bid on the project, with sufficient time to prepare and submit their bids.
4. Meeting with the bidders via a procurement representative - any meetings regarding the bid must be facilitated via a procurement representative. Private meetings amongst bidders will taint the tender process and may increase the risk of bid-rigging.
5. Collection of sealed bids by a designated deadline - vendors are required to submit their bids, confidentially, at a specified location. Procurement representatives must ensure sealed bids are not tampered with and be alert of bidders who seem to hold knowledge of competitor bids.
6. Opening of the sealed bids by a quorum of the Board of Directors - following the collection of the sealed bids, the Board is required to open them, at the same time. Bids must then be evaluated against each other and potential red flags identified, such as a significant price difference between the winning bidder and competing bids.
Expensive projects are lucrative to contractors, and because of this, suppliers typically prefer one large project over smaller ones. To ensure that the bidding process is focused on the condo corporation receiving the best value and terms, all bids must remain confidential, with details only known by the Board, management, and hired consultant(s). If bid information is "leaked," then this compromises the bidding process, contradicts the Board's obligations to serve the best interest of their community and may breach confidentiality that is included in the Code of Ethics that Directors agreed to follow.
Condominium Management Support
As noted above, management can play an important role in reserve fund projects. General Licensees can make expenditures out of the reserve fund. However, this discretion is typically limited to emergencies only. For other situations, managers recommend that Boards engage the services of engineers and/or consultants for reserve fund projects (discussed above). Though not taking the lead on these large projects, managers can make a positive contribution to enhance the effectiveness of the professionals and in doing so, can also reduce the risk of bid-rigging.
For example, managers committed to the best interests of their corporations will give input into specifications, attend site and project meetings, ask questions to clarify details (e.g., materials, warranties, logistics, etc.), as well as other potential impacts to the property and community. Most importantly, by being involved, experienced managers will provide insight into suggested suppliers and can leverage their firm's collective experience to ensure that proven vendors are selected to bid. With managers involved, hasty decisions will hopefully be avoided, as a rushed process may also result in missed warning signs of bid-rigging.
While the bid-rigging case has shaken the industry, it is rare. The recent charges and conviction by the Competition Bureau offers condominium boards the opportunity to pause and reflect. This article suggests several strategies to take appropriate steps to mitigate the risk of bid-rigging. The goal is for the Board and management to work together with hired professionals to complete successful projects that are on time, on budget and at the highest quality.
Beyond the strategies outlined, Boards can pursue continuing education, provided by the Canadian Condominium Institute and the CAO to keep themselves informed and out of harm's way with respect to bid-rigging.
1. Competition Bureau Canada - March 29, 2021 News Release: https://bit. ly/3uacT0c.
2. Competition Bureau Canada - January 17, 2022 News Release: https://bit. ly/3KZMiJ2.
3. Competition Bureau Canada - Preventing Bid-Rigging: Tips for Tendering Authorities: https://bit.ly/3KZnrW3.