Unsportsmanlike conduct

Anti-competitive behaviour in tendering
Monday, April 30, 2012
By Charles Bois & Owen Pawson

Competition has always been fierce in the construction industry in Canada. There will always be too many contractors bidding for too few contracts. With the economy in a fragile state, the competition has become even fiercer – especially for lucrative government contracts. As a result, contractors may be tempted to pursue any advantage they can to land a deal. Conversely, owners conducting tenders must be more cautious in dealing with bidders for fear of accidentally providing such an advantage. While some advantages may be legitimate opportunities for bidders, some conduct may be anti-competitive and therefore illegal.

The law
Competition in the construction industry is regulated by legislation and common law (judge-made law). The purpose of the laws is to maintain and encourage competition by prohibiting certain anti-competitive conduct. Knowing what conduct constitutes anti-competitive behaviour is key in avoiding liability.

Anti-competitive conduct
Conspiracy is the most serious of all anti-competitive conduct. It occurs when two or more competitors enter into an agreement to fix prices, allocate markets or control supplies. The effect of the agreement must be to unduly lessen or prevent competition. The parties must have market power and purposively worked together to limit competition. Convictions for conspiracy are punishable with a fine of up to $25 million and/or imprisonment of up to 14 years. Victims may also seek damages for their loss.

Bid-rigging is perhaps the most notorious of all anti-competitive behaviours in the construction industry. It occurs where two or more bidders agree to either bid, withdraw a bid or work together on a bid without the prior knowledge of the tenderer. Unlike conspiracy, the parties do not have to have market power. Companies or individuals convicted of bid-rigging are liable to a discretionary fine of any amount and/or up to 14 years in prison.

Intimidation occurs when one or more parties threaten another to get the intimidated person to do something against their wishes such as withdrawing their bid. The threatened bidder would be entitled to damages from the intimidators.

Other anti-competitive behaviours that are not necessarily illegal include abuse of a dominant position, exclusive dealing, refusal to deal and market restriction. The key is whether these activities unduly restrict competition.

Some other common law torts that may come into play with tenders are unlawful interference with economic interests, inducing breach of contract and restraint of trade.

Charles Bois and Owen Pawson are both partners in the construction group (Vancouver office) of Miller Thompson LLP.

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