This article is an excerpt from The Art of Tendering: A Global Due Diligence Guide, which is available for purchase.
In its June 2018 decision in R. v. Shum, the Ontario Superior Court of Justice found a federal civil servant not guilty of charges under the Financial Administration Act after concluding that the employee’s manipulation of a bidding process did not result in financial harm to the government. The case dealt with a bidding process for information technology project support services at Library and Archives Canada (LAC) for task-based informatics professional services (TBIPS). Three other individuals involved in that bidding process, including two external contractors and a federal employee, pled guilty to charges under the Competition Act and Financial Administration Act. Charges were also laid against a second federal government employee, Barney Shum, who was also involved in the same bidding process. The court described the background context as follows:
It was no secret that Mr. Shum and Ms. Béland wanted to ensure that, after the TBIPS tenders were issued, LAC would still have the opportunity of keeping Microtime’s incumbent consultants working on the AMICAN and HDS projects (just as Marie-Claude Renaud wanted them to have the opportunity to continue working on the TDR project) so as to keep those projects moving forward with no unnecessary delay. Therefore, they were open to discussions with Ms. Graham and Mr. Forgie regarding the scope of work, technical requirements, and category designations to be included in the various TBIPS tenders. My interpretation of the evidence is that it was open to debate as to where the line had to be drawn between permissible and impermissible discussions between project/technical authorities and vendor representatives all of whom were trying to understand how incumbent consultants on ongoing projects fit into the new procurement framework. In this regard, neither Mr. Shum nor Ms. Béland were given any specific guidance, at this stage, as to how to navigate the perilous course in the pressure cooker environment that then existed at LAC.
The Court found that the defendant manipulated the solicitation requirements to include more consultants than were required in order to require the contract to be put out to tender and so that the desired consultants could be re-hired in the new bidding process:
I find that Mr. Shum included a request for six web developers in TBIPS 086, instead of just the one that he actually required, to camouflage the reality that he was issuing this TBIPS for the sole purpose of securing the continuation of Adam Murray and John Parsons as consultants at LAC. If the contracting authorities at LAC had realized that Mr. Shum needed only one project manager and one web developer for the new HDS project, they would have exerted even more pressure on him to issue a TA under ITNet’s portion of the 280 Contract to fill those needs, rather than going to the trouble of issuing a TBIPS tender. Furthermore, by expressing the need for six web developers in a TBSF that had a short 10-day solicitation period, Mr. Shum made it more difficult for other vendors to submit a bid. Microtime had been given advance warning that six web developers would be required in the TBSF. It had no difficulty preparing ADRM’s bid within that short timeframe, using Microtime consultants.
The Court noted that these attempts to manipulate the bidding process were motivated by the need to maintain continuity with the individuals who had been externally retained to assist in the complex technology project:
Both Mr. Shum and Ms. Béland described how, at the time, there was an unexpressed understanding by all those associated with AMICAN that it would be best for the project if the consultants working on AMICAN were allowed to continue their work. AMICAN was a huge project in the middle of being developed. Many of the consultants had been working on the project for years. They were very experienced and knowledgeable. Losing those contractors would have brought the project to a halt, with significant costs being associated in getting new consultants up to speed so to continue with the systems development.
As the Court then summarized, an internal investigation into the mismanagement of project funds resulted in the suspension of the defendant, who then retired and returned as a consultant until criminal charges were laid against him:
On December 16, 2009, ADRM was advised that Sylvain Richard was replacing Barney Shum as the project authority for TBIPS 137 and Gilles Duciaume was replacing Sylvie Béland as the technical authority. A formal amendment followed.
On February 5, 2010, Sylvain Richard gave Mr. Shum the report that was the culmination of the internal security investigation and advised Mr. Shum that he was suspended with pay and had to leave the building within 10 minutes. He was told that he had three days in which to respond to the report. Mr. Shum collected some personal memorabilia from his office and left. He had no time to do anything on his computer or to collect any documentation. He has not been back to his own office since that date.
Mr. Shum retained an employment lawyer. Together they prepared a response to the internal security report and, once they had been provided with relevant documentation from LAC, they prepared further responses. LAC had an independent review conducted of the internal investigation. Following the conclusion of that review, and after months of negotiations, a settlement was reached that included a non-disclosure agreement. Mr. Shum was reinstated, but assigned to an office away from the LAC offices. He was given no LAC work to do. In January 2012, Mr. Shum moved to Health Canada, where he stayed until his retirement six months later. He was hired back as an independent consultant in March 2014, but that career ended with the criminal charges being laid in April 2014.
As the Court summarized, the company involved in the bidding process entered into an immunity agreement in exchange for its cooperation with the prosecution, while several of the individuals involved in the scheme pled guilty to Competition Act and Financial Administration Act offences:
A search warrant was executed at the offices of ADRM in the spring of 2010. Subsequently, ADRM entered an agreement with the Public Prosecution Service of Canada for immunity from prosecution under the Competition Act in regard to the three TBIPS contracts with LAC in return for cooperation. Both Philippe Bisson and Nehman Hokayem testified for the Crown at this trial.
Stephen Forgie pled guilty to bid-rigging in the summer of 2015 and testified at this trial as part of his plea agreement with the Crown.
Linda Graham pled guilty to bid-rigging in August 2016 and testified at this trial as part of her plea agreement with the Crown.
Sylvie Béland pled guilty to one count under s. 80(1)(e) of the FAA, for failure to report to a superior officer either a contravention of the FAA or other revenue law of Canada or a fraud against the government.
In considering the evidence, the Court ultimately concluded that the defendant was not a credible witness and that he was less than fulsome in his testimony:
Barney Shum was not a credible witness. Some of his evidence was contrived, at times to a glaring extent, in an attempt to undermine the Crown’s allegations of wrongdoing on his part. Most particularly, his evidence regarding why he chose ADRM or ADRM/CNC to bid on a TBIPS tender held no credence, in light of the weight of documentary and oral evidence contradicting his version of events. The same can be said of his evidence as to the reasons for ongoing connections between Microtime representatives and the ITB following the awarding of the three TBIPS contracts to ADRM. What was particularly offensive was Mr. Shum’s tendency to portray Linda Graham as someone who made things up, who engaged in self-aggrandizement, and whose contemporaneous emails and current testimony could not be believed. Finally, throughout his testimony, Mr. Shum tried to stay on safe ground by speaking in generalities – thereby making it difficult for his evidence to be challenged. I have no doubt that Mr. Shum would have been able to be much more specific due to his command of the documentary evidence produced in this case.
The Court also concluded that the defendant crossed the legal line in providing pre-bid information to the individuals who were involved in the bid-rigging scheme:
Wherever the line is drawn in terms of when project and technical authorities should cease informal communications with vendors pending and during a procurement process, Mr. Shum crossed that line through his meetings, email conversations, and telephone conversations with Linda Graham while he and Ms. Béland were actively working on TBIPS 086 and TBIPS 137. His frequent communications with Ms. Graham throughout the spring, summer, and fall of 2009 cannot be put down to his management of incumbent Microtime consultants in that the purpose of many of these communications was to discuss one or other of the TBIPS tenders. More will be said of this under the specific charges.
Examples of communications that were inappropriate include the following:
Barney Shum advised Linda Graham to include grids in ADRM’s proposal for TBIPS 086, as it had done in its bid under the 280 Contract.
In a conversation that Ms. Graham had with Mr. Shum on June 20, 2009, Mr. Shum confirmed that, in the TBIPS 086, the requirement was for 1000 days in total for all web developers over two years, which amounted to 83 days per developer. Ms. Graham instructed Mr. Forgie to complete the TBIPS TBSF form accordingly. Any inquiry from Linda Graham requiring clarification of the TBIPS 086 requirement should have been made through Josée Francoeur.
The Court also summarized the relevant Financial Administration Act provisions for the relevant offence as follows:
Essential Elements of the Offence under the Financial Administration Act, s. 80(1)(b)
Offences and Punishment under the FAA
The following offences and punishment were contained in the FAA in 2009:
Offences and punishment
80(1) Every officer or person acting in any office or employment connected with the collection, management or disbursement of public money who
(a) receives any compensation or reward for the performance of any official duty, except as by law prescribed,
(b) conspires or colludes with any other person to defraud Her Majesty, or makes opportunity for any person to defraud Her Majesty,
(c) designedly permits any contravention of the law by any other person,
(d) wilfully makes or signs any false entry in any book, or wilfully makes or signs any false certificate or return in any case in which it is the duty of that officer or person to make an entry, certificate or return, (e) having knowledge or information of the contravention of this Act or the regulations or any revenue law of Canada by any person, or of fraud committed by any person against Her Majesty, under this Act or the regulations or any revenue law of Canada, fails to report, in writing, that knowledge or information to a superior officer, or
(f) demands or accepts or attempts to collect, directly or indirectly, as payment or gift or otherwise, any sum of money, or other thing of value, for the compromise, adjustment or settlement of any charge or complaint for any contravention or alleged contravention of law, is guilty of an indictable offence and liable on conviction to a fine not exceeding five thousand dollars and to imprisonment for a term not exceeding five years.
Fraud against Her Majesty
80(2) Every officer or person acting in any office or employment connected with the collection, management or disbursement of public money who, by deceit, falsehood or other fraudulent means, defrauds Her Majesty of any money, securities, property or service is guilty of an indictable offence and liable on conviction,
(a) if the amount of the money or the value of the securities, property or service does not exceed $5,000, to a fine not exceeding $5,000 and to imprisonment for a term not exceeding five years; or
(b) if the amount of the money or the value of the securities, property or service exceeds $5,000, to a fine not exceeding that amount or that value and to imprisonment for a term not exceeding fourteen years.
Idem, where bribes offered or accepted
Every person who
(a) promises, offers or gives any bribe to any officer or any person acting in any office or employment connected with the collection, management or disbursement of public money, with intent
(i) to influence the decision or action of that officer or person on any question or matter that is then pending, or may, by law, be brought before him in his official capacity, or
(ii) to influence that officer or person to commit, or aid or abet in committing any fraud on the revenue, or to connive at, collude in, or allow or permit any opportunity for the commission of any such fraud, or
(b) accepts or receives any such bribe, is guilty of an indictable offence and liable on conviction to a fine not exceeding three times the amount so offered or accepted and to imprisonment for any term not exceeding five years.
It is interesting to note that the concept of “opportunity” for the commission of fraud appears not only in s. 80(1)(b) but also in s. 81(a)(ii).
However, the Court ultimately found that the defendant did not gain financially from the arrangement. In dismissing the charges, the Court also decided that the Crown failed to prove that the government suffered financial harm due to the bid-rigging and therefore failed to prove the elements necessary to find the defendant guilty of an offence under the Financial Administration Act:
There is no evidence that the government actually suffered any deprivation as a result of ADRM being invited to bid on TBIPS 086 and ultimately winning it or as a result of Microtime’s consultants being bid through ADRM. Four other pre-qualified vendors were invited to bid and chose not to. Microtime did not try to bid on TBIPS 086 because its rates under TBIPS Tier 1 were too low to make a bid feasible. Mr. Shum was not obliged to choose Microtime to bid on a TBIPS tender, and Microtime was under no obligation to seek permission to submit a bid. The rates ADRM proposed in its bid were no higher than the ceiling rates that had already been pre-approved by the government. The other pre-qualified vendors invited to bid, and in fact other pre-qualified vendors interested in bidding, could have submitted a bid that, depending on their pre-approved rates, might have been higher or lower than that of ADRM. The TBIPS procurement system itself ensured that the rates paid out under TBIPS 086 were pre-approved, competitive, and reasonable. Thus, it cannot be argued that, as a result of the Teaming Agreement between Microtime and ADRM, and Mr. Shum’s decision to invite ADRM to bid on TBIPS 086, the government paid more than it should have.
Not only did the Crown fail to prove actual deprivation, but also, based on the evidence just reviewed, it failed to prove that there was a risk of deprivation. The government got what it bargained for. The evidence did not support a finding that through any dishonest actions of Microtime, Ms. Graham, Mr. Forgie, or Mr. Cassandra, the government was put at risk of being deprived of public money.
While the other three individuals who were party to the bid-rigging scheme were successfully prosecuted, the case against the defendant was ultimately dismissed for lack of financial harm to the government. As this case study illustrates, while unfairly manipulating a bidding process can attract civil claims by losing bidders, that conduct can also give rise to criminal charges against those individuals who are involved in rigging bidding processes. Purchasing institutions should therefore establish clear policies, practices, and training programs to guard against these civil and criminal risks.