This article is an excerpt from The Art of Tendering: A Global Due Diligence Guide, which is available for purchase.
In its November 2007 judgment in R. v. Kupfer, the Manitoba Provincial Court found the accused guilty of violating a provision of The Legislative Assembly and Executive Council Conflict of Interest Act. The case involved a former senior public servant who, contrary to the one-year cooling-off period prescribed under the statute, was found to have acted on behalf of a private company in a real estate transaction involving property that he had a prior involvement with when he had worked for the government.
As noted in the judgment, section 19.2 of Manitoba’s The Legislative Assembly and Executive Council Conflict of Interest Act reads as follows:
Where a minister or senior public servant acts for or advises the government or a Crown agency with respect to a matter in which the government or Crown agency has an interest, the minister or senior public servant shall not, for a period of one year following the date on which the minister or senior public servant leaves office, act for or on behalf of a person, partnership or unincorporated association or organization in relation to the matter.
The Court found that in his prior official capacity as an Assistant Deputy Minister for the provincial government, the defendant had knowledge and involvement with the real estate in question:
Treasury Board Minute 108/98 – item 8 dated March 17, 1998 authorized the sale of the property at 290 Drury Avenue. The Land Management Services appraisal was $625,000.00 comprising $435,520.00 in depreciated building value and $189,480.00 in land value in July 1997.
Mr. Kupfer was involved in the decision making process in this regard. He was also involved in the process to determine if there were other departments or agencies capable or willing to take over the property. The Accommodation Division, headed by Mr. Kupfer declared the property surplus.
From 1998 until 2004, there were 26 offers to purchase which for a variety of reasons were not accepted. In many instances, Mr. Kupfer was consulted about the offers. Mr. Kupfer was also consulted about others making use of the property, for example as a soccer pitch and as a filming sight. The inference to be drawn is that Mr. Kupfer was well aware of the property and the fact that it was difficult to sell it.
The Court also noted the public policy significance of the conflict of interest law and the need to give it a broad interpretation:
This conflict of interest law is important legislation. It is a code of ethics setting out appropriate standards of conduct to be followed by politicians and senior public servants. It is intended to enhance public confidence in the activities of politicians and senior public servants. It is intended to prevent doubts or suspicions arising from decisions made or actions taken by politicians or senior public servants (see: The Canadian Encyclopaedia and Arbez v. Johnson ((1998) 126 Man. R. 271)). As such, the legislation must be given a broad interpretation. This legislation is broader than merely requiring disclosure of certain interests. This legislation is broader than trying to prevent someone taking advantage of insider information. It is intended to do more than just prevent harm from taking place or damage being suffered. It is intended to set out a normative standard to which politicians and senior public officials should adhere.
The Court then concluded that the defendant had, within one year of leaving office as Assistant Deputy Minister, acted for a third party in connection with the real estate in question:
I am satisfied that Mr. Kupfer acted for 4914971 Manitoba Ltd. within one year of leaving the office of Assistant Deputy Minister with respect to the purchase by that company from the Government of 290 Drury.
He acted for the company by delivering an offer. That may seem a trivial action; one that could be done by a courier, but it was an initial step in the process of acquiring the property. It saved time and expense.
He acted for the company by having a conversation with the manager of land services and determined that the offer was going to be allowed to lapse. The manager stated that he was not revealing any confidential information but was providing information appropriately. There seems to be no dispute about this. However, after the information was received, an offer at an increased price was received by the Government. A phone call may be regarded as trivial but it is a step in the process. Moreover, Mr. Kupfer knew who to phone and what to say. He could manoeuvre within the bureaucracy. That is not trivial.
Also, Mr. Kupfer had a telephone conversation with Mr. Kent to point out that the land description was in error and additional land must be included in the transfer documents. Mr. Kent agreed. This was significant.
In this case, Mr. Kupfer’s conduct violated section 19.2 and I find him guilty.
In its July 2008 decision, the Manitoba Court of Queen’s Bench upheld the provincial court’s judgment, finding that the phone call made to the government by the appellant during the bidding process breached the conflict of interest law:
Did Kupfer act for the numbered company on its purchase? The phrase “act for” is used in both instances in relation to government and in relation to the numbered company. The use of the same phrase generally indicates a similar meaning. In relation to government, “act for” means perform an act from within or from outside of government. No doubt, Olson acted for the numbered company as president and negotiator on its purchase, but the numbered company was agent for Pioneer. Kupfer, a director of Pioneer, made a critical telephone call during the time referred to in the information. Pioneer had twice offered $250,000 for the property. It or its agent then submitted a low-ball offer of $200,000. Olson then instructed Kupfer to make a telephone call in order to ascertain whether there were any other offers, whether government might accept the low offer or whether it would have to make a higher offer in order to get the property. When Kupfer received the answer from Kent, the numbered company raised its offer above the initial $250,000 offers. It would be an understatement to say that Olson and Kupfer maximized their chance of getting the lie of the land by having Kupfer make the call to Kent, Kupfer’s former colleague. In the context of the circumstances of this case, Kupfer, in making that call, performed an act that was prohibited under the section. There is no need to debate whether delivery of the offer or other minor actions are prohibited. That can be decided in another case. Having regard to the purpose of the legislation and perceptions of and protection of the public that are at the root of the section, that telephone call was sufficiently tied to the government’s interest in 290 Drury and the scope of Kupfer’s advice in relation to 290 Drury while employed by government that he was required to refrain from making that telephone call, and he committed a breach of the section when he made the call. That government suffered no loss is not relevant.
As this case illustrates, the post-employment use of inside information and internal contacts can compromise the integrity of the bidding process by giving some bidders an unfair advantage over other bidders. In some jurisdictions, statutory codes have been enacted to govern the activities of former public officials and prohibit the use of inside information for post-service personal gain. Where such restrictions are in effect, they can prohibit former public servants from using information obtained while within government to assist outside parties, including suppliers bidding on government contracts, in their dealings with government institutions. In jurisdictions where such statutory codes have not been enacted, institutions should establish clear tendering rules to deal with these post-service conflict risks.
