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It was an astonishing exchange, all the more so because the jury trial in front of Judge Bonnie Warkentin had just entered its sixth month.
What it suggested was the Crown was still divided over how to prosecute its case – nearly seven years after charging six individuals and three firms with rigging bids in connection with more than $60 million worth of federal government contracts.
It was Feb. 26, a day given over to discussions about procedure. The jury was not present. Crown counsel and defence lawyers were debating how Warkentin should word her charge to the jury – the framework for determining how jurors should interpret the law and render verdicts.
Just a few minutes before court was due to break for the weekend, Valérie Chénard, the Crown prosecutor on this file from the very beginning, attempted to clarify what constituted bid-rigging.
Was it just an agreement among suppliers on how they priced their final proposals, she asked rhetorically, or did it also include “any type” of agreement? By this, she was referring to discussions between firms about sharing contractors (also known as resources), which is explicitly permitted by federal procurement rules.
Warkentin appeared startled. “Is it the Crown’s position that because the defendants were working together to gather resources … but each submitted their own pricing in their proposals, that that’s an offence of bid-rigging?” the judge asked. “Because I’m going to need some law on how that constitutes bid-rigging. That’s a pretty long shot for the Crown.”
Chénard explained that even “an agreement on resources . . . could be sufficient to have bid-rigging.”
The judge was puzzled: “I’ve not heard from anyone at any level or any witness, including your own investigators, that said that that was somehow criminal conduct or that it wasn’t common conduct or that it wasn’t expected conduct,” Warkentin said. “In fact, all of the managers and the professionals said that they expected people would be working together.”
The trial had revealed this was the nature of the industry. If the government wanted 20 contractors with particular skills – and a single supplier couldn’t provide them – then it was OK to team up with a second firm that had the necessary resources.
Finally, Chénard’s fellow prosecutor Denis Pilon jumped in “to clarify” that the Crown actually wouldn’t be arguing Chénard’s point; they would concentrate on how the accused reached their final prices in responding to government requests for proposals.
The defendants took some comfort from the apparent confusion in the Crown’s case but there was anger, too. They had been living with the consequences of this criminal proceeding for almost a decade; some had been touched by heart disease, another by cancer, and all had experienced the stress that comes with being a target of the Crown.
Defence lawyer Peter Mantas captured the mood during his final arguments earlier this month. “The (Competition) Bureau and the Crown have had a long time to work on this case,” he told the jury, “By the time the trial started, they should have been able to get it right, they should have been able to put a theory before you that was supported by some evidence.”
This all started with a seemingly routine encounter that lasted just 20 minutes. There was no reason to suspect it would carry such serious consequences for so many people.
On July 13, 2005, a day dripping with humidity in the Ottawa valley, Ridge Falls House executive Shaun Pritchard took a four-kilometre drive to the offices of Spearhead Management, a computer services firm in the city’s west end. Pritchard was a 13-year veteran of Ridge Falls where he had helped to develop a network of more than 100 contractors.
Soft-spoken and unassuming, Pritchard was in many ways the opposite of Sue Laycock – the Spearhead executive who had requested the meeting. Laycock was all energy and enthusiasm. In her late 30s, she had joined Spearhead two years earlier and was already adept at placing contractors in various federal departments. Ridge Falls had some people with skills she was interested in. She wanted to talk shop.
After their short conversation, Pritchard returned to his office to report to Stephen Chamberlain, his uncle and Ridge Falls owner. Laycock had no idea her world was about to implode, that Spearhead, her job and her marriage would all soon be history.
But the spark lit by Pritchard would soon engulf dozens of individuals and Ottawa-based firms in a litigation without parallel.
***
On Tuesday Judge Bonnie Warkentin completed her stunningly lengthy charge to the jury. It ran nearly 300 pages and took her two days to read. The trial, too, was excruciatingly long. It featured more than 80 days of testimony by 22 witnesses, and thousands of electronic exhibits. More than one million pages were disclosed.
Twelve citizens will now determine whether the accused were guilty of rigging bids to win federal government contracts. Aside from Laycock, the defendants are: Marina Durward, Phil McDonald, Don Powell, Tom Townsend, Ron Walker, Devon Group, Spearhead Management and TPG Technology. (David Watts was acquitted in February in a directed verdict.)
Waiting anxiously in the wings are five more defendants, charged with similar offences, who elected to be tried by a judge alone. Their proceeding is expected to follow later this year.
All this is happening in part, the evidence suggests, because Pritchard misunderstood or mischaracterized what Laycock told him, and made no effort to clarify matters before lodging a formal complaint.
It took more than that, of course. Pritchard’s actions were compounded by inexperienced investigators from the Competition Bureau, who focused far too soon on the idea that bid-rigging was at play and failed to pursue leads that would have taken them down a much different trail.
The trial ripped open the inner workings of one of this city’s most complicated industries – the $500 million-a-year business of renting computer services technicians and software experts to the federal government. It also shed light on the surprising lack of clarity in competition law and introduced significant amounts of raw emotion when little had been expected.
So abundant were the emails introduced by the Crown, so voluminous the charges and so confusing the context it’s entirely possible jurors, now sequestered, could find some of the accused guilty of rigging some of the bids.
But the simple truth is, the accused were guilty merely of being in the wrong place at the wrong time – for this strange, murky industry was an accident waiting to happen.
**
It is an extraordinarily fluid business. Some 5,000 software experts sell their expertise to government under contract in the National Capital Region, often working alongside federal employees. Some bill for their services through small companies such as Spearhead and TPG Technology. Others are employees of multinationals such as IBM. The alliances shift constantly as the contractors seek the most interesting or best-paid assignments.
Government solicits these experts through stunningly detailed requests for proposals (RFPs). Since even the largest suppliers can’t supply all the necessary skills, competitors must collaborate through joint ventures, consortia, subcontracts or other more convoluted arrangements.
Government contracting officials can and do change rules seemingly on a whim, with catastrophic financial consequences for the suppliers who find themselves on the wrong side of the revisions.
Such was the case with Ridge Falls House – which in 2005 provided contractors to the Canada Border Services Agency and other government clients. The day Pritchard met with Laycock, his uncle had been trying for months to sell the firm to potential buyers. The key to getting a good price was Ridge Falls’ ability to retain its computer experts, then under exclusive contract.
But things were changing rapidly post 9/11, in a manner that would weaken the links between Ridge Falls and its contractors. CBSA, a newly formed agency, was upgrading its software and computer networks for the expanding war on terror. Contracts involving hundreds of computer and software experts were expiring – and CBSA managers were desperate to keep most of them on board.
And so they changed the rules.
It’s easy now to see how this shift initially led investigators down the wrong path. In the document used to justify search warrants, Competition Bureau investigator Stephen Fitzpatrick talked about the unusual similarities between proposals submitted by several firms later charged with bid-rigging – right down to the font size used and the rates of pay they would charge for various contractors. The proposals “were virtually identical” he wrote.
The trial would later show that this was true, but testimony from the Crown’s own witnesses would also demonstrate that the similarities were a function not of rigged bids, but of the new rules implemented by CBSA.
The agency convinced Public Works – the government’s central contracting group – to issue requests for proposals that allowed CBSA contractors to sign up with multiple companies. The top computer jocks set their own rates, forcing suppliers in many cases to submit identical per diem costs.
Because no single firm could supply 200 plus contractors, CBSA divided the work into more manageable technology bundles and issued eight requests for proposals.
This is why Laycock wanted to see Pritchard. She saw an opportunity to form alliances that would allow her firm to qualify for most of the available RFPs. Prior to meeting Pritchard on July 13, Laycock called to seek his permission to submit one of Ridge Falls’ contractors, a senior web developer at CBSA, on a Spearhead proposal. In exchange, she said, Ridge Falls could include one of Spearhead’s contractors, someone who was also working at CBSA.
Shaun Pritchard, former executive with Ridge Falls House and a Crown witness: Pritchard was the only source of testimony for the Crown’s charge that Sue Laycock counselled another to rig bids. His presence in court led to spirited exchanges as he was cross-examined by Laycock – who represented herself during the proceedings.
When Pritchard arrived at Spearhead’s offices that July day, he listened quietly to Laycock’s pitch – which included some insight about Spearhead’s strategies for trying to win more business at CBSA in collaboration other partners. The team, led by TPG Technology, would eventually comprise Spearhead, Veritaaq, Donna Cona Inc. and Tipacimowin.
Pritchard’s response: “I may have given her a blank stare,” he testified.
Was it shock, or was he quietly assessing his next move? Pritchard testified that Laycock described for him a “gaming scheme” through which Spearhead and other members of the TPG alliance would try to win spots on CBSA’s shortlist of suppliers by manipulating the availability of contractors.
Pritchard understood this to mean that the TPG team would put forward low-priced computer specialists to help drive down the price of their proposals. But when CBSA actually requested a contractor, Pritchard continued, it would discover that only the higher-priced ones were available.
A different picture emerged last November when Colette Morin-Wade, an official with the Competition Bureau, took the stand. Under cross-examination, Morin-Wade consulted the notes she had taken after interviewing Pritchard in 2007. “He remembers a discussion with Sue (Laycock),” Morin-Wade had recorded in her work diary. However, the entry noted that Pritchard had said that Laycock “didn’t give any details.”
Since neither Laycock nor Pritchard took notes or taped the conversation, we don’t know precisely what was said.
But we do know what daily rates were actually proposed by members of the TPG team for each of the skills bid. A trial exhibit revealed that just one of the eight CBSA bundles contested by the TPG alliance contained the type of price pattern that could possibly be interpreted as part of a gaming scenario. And no evidence was brought by the Crown to show that this is why the pattern showed up on that procurement – it could just as easily have been a statistical quirk.
Had Pritchard kept his thoughts to himself, we might never have heard of him. Instead, he called his uncle who immediately sought a meeting with Jérôme Thauvette, a senior Public Works official.
**
Stephen Fitzpatrick was one the two main investigators for the Competition Bureau. The defence alleged the investigation was wired from the start to find that bids were rigged. The Crown countered the investigation was “thorough”.
One of the most disturbing aspects of this story was the willingness of so many to level accusations without troubling to seek an explanation. This was true of competing suppliers, senior officials at Public Works and investigators employed by the Competition Bureau.
Executives from suppliers Ajilon and S.i. Systems, for instance, complained to Public Works about improper behaviour by the TPG team. The allegations were general in nature and evidence at trial suggested they were also unfounded.
The complainants did not stand behind their allegations. One not only declined to testify he refused to sign a witness statement claiming knowledge of misbehaviour. Another simply washed his hands of the matter, saying it was up to Public Works and the Competition Bureau to prove the case. Only Pritchard agreed to step up and testify.
Surprisingly, officials from the Competition Bureau also declined to speak with the defendants. No one from the bureau interviewed any of the defendants. “We don’t go to targets of investigation and necessarily confront them,” explained Stephen Fitzpatrick, the bureau’s top investigator on the file, “(We don’t) suggest to them that they’re doing something illegal and ask them to explain themselves.”
While it’s true that alerting targets to an impending investigation often pushes them into a defensive shell – from which little information emerges – this case involved some very complex procurement rules. A conversation with these targets would likely have produced much insight. In fact, defendants Don Powell and Ron Walker were eager to explain themselves, putting themselves through several days of cross-examination at trial, though there was no requirement for them to do so.
It also emerged that the bureau had failed to interview more neutral suppliers who could have helped with the understanding of the industry. There are hundreds of computer services firms that sell their expertise to the federal government. Fitzpatrick testified that on the few occasions he reached out to companies that weren’t charged, it was to ask if they had information about bid-rigging in connection with the firms under investigation. In short, the bureau relied almost exclusively on a few complainants for their insight.
This would prove a fateful omission. Trial evidence showed that bureau and federal prosecutors had read far too much into the key documents and emails upon which they had based their case. They inferred the defendants had shared information about profits when the evidence suggested all they had been doing is comparing certain costs. The prosecutors saw something nefarious in firms collaborating to create a team of experts – something that federal departments encouraged.
For his part, Pritchard did not speak again to Laycock until 2011 when he testified against her in a preliminary trial. As he walked passed her on the way out of the courtroom, he said quietly “Sorry.” This, according to his testimony last January under cross-examination by Laycock.
**
Sue Laycock, former vice-president, Spearhead Management: “This case has been in my life for 10 years, half of my youngest child’s life. The allegations against me have impacted my family, my reputation and my employment. More importantly, these allegations are false.”
Chamberlain appears to have had little difficulty accepting his nephew’s description of the conversation with Laycock.
If what Pritchard thought was true, Chamberlain was right to worry.
Ridge Falls had nearly 20 consultants under exclusive contract at CBSA – representing an estimated $1.5 million plus in annual billings – and was earning at least a 13 per cent profit on the business. Competing suppliers such as Laycock’s were forming teams capable of undercutting Ridge Falls on price. Those profits would have to come down – a lot.
Chamberlain and Pritchard met with Thauvette on July 20 to try to persuade him to re-issue the CBSA procurements under the old rules. They were coy – perhaps because just one of the agency’s RFPs had actually closed and none had yet been awarded. According to Pritchard, Chamberlain did not name names – he merely suggested to Thauvette that his people keep an eye out for evidence of a gaming scheme. The Ridge Falls executives returned to company headquarters in Dunrobin, satisfied their concerns were being heard.
But in the first week of September CBSA revealed the shortlist for the first two RFPs. Ridge Falls was out and TPG Technology was in. Though Laycock’s Spearhead had failed to make the cut, Pritchard was convinced the gaming scheme was still in play. Ridge Falls set up a second meeting with Thauvette to complain some more.
Chamberlain and Pritchard didn’t know their push for an investigation was already acquiring momentum. Sandra Labbé, the acting manager for information technology professional services at Public Works, had been present at the first meeting between her boss Thauvette and the Ridge Falls executives.
She had taken a second look at the early CBSA submissions, including one dubbed Paxis – short for passenger information systems. Though she was relatively new to the world of computer services, she was a seven-year veteran of the department, and had accumulated experience in purchasing military gear, ammunition and armoured vehicles.
Labbé had also recently attended a Competition Bureau presentation aimed at alerting officials about signs of bid-rigging and other improper behaviour. It was part of an outreach program meant to educate the wider community about the Competition Act. The bureau was acknowledging that the existence of the act, let alone its provisions, was not well known. This knowledge gap would be a constant theme in the years to come.
Labbé was surprised by some of the results in the Paxis competition: TPG, Tipacimowin and Spearhead had submitted proposals in which technical scores were exactly the same. Labbé called the bureau official who had hosted the bid-rigging seminar. On Sept. 8, Fitzpatrick took a short walk from his office to Public Works to pick up the Paxis file.
On the other side of the Ottawa River, Norman Carr – the head of TPG competitor Ajilon – had reached a similar conclusion. The winning scores of TPG and its team members – which included financial as well as technical assessments – were too close to be anything other than collusion, he believed. Carr emailed Thauvette on Sept. 13 to complain about a TPG conspiracy to win contracts at CBSA.
Don Powell, president of TPG Technology: ‘People need laws that are written down and clearly documented so they can understand in advance what’s legal and what isn’t legal. That didn’t happen here.’
Carr was not a neutral party. Not only was Ajilon competing directly against TPG and its teammates at CBSA, it had lost a considerable amount of business to Powell’s firm at Public Works. TPG years earlier had snagged a $30-million-a-year contract to manage the federal government’s main computer networks, including the ones responsible for sending out social security cheques. This contract made TPG the government’s third-largest computer services firm – and was the source of much of Powell’s wealth. (Indeed, Powell would finance most of the legal wars in the years to come.)
Labbé and Carr were right to question the scores at CBSA but neither seemed to appreciate the special circumstances. Agency officials had written such detailed requests for proposals it was clear which computer services contractors they wanted to see returned under new contracts. It was a process called ‘wiring’ – and CBSA was very good at it. TPG and its team members mounted a very aggressive campaign to include CBSA’s incumbents in their responses to the RFPs.
Shannon Lambert, vice-president of Veritaaq Technology and a Crown witness: Lambert testified that Veritaaq collaborated with the accused though it’s not clear she helped the Crown’s case. She explained her presence by noting it was a tactical decision ‘to have me take the fall.’
“If I could have,” Veritaaq vice-president Shannon Lambert testified, “I would have stood at the Tim Hortons at Billings Bridge with a big sign saying, ‘Any incumbent, please come and talk to me’.”
CBSA contractors – the computer services experts actually doing the work – were well aware of their bargaining power. CBSA managers consulted them before preparing the statement of work and technical requirements that would form part of the requests for proposals. The contractors’ skills often bore an uncanny similarity to what was specified in the RFP.
For their part, TPG, Spearhead and Veritaaq knew that if they failed to include these skills in their proposals, they would be declared non-compliant during the evaluation phase. CBSA contractors banded together, union-like, to extract the maximum possible wage rates from these suppliers. In the case of one CBSA bundle, the three firms put forward exactly the same wage rates because the contractors insisted on a rate so high it left no room for profit.
This is why the full proposals submitted by TPG, Spearhead, Veritaaq and others contained so many common features. Each prepared competitive proposals by including certain contractors and then submitting a final price based on how much profit they wanted to make. Information about contractors’ costs was shared by these suppliers, which is allowed. But the Crown produced no convincing evidence that TPG and its team members had shared information about profit margins. Had they done so, then the case that bid-rigging had occurred would have been much stronger. The accused all testified they had not shared proposed profit margins.
**
Public Works spent weeks evaluating the eight RFPs based on criteria established by CBSA. Team TPG did well, securing spots on six of the eight it contested. Veritaaq was a finalist in all seven of its proposals. Spearhead won five of seven.
Ridge Falls, meanwhile, was all but shut out – losing six of seven RFPs. Ajilon fared somewhat better, winning two of five.
Ajilon’s Carr was furious. “What burden of proof does the Crown require before somebody goes to jail or is fined?” he wrote in an Oct. 3 email to Thauvette at Public Works. “The issue is clearly worse than I thought … what will happen with tenders currently being colluded on?”
Carr had no proof. He only suspected collusion. Trial exhibits suggested the TPG team won because it had been willing to accept lower profit margins. Even Pritchard noted that in order to win its single spot on a shortlist, Ridge Falls had had to slash its profits by more than 50 per cent. Carr said later he simply wanted Public Works to dig into what looked to him like suspicious numbers; he’d had no personal knowledge of the final financial proposals put forward by his competitors.
But Carr made a separate allegation in that Oct. 3 email – one that spread like a virus into the Department of Transport and would eventually infect Devon Group and its partners Ron Walker and David Watts, Tom Townsend, Donna Cona Inc., and a handful of other firms and individuals.
Again, this was done without direct knowledge on Carr’s part. Instead, he urged Thauvette to get in touch with Louis Perron, who ran S.i. Systems’ Ottawa operations. Perron, he said, knew about the situation at Transport.
In fact, Perron knew relatively little. Calgary-based S.i. Systems had only very recently purchased Ottawa-based S&S Software, which was part of a joint venture trying to win business at Transport Canada. The joint venture included TPG, Devon Group, Veritaaq, Donna Cona Inc. and others. Perron had attended just one meeting involving the joint venture’s activities.
Just days before Carr made his allegations, Walker had sent his potential partners a copy of a proposed umbrella joint venture aimed at supplying 39 technical contractors to Transport Canada. When he read it, Perron was concerned about some of the language. The offending paragraph – which would later show up in the Competition Bureau’s information to obtain a search warrant – was an effort by Walker to describe proposed responses led by three companies under a single umbrella: Devon Group, TPG and Donna Cona.
Walker testified he had been trying to make clear that whichever firm led a proposal, the other two would be part of it, just “not named.” Those two words caused Walker no end of grief because bureau officials interpreted them to mean Walker was hiding members of the joint venture – in contravention of competition law.
“That’s not correct,” Walker said on the stand. “We have a contractual joint venture and if you don’t name a partner, it means they’re a subcontractor. It’s only if they’re named that they become a member of CJV,” he added. Federal procurement officials do not require suppliers to identify subcontractors – they’re interested only in the joint venture partners or prime contractors, the ones who can be sued if things go wrong.
“When we started this, we didn’t understand how complicated and hard it was going to be,” Walker said. This, from someone with decades of experience in the industry. It was little wonder that confusion reigned on this RFP.
The Department of Transport had changed the rules dramatically and frequently during this procurement. Each of the 39 consultants initially were to be exclusive to just one supplier, but when the department realized no firm could produce the required numbers on its own, it permitted different suppliers in late September to propose the same consultants. Two days later – with a final deadline for submissions just one week away –Transport also allowed firms or groups of companies to submit multiple proposals.
No one in the business had experienced such a convoluted RFP.
In proposing an umbrella joint venture, Walker was responding at great speed to the latest rules changes. With deadlines imminent, TPG Technology and Donna Cona ignored Walker’s proposal – and submitted ones of their own. That left Walker with Team Devon, which included S&S Software.
He had no idea that S.i. Systems, the new owner of S&S, was working behind the scenes to get a favourable deal with the Competition Bureau and would soon pull out S&S Software and scuttle the whole deal.
**
Veterans of the computer services industry initially were baffled by the bureau’s interest in pursuing a case.
“They said ‘Things will go easier for you if you co-operate,’” said a target of the bureau’s search and document seizure in 2006, “But we asked ourselves: ‘Co-operate about what?’ We had no idea what they were talking about.” This particular target heard nothing more from the bureau for nearly two years. Nor would any of the accused.
Competition Bureau investigator Colette Morin-Wade been working at the bureau in administration since 1995 and became a competition officer in 2005.
Stephen Fitzpatrick had been called to the bar three years earlier. Colette Morin-Wade had been working at the bureau in administration since 1995 and became a competition officer in 2005. Jurors learned that among her qualifications was a one-day training program in competition law.
Despite their lack of familiarity with the computer services industry, Fitzpatrick and Morin-Wade were quick to apply the provisions of Section 47 of the Competition Act. This is the piece of legislation that defines bid-rigging. The offence occurs, the act reads, when “two or more bidders” come to an “agreement or arrangement” without making the collaboration known to the “person calling for or requesting the bids or tenders.”
As early as October, the bureau’s investigators had established a pattern. When they met with industry executives, they would first explain the bureau’s mandate and powers, along with their interpretation of Section 47. Had the suppliers disclosed their teaming arrangements explicitly to Public Works, the investigators wanted to know. This caused considerable heartburn in many quarters of the suppliers’ community.
The firms, it is now clear, had never heard of Section 47.
“We weren’t trying to hide anything and it was clearly obvious to us that everybody was aware of the approach we were taking,” Veritaaq executive Blair Richardson testified, “We disclosed exactly what we were doing.” But he and other suppliers hadn’t been doing it in the precise manner expected by the bureau.
While ignorance of the law is no excuse, this particular law is unclear. For instance, Section 47 does not define bid or tender, a rather crucial omission in this business. When the firms won a spot on the CBSA shortlist, they were not guaranteed work. This would come only when the government issued a task authorization – and each of the three firms on the shortlist would have to compete for it. Only then would they be able to bill for their services. The defendants maintained that only the second part, the TA, involved a call for a bid – one that resulted in a contract.
The Crown argues the RFP and task authorizations are two steps in a single process. Crown attorney Denis Pilon suggested that suppliers who won a spot on a shortlist knew that “money was at the door.” He added: “It was something that was real, concrete,” querying why suppliers would do all that work preparing a proposal “if there is nothing at the end.”
This argument of course ignores the fact that this is how competitive businesses operate – they take their time determining which contests they believe they can win, then invest time and money in preparing their proposal. Sometimes they win, sometimes not. And that’s also how it played out for TPG and Spearhead in 2005.
Section 47 also fails to explain just who is to be informed of joint ventures or other forms of collaboration. In the context of the federal government is it the department that negotiates the contracts (Public Works) or those that actually purchase the services (Canada Border Services Agency for instance)?
Federal competition law also neglects to provide guidance about how this information is to be conveyed – it is to be written down or given orally or can suppliers assume that bureaucrats are aware of their teaming arrangements by the sheer volume of interactions involving contractors?
Fitzpatrick and Morin-Wade determined that suppliers should have notified Public Works of collaborations explicitly in writing. They considered no other opinion as is evident in this crucial exchange during the trial between Fitzpatrick and defence attorney Patrick McCann.
Patrick McCann, counsel for TPG executive Phil McDonald: ‘During this trial, you’ve heard from 19 Crown witnesses and we’ve had thousands of e-mails dumped on us. Most of the Crown witnesses have been very helpful to the defence. Most of the e-mails quite frankly were irrelevant.’
McCann: And the second assumption you made was that as long as (the federal contracting authority) was not formally advised of any discussions or co-operation amongst the defendants, then there was a failure to make it known. Was that your understanding?
Fitzpatrick: Generally speaking, yes.
McCann: You never considered the possibility that it could be made known in other manner, in other ways?
Fitzpatrick: Made known in other ways?
McCann: Yes.
Fitzpatrick: I’m sorry. I’m not sure what you mean.
McCann: Without a formal notification.
Fitzpatrick: Well, I mean, there’s some law on that.
McCann: Very little.
Fitzpatrick: There’s an Ontario Court of Appeal decision that says there has to be explicit notice.
McCann: It’s over 30 years old, before the Charter (of Rights). So that’s what you went on?
Fitzpatrick: That’s right, that’s what we go on.
McCann: So it never sort of occurred to you that the first level managers (at CBSA) were actually the ones designing the technical requirements, and Public Works (managers) were simply their agents?
Fitzpatrick: I was aware that CBSA employees wrote the technical requirements that they provided to Public Works to be posted through the requests for proposals.
McCann: But you didn’t consider that they would be the people who were calling for the bids or tenders?
Fitzpatrick: No.
McCann: Did you even investigate the relationship between the (CBSA contractors) and their immediate managers during the course of your investigation?
Fitzpatrick: Generally no.
Indeed, so convinced was the bureau that Public Works was the only relevant authority, its investigators declined to seek documents or emails from CBSA officials – let alone serve them with subpoenas.
The investigators were not shy about reminding people of their considerable powers, and that bid-rigging was a criminal act. They also noted the existence of a provision that offers immunity to firms that co-operate with the investigation. Some suppliers, faced with a potentially ruinous loss of the government as a client, accepted a plea bargain.
Within days of Fitzpatrick’s October interview of Louis Perron, the bureau got a call from a lawyer representing S.i. Systems, inquiring about an immunity deal. The company was concerned about whether S.i. Systems – or rather its new acquisitions in Ottawa – had been playing by the rules to the satisfaction of the bureau.
The Attorney General forwarded a provisional grant of immunity to S.i. Systems early in 2006 – in exchange for helping the bureau with its investigation.
Perron provided only a few documents and these were of little apparent value. “He didn’t give us too much information,” Morin-Wade testified. Perron also refused to sign a legal document outlining his knowledge of the facts. “My recollection of the facts is a little fuzzy,” Perron wrote later to Crown prosecutor Denis Pilon. “I no longer have access to notes.”
Perron’s allegations did not stop at Transport Canada. In March 2006, shortly after he got his immunity deal nailed down, Perron pointed to what would became the 10th procurement at issue in this trial. This was a single RFP involving the provision of computer services to the Canada Online program administered by Public Works. Oddly, when Fitzpatrick executed search warrants that autumn, he didn’t feel there were enough grounds to include documents related to Canada Online.
**
On an unseasonably cool Sept. 12, 2006, nearly 50 officials from the Competition Bureau descended on the offices of eight Ottawa firms. At TPG, Spearhead, Veritaaq, Donna Cona, Devon Group, Brainhunter, TRM and Tipacimowin, bureau employees proffered search warrants and seized computer hard drives and paper records.
Leslie Wilbur, counsel for Ron Walker: ‘The Crown’s star witnesses are rumour and hearsay. Hearsay alleges there was a crime. Rumour spread the story. Hearsay triggered the Investigation. The truth is there was no crime.’
Leslie Wilbur, the counsel for Ron Walker, later queried the justification for some of these searches. She noted that the Information to Obtain – the document written by the bureau to support its request for a search warrant – talked about “interviews conducted with Transport personnel” that suggested the department had not been made aware of teaming arrangements. Wilbur noted that at the time the bureau wrote the ITO, it had interviewed just one Transport employee, Bev Shawana – a procurement specialist.
Wilbur: It was only Ms. Shawana.
Fitzpatrick: They had interviewed Ms. Shawana and they’d spoken to (Transport manager Marc) Whelan but since I wasn’t present, I can’t recall what Mr. Whelan told them.
Wilbur: Interviews in the plural.
Fitzpatrick: It’s a typo, yes.
Wilbur: It’s a typo.
Thousands of documents and email strings secured by these searches would eventually find their way into evidence in Judge Warkentin’s courtroom. Oddly, the suppliers at this stage were still more puzzled than alarmed. “It seemed like a fishing expedition, quite honestly,” said the owner of one of the targeted firms, “but since we didn’t think we were doing anything wrong, we weren’t that concerned.”
There was a similar attitude at Veritaaq, but there was also concern about potential risks to the business. If the bureau was determined to go down a certain path, perhaps it didn’t matter if the company believed it had acted properly in collaborating with TPG, Spearhead and Tipacimowin on the CBSA technology bundles. Veritaaq president Paul Genier had carefully examined Veritaaq’s strategies the previous year and satisfied himself that the CBSA requests for proposals did allow for teaming, and for including the same consultants on multiple responses.
But after the search warrants were served, Genier consulted Michael Osborne, Toronto lawyer who suggested the bureau’s views on Section 47 – the competition law – were narrow and potentially troublesome. Osborne suggested it might be time to seek immunity in exchange for helping out with the investigation.
There was a lot at stake. Paul’s father, Jean Genier Sr., had acquired a nearly bankrupt Veritaaq in 1995 and transformed it into a profit-making machine. Jean Sr. did this by converting its computer services employees to contractors. This way, if there was downtime between projects, the cost would be born by the contractors, not the firm.
By the late 1990s, Veritaaq had dozens of contractors under its roof and was generating very healthy profits. Jean Sr. sold the firm to his sons – Paul and Jean Jr., as well as a third party in 2001.
Shannon Lambert, Jean Sr.’s step-daughter, is a vice-president.
Veritaaq was a family compact, in other words – and it had a huge vulnerability. In 2005 its head count was about 150, including 15 head office staff — and it generated nearly every penny of its revenues by renting contractors to the federal government. Paul didn’t feel he had a choice – he instructed Osborne to call the bureau for immunity. Yes, the lawyer confirmed, Veritaaq would help with their investigation.
There was something odd about the bureau’s approach, though. Maybe Veritaaq hadn’t notified Public Works explicitly in writing about its teaming arrangements, but the latter had been widely known to government contracting officials. Now the bureau seemed to be inferring there had been something wrong about the conversations the firms had had about lining up the right contractors at CBSA – about sharing information about what these experts cost. This was baffling – you couldn’t prepare a financial proposal without knowing what your costs were. And you had to have the right skills or you couldn’t qualify to enter the CBSA competition.
The bureau interviewed Veritaaq owners and executives into 2007. The investigators had downloaded thousands of emails showing discussions between Veritaaq and its fellow suppliers. More puzzlement. The electronic communications showed Veritaaq’s Shannon Lambert working prodigious hours to secure contractors with the right skills – then copying more than a dozen people on the results. Everything looked to be done openly. This is how the business worked.
By the spring of 2008, the bureau had spent 18 months going over the information provided by Veritaaq. Everything seemed to be on pause. Perhaps, some thought, the investigators had changed their mind about taking things to the next step – a criminal prosecution of Veritaaq’s former team partners. Perhaps the bureau had finally recognized this wasn’t much of a case.
**
If others had doubts about the strength of case, the bureau certainly didn’t. On June 30, the bureau sent letters to TPG, Spearhead and others warning that charges of bid-rigging were imminent. Should the companies wish to discuss the matter, they were welcome to do so. The offer seemed less than sincere. The matter would be forwarded in two days to federal prosecutors – a period of time that included the country’s national holiday.
The federal prosecutors were just getting rolling – and it would soon become clear the government’s central contracting agency intended to pile on. On Oct. 1, bureau investigators briefed senior Pubic Works officials including Jérôme Thauvette – the recipient of the initial complaint by Ridge Falls House three years earlier. Thauvette learned that the Bureau believed there was enough evidence to lay charges of bid-rigging.
During a follow-up meeting six weeks later, Public Works legal counsel David Colvert brought up the subject of debarment – banning the firms in question from doing business with the federal government for at least three years. Colvert suggested debarment could take effect upon the laying of charges.
In December, Liliane Saint Pierre – the assistant deputy minister of Public Works – offered some insight into how the department viewed suppliers such as TPG and Spearhead. She called them “body shops” in reference to their form. Unlike all-employee firms such as IBM and CGI Group, body shops employ a small group of head office employees who co-ordinate the activities of dozens of independent contractors. Saint Pierre was concerned that the firms could avoid debarment by simply changing shape.
Towards the end of the December session, Competition Bureau commissioner Sheridan Scott reminded her colleagues “you believe innocent until proven guilty in Canada.”
Nevertheless, Saint Pierre instructed Thauvette to fax letters to the firms that would soon be charged. The note said that Public Works “proposes to implement measures to suspend” the firms from entering into contracts for at least three years.
Dec. 23 had been a good day for Ted Martin. He had just finalized the sale of his stake in the company, TRM Technologies, and was looking forward to retirement. He had put on his coat and was about to head out when the company’s fax machine spat out one more message. It was Thauvette’s fax.
The company’s partners were astonished. They had spent many months putting the share sale agreement together. Lawyers and bankers had signed off – no one could believe federal prosecutors would move ahead with charges on what seemed such a thin case. It was especially weak in the case of TRM because its only role in any of the 10 procurements at issue was to agree to provide one or two of its consultants in a team response to the Department of Transport RFP. The fact that Public Works was warning of debarment even before those charges were laid seemed extraordinary.
(Indeed, TPG’s Don Powell challenged the debarment policy of Public Works – and his lawyers proved convincing. The department agreed that it would continue to do business with the accused unless they were convicted.)
TRM president Gareth Hughes and the company’s new partner Norman Carr – yes, that Norman Carr – called Competition Bureau investigator Stephen Fitzpatrick the next day to demand a meeting. They and Martin eventually reached a deal covered by settlement privilege – meaning its details can’t be made public.
Nevertheless, the shape of the deal is not difficult to discern. The Crown declined to charge TRM. The sale of Martin’s shares went through in June after Martin pleaded guilty to one count of bid-rigging in connection with the Department of Transport RFP and paid a fine of $25,000. Charges against a second TRM employee were dismissed for lack of evidence in 2011, following a preliminary trial.
At Veritaaq, the shock upon receiving Thauvette’s fax was complete. Debarment threatened the entire company. As with TRM, the company reached out to the bureau and federal prosecutors. Again, the outlines of the deal can be seen. Shannon Lambert pleaded guilty to one count of bid-rigging. But in exchange for an agreement to testify for the Crown, her charges were expunged. (Paul had offered to take the fall but the Crown declined – Lambert’s name was on most of the emails of interest.)
When asked by the defence why she pled guilty, Lambert responded: “Veritaaq is our retirement, our kids’ future,” she explained. “Government has the ability to change the rules any time for any reason,” she added. “Our only business was with the government – we made a business decision to have me take the fall.” (Tactically it would prove a good decision. Veritaaq used the reprieve to expand its business across the country and diversify into the private sector. It now has 80 employees and more than 800 consultants.)
**
Gareth Hughes was despondent. The TRM executive had watched the Competition Bureau race down what he was convinced was the wrong track. Now, on Jan. 7, 2009, criminal charges were pending against nearly two-dozen individuals and firms – among them, at least for the time being, a TRM principal and and an employee from the same firm.
Hughes felt it was somehow important to record what had gone wrong and why. He relayed his thoughts to Stephen Fitzpatrick.
“We have a classic case underway here whereby more awareness at the time would have produced a very different outcome,” Hughes wrote in an email disclosed at trial, “I think (everyone) would have benefited and taxpayers would have been spared what promises to be a riveting and expensive ride.”
Hughes’ point was that had the bureau simply notified the industry that a formal notice to Public Works about teaming was what was required, so much pain would have been avoided. The accused testified they would have had no difficulty with such a notification.
There were two reasons they didn’t include one in 2005. The first was that they were operating under the belief that the line departments – CBSA and Transport – were already well aware of their teaming arrangements. The second was that the very detailed RFP documents did not ask for such a declaration.
The legal wars have consumed millions of dollars in legal fees, damaged the reputations of longstanding government suppliers, and contributed to ruining the health of several of the defendants and at least one marriage.
One defence lawyer suggested to the Crown early on the following compromise: the industry would contribute to a fund that would be used to educate suppliers about rules the Bureau wanted them to play by. The Crown turned him down flat.
Six weeks after Hughes sent his note, the bureau announced that federal prosecutors had charged 14 individuals and seven companies with rigging bids.
The laying of charges marked the beginning of what Hughes called the “riveting and expensive ride” – five years of legal preliminaries leading last September to the start of a criminal jury trial.
**
Judge Bonnie Warkentin, during the last part of the Crown’s closing submissions: “We’re at the point now in the trial where the jury is wearing out and so are all of you no doubt, but we do have to be mindful that the jury has dedicated an enormous amount of time and we don’t want to have this fail because they say they can’t continue any longer.”
A couple of minutes past the usual closing time for Courtroom 36 on April 14, Judge Warkentin was close to exhausting her rich supply of patience. The jury had been sent home for the day and the Superior Court Justice was listening to attorney Valérie Chénard discuss plans for wrapping up the Crown’s case.
Chénard said she was reasonably sure she could complete final submissions in the next two days, “but at this juncture I’m not sure.”
The judge betrayed no emotion but reminded Chénard that she intended to begin her charge to the jury as soon as the Crown was done. Then Warkentin added this: “We’re at the point now in the trial where the jury is wearing out and so are all of you no doubt, but we do have to be mindful that the jury has dedicated an enormous amount of time and we don’t want to have this fail because they say they can’t continue any longer.”
Warkentin had been consuming evenings and weekends in the race to complete a charge to the jury that would approach 300 pages in length – such were the permutations and possible combinations in a trial involving nine defendants and 10 procurements. For weeks, the lawyers had been weighing in with suggestions about how the various elements of her charge should be worded.
The questions to be answered by the jurors are grouped under four broad branches:
The permutations allow for one or more guilty verdicts on one or more charges in connection with one or more of the procurements.
The extraordinary complexity of the judge’s jury charge is of course a function of how the Crown chose to wage its campaign. It entered into evidence thousands of emails showing the accused discussing which contractors they needed to fulfill technical requirements at CBSA, Transport and Public Works – and what they expected for their services. The defendants agreed they did this and the evidence by nearly all the Crown’s witnesses suggested such behaviour was permitted, even encouraged by the departments seeking the contractors.
Crown prosecutor Denis Pilon elaborated to the jury that “necessarily there is some sharing of resources, but it goes further than that. It’s about an agreement or arrangement about three things: resources, rates and the number of bids to be submitted. So remember that.” It was the manner in which the accused were assembling and pricing their contractors that appeared to trouble the Crown.
“They went beyond (creating) the pool of resources,” he had explained earlier. “They exchanged rates, they developed a pricing structure.”
But in order to make the case that the accused rigged bids, the Crown needed to establish that the defendants shared financial information other than the costs of the contractors – the final prices of their proposals. Here, the Crown’s case is razor thin.
Pilon in his final arguments put stock in an email sent by a TPG Technology staffer to a second firm involved in the alleged conspiracy to rig bids. The email contained financial details but it may well have been sent by mistake – the TPG staffer was substituting for one of the accused, Phil McDonald, who was on holiday. The Crown brought no evidence showing the employee had been instructed by McDonald to do anything; nor were there any other emails introduced that suggested a pattern.
Indeed, the defendants appear to have jealously guarded what profits they intended to make. They collaborated to create a pool of contractors that would allow them to qualify on the technical side of things – but that meant the technical scores would be fairly close. The profit margins would determine who got on the short list of each RFP.
In opening his final submissions earlier this month Pilon noted that the purpose of the Competition Act is to “protect the caller and competitor” – in this case, the government and the rivals of the accused.
The government, it appears throughout the evidence, seemed not in need of protection – it was the one controlling the play. The line departments, especially CBSA, pointed the accused to the contractors who should be included in their proposals. And government lawyers drafted the requests for proposals and detailed how these should be answered.
The competitors, for their part, were the ones who wanted to preserve profits – which meant taxpayers would likely have paid more for the services they provided had they won spots on the shortlists. This wouldn’t have applied had the accused implemented a sophisticated gaming scheme – but the evidence is paper-thin here as well.
Did the Crown think through its strategy of dumping reams of data on a court proceeding to be decided by a jury? Not much can be revealed about the makeup of juries in Canada – in this case there are six men and seven women, some with experience in business, others not. The average age looked to be in excess of 50, with the men at the higher end.
The trial was initially billed as a four-month event and by next week it will have moved into its eighth month. The jurors could be forgiven a deep fatigue produced by the repetitive arguments. In this sense, it may not have been an advantage for the Crown to present its final arguments after the defendants spent many days delivering theirs – especially given Chénard’s enthusiasm for entering documents. Nor could the Crown have been pleased with the judge’s instructions to the jury when Chénard finished.
Judge Warkentin clarified ten statements made by the two crown attorneys during their final arguments. In one instance, Pilon had stated that evidence was “quite overwhelming” that departmental managers were not involved in discussions between suppliers and contractors. In fact, the judge told jurors, there had been evidence of communications involving managers – and there was also a shortage of evidence about managers’ activity because the competition bureau had not conducted searches at CBSA.
“An absence of evidence is not evidence of overwhelming evidence,” she said.
For the jury, the judge, the accused – this sprawling, decade-long affair cannot end soon enough.
Email: jbagnall@ottawacitizen.com
Twitter.com/JamesBagnall1
**
The timeline:
2005
June to Oct.: Series of requests for proposals issued for the provision of information technology services at Canada Border Services Agency, Transport and Public Works.
Summer: Ridge Falls House of Ottawa, a supplier, complains to Public Works about the process.
Sept. 7: Public Works contacts Competition Bureau, which begins to investigate.
2006
Sept. 12: Search warrants are executed to search the offices of TPG Technology and other Ridge Falls House competitors.
2008
June 30: Competition Bureau sends letters to TPG and others, warning that charges of bid rigging are imminent.
July 2: Bureau refers matter to Director of Public Prosecutions.
Dec. 23: Public Works tells companies they will be barred from future business when charges are laid. TPG lawyers convince the department to back track, arguing this amounts to presumption of guilt.
2009
Feb. 17: Bureau announces criminal bid-rigging and conspiracy charges against 14 individuals and seven companies. Barry Dowdall, Marina Durward, Perry Henningsen, Shannon Lambert, Susan Laycock, Wendie Loudon, Theodore Martin, Philip McDonald, Kevin O’Rourke, David Gelineau, Don Powell, Thomas Townsend, Ronald Walker, David Watts, Brainhunter Inc., The Devon Group Ltd., Donna Cona Inc., Nortak Software Ltd., Tipacimowin Technology Inc., Spearhead Management Canada Ltd. and TPG Technology.
Feb. 23: Shannon Lambert pleads guilty to one count of bid rigging. She co-operates with the Crown in preparation for the upcoming criminal trial and receives a discharge. Judge signs order committing Veritaaq to implement a compliance program educating its employees about bid-rigging offences.
June 9: Theodore Martin, the former owner of TRM Technologies, pleads guilty, pays $25,000. TRM was not charged.
2010
Aug. 25: TPG president Don Powell files an amended claim against the bureau for defamation, seeking $125 million in damages.
2011
Oct. 5: Ontario Superior Court Justice Ann Alder rules after a preliminary inquiry that the Competition Bureau’s bid-rigging case against several Ottawa-area companies should be heard at full trial. Alder dismisses charges against Kevin O’Rourke, Nortak Software, and Tipacimowin Technology for lack of evidence. Crown had earlier dropped charges against Wendie Loudon.
2012
July 18: Ontario Superior Court dismisses appeal of Alder’s ruling that the case should go to trial.
2013
April 2: Ontario Court of Appeal upholds Superior Court ruling.
June 19: Tipacimowin Technology launches constitutional challenge to s. 47 of the Competition Act under section 7 of the Charter of Rights. Claims it’s “a vague law” that should be “struck down.” Challenge is later withdrawn.
2014
Sept. 8: Beginning of scheduled six- or seven-month trial.
2015
Feb.: Judge Warkentin dismisses charges against David Watts in a directed verdict.
April: Crown stays conspiracy charges against six remaining individuals. Bid rigging charges remain.
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What it suggested was the Crown was still divided over how to prosecute its case – nearly seven years after charging six individuals and three firms with rigging bids in connection with more than $60 million worth of federal government contracts.
It was Feb. 26, a day given over to discussions about procedure. The jury was not present. Crown counsel and defence lawyers were debating how Warkentin should word her charge to the jury – the framework for determining how jurors should interpret the law and render verdicts.
Just a few minutes before court was due to break for the weekend, Valérie Chénard, the Crown prosecutor on this file from the very beginning, attempted to clarify what constituted bid-rigging.
Was it just an agreement among suppliers on how they priced their final proposals, she asked rhetorically, or did it also include “any type” of agreement? By this, she was referring to discussions between firms about sharing contractors (also known as resources), which is explicitly permitted by federal procurement rules.
Warkentin appeared startled. “Is it the Crown’s position that because the defendants were working together to gather resources … but each submitted their own pricing in their proposals, that that’s an offence of bid-rigging?” the judge asked. “Because I’m going to need some law on how that constitutes bid-rigging. That’s a pretty long shot for the Crown.”
Chénard explained that even “an agreement on resources . . . could be sufficient to have bid-rigging.”
The judge was puzzled: “I’ve not heard from anyone at any level or any witness, including your own investigators, that said that that was somehow criminal conduct or that it wasn’t common conduct or that it wasn’t expected conduct,” Warkentin said. “In fact, all of the managers and the professionals said that they expected people would be working together.”
The trial had revealed this was the nature of the industry. If the government wanted 20 contractors with particular skills – and a single supplier couldn’t provide them – then it was OK to team up with a second firm that had the necessary resources.
Finally, Chénard’s fellow prosecutor Denis Pilon jumped in “to clarify” that the Crown actually wouldn’t be arguing Chénard’s point; they would concentrate on how the accused reached their final prices in responding to government requests for proposals.
The defendants took some comfort from the apparent confusion in the Crown’s case but there was anger, too. They had been living with the consequences of this criminal proceeding for almost a decade; some had been touched by heart disease, another by cancer, and all had experienced the stress that comes with being a target of the Crown.
Defence lawyer Peter Mantas captured the mood during his final arguments earlier this month. “The (Competition) Bureau and the Crown have had a long time to work on this case,” he told the jury, “By the time the trial started, they should have been able to get it right, they should have been able to put a theory before you that was supported by some evidence.”
This all started with a seemingly routine encounter that lasted just 20 minutes. There was no reason to suspect it would carry such serious consequences for so many people.
On July 13, 2005, a day dripping with humidity in the Ottawa valley, Ridge Falls House executive Shaun Pritchard took a four-kilometre drive to the offices of Spearhead Management, a computer services firm in the city’s west end. Pritchard was a 13-year veteran of Ridge Falls where he had helped to develop a network of more than 100 contractors.
Soft-spoken and unassuming, Pritchard was in many ways the opposite of Sue Laycock – the Spearhead executive who had requested the meeting. Laycock was all energy and enthusiasm. In her late 30s, she had joined Spearhead two years earlier and was already adept at placing contractors in various federal departments. Ridge Falls had some people with skills she was interested in. She wanted to talk shop.
After their short conversation, Pritchard returned to his office to report to Stephen Chamberlain, his uncle and Ridge Falls owner. Laycock had no idea her world was about to implode, that Spearhead, her job and her marriage would all soon be history.
But the spark lit by Pritchard would soon engulf dozens of individuals and Ottawa-based firms in a litigation without parallel.
***
On Tuesday Judge Bonnie Warkentin completed her stunningly lengthy charge to the jury. It ran nearly 300 pages and took her two days to read. The trial, too, was excruciatingly long. It featured more than 80 days of testimony by 22 witnesses, and thousands of electronic exhibits. More than one million pages were disclosed.
Twelve citizens will now determine whether the accused were guilty of rigging bids to win federal government contracts. Aside from Laycock, the defendants are: Marina Durward, Phil McDonald, Don Powell, Tom Townsend, Ron Walker, Devon Group, Spearhead Management and TPG Technology. (David Watts was acquitted in February in a directed verdict.)
Waiting anxiously in the wings are five more defendants, charged with similar offences, who elected to be tried by a judge alone. Their proceeding is expected to follow later this year.
All this is happening in part, the evidence suggests, because Pritchard misunderstood or mischaracterized what Laycock told him, and made no effort to clarify matters before lodging a formal complaint.
It took more than that, of course. Pritchard’s actions were compounded by inexperienced investigators from the Competition Bureau, who focused far too soon on the idea that bid-rigging was at play and failed to pursue leads that would have taken them down a much different trail.
The trial ripped open the inner workings of one of this city’s most complicated industries – the $500 million-a-year business of renting computer services technicians and software experts to the federal government. It also shed light on the surprising lack of clarity in competition law and introduced significant amounts of raw emotion when little had been expected.
So abundant were the emails introduced by the Crown, so voluminous the charges and so confusing the context it’s entirely possible jurors, now sequestered, could find some of the accused guilty of rigging some of the bids.
But the simple truth is, the accused were guilty merely of being in the wrong place at the wrong time – for this strange, murky industry was an accident waiting to happen.
**
It is an extraordinarily fluid business. Some 5,000 software experts sell their expertise to government under contract in the National Capital Region, often working alongside federal employees. Some bill for their services through small companies such as Spearhead and TPG Technology. Others are employees of multinationals such as IBM. The alliances shift constantly as the contractors seek the most interesting or best-paid assignments.
Government solicits these experts through stunningly detailed requests for proposals (RFPs). Since even the largest suppliers can’t supply all the necessary skills, competitors must collaborate through joint ventures, consortia, subcontracts or other more convoluted arrangements.
Government contracting officials can and do change rules seemingly on a whim, with catastrophic financial consequences for the suppliers who find themselves on the wrong side of the revisions.
Such was the case with Ridge Falls House – which in 2005 provided contractors to the Canada Border Services Agency and other government clients. The day Pritchard met with Laycock, his uncle had been trying for months to sell the firm to potential buyers. The key to getting a good price was Ridge Falls’ ability to retain its computer experts, then under exclusive contract.
But things were changing rapidly post 9/11, in a manner that would weaken the links between Ridge Falls and its contractors. CBSA, a newly formed agency, was upgrading its software and computer networks for the expanding war on terror. Contracts involving hundreds of computer and software experts were expiring – and CBSA managers were desperate to keep most of them on board.
And so they changed the rules.
It’s easy now to see how this shift initially led investigators down the wrong path. In the document used to justify search warrants, Competition Bureau investigator Stephen Fitzpatrick talked about the unusual similarities between proposals submitted by several firms later charged with bid-rigging – right down to the font size used and the rates of pay they would charge for various contractors. The proposals “were virtually identical” he wrote.
The trial would later show that this was true, but testimony from the Crown’s own witnesses would also demonstrate that the similarities were a function not of rigged bids, but of the new rules implemented by CBSA.
The agency convinced Public Works – the government’s central contracting group – to issue requests for proposals that allowed CBSA contractors to sign up with multiple companies. The top computer jocks set their own rates, forcing suppliers in many cases to submit identical per diem costs.
Because no single firm could supply 200 plus contractors, CBSA divided the work into more manageable technology bundles and issued eight requests for proposals.
This is why Laycock wanted to see Pritchard. She saw an opportunity to form alliances that would allow her firm to qualify for most of the available RFPs. Prior to meeting Pritchard on July 13, Laycock called to seek his permission to submit one of Ridge Falls’ contractors, a senior web developer at CBSA, on a Spearhead proposal. In exchange, she said, Ridge Falls could include one of Spearhead’s contractors, someone who was also working at CBSA.
Shaun Pritchard, former executive with Ridge Falls House and a Crown witness: Pritchard was the only source of testimony for the Crown’s charge that Sue Laycock counselled another to rig bids. His presence in court led to spirited exchanges as he was cross-examined by Laycock – who represented herself during the proceedings.
When Pritchard arrived at Spearhead’s offices that July day, he listened quietly to Laycock’s pitch – which included some insight about Spearhead’s strategies for trying to win more business at CBSA in collaboration other partners. The team, led by TPG Technology, would eventually comprise Spearhead, Veritaaq, Donna Cona Inc. and Tipacimowin.
Pritchard’s response: “I may have given her a blank stare,” he testified.
Was it shock, or was he quietly assessing his next move? Pritchard testified that Laycock described for him a “gaming scheme” through which Spearhead and other members of the TPG alliance would try to win spots on CBSA’s shortlist of suppliers by manipulating the availability of contractors.
Pritchard understood this to mean that the TPG team would put forward low-priced computer specialists to help drive down the price of their proposals. But when CBSA actually requested a contractor, Pritchard continued, it would discover that only the higher-priced ones were available.
A different picture emerged last November when Colette Morin-Wade, an official with the Competition Bureau, took the stand. Under cross-examination, Morin-Wade consulted the notes she had taken after interviewing Pritchard in 2007. “He remembers a discussion with Sue (Laycock),” Morin-Wade had recorded in her work diary. However, the entry noted that Pritchard had said that Laycock “didn’t give any details.”
Since neither Laycock nor Pritchard took notes or taped the conversation, we don’t know precisely what was said.
But we do know what daily rates were actually proposed by members of the TPG team for each of the skills bid. A trial exhibit revealed that just one of the eight CBSA bundles contested by the TPG alliance contained the type of price pattern that could possibly be interpreted as part of a gaming scenario. And no evidence was brought by the Crown to show that this is why the pattern showed up on that procurement – it could just as easily have been a statistical quirk.
Had Pritchard kept his thoughts to himself, we might never have heard of him. Instead, he called his uncle who immediately sought a meeting with Jérôme Thauvette, a senior Public Works official.
**
Stephen Fitzpatrick was one the two main investigators for the Competition Bureau. The defence alleged the investigation was wired from the start to find that bids were rigged. The Crown countered the investigation was “thorough”.
One of the most disturbing aspects of this story was the willingness of so many to level accusations without troubling to seek an explanation. This was true of competing suppliers, senior officials at Public Works and investigators employed by the Competition Bureau.
Executives from suppliers Ajilon and S.i. Systems, for instance, complained to Public Works about improper behaviour by the TPG team. The allegations were general in nature and evidence at trial suggested they were also unfounded.
The complainants did not stand behind their allegations. One not only declined to testify he refused to sign a witness statement claiming knowledge of misbehaviour. Another simply washed his hands of the matter, saying it was up to Public Works and the Competition Bureau to prove the case. Only Pritchard agreed to step up and testify.
Surprisingly, officials from the Competition Bureau also declined to speak with the defendants. No one from the bureau interviewed any of the defendants. “We don’t go to targets of investigation and necessarily confront them,” explained Stephen Fitzpatrick, the bureau’s top investigator on the file, “(We don’t) suggest to them that they’re doing something illegal and ask them to explain themselves.”
While it’s true that alerting targets to an impending investigation often pushes them into a defensive shell – from which little information emerges – this case involved some very complex procurement rules. A conversation with these targets would likely have produced much insight. In fact, defendants Don Powell and Ron Walker were eager to explain themselves, putting themselves through several days of cross-examination at trial, though there was no requirement for them to do so.
It also emerged that the bureau had failed to interview more neutral suppliers who could have helped with the understanding of the industry. There are hundreds of computer services firms that sell their expertise to the federal government. Fitzpatrick testified that on the few occasions he reached out to companies that weren’t charged, it was to ask if they had information about bid-rigging in connection with the firms under investigation. In short, the bureau relied almost exclusively on a few complainants for their insight.
This would prove a fateful omission. Trial evidence showed that bureau and federal prosecutors had read far too much into the key documents and emails upon which they had based their case. They inferred the defendants had shared information about profits when the evidence suggested all they had been doing is comparing certain costs. The prosecutors saw something nefarious in firms collaborating to create a team of experts – something that federal departments encouraged.
For his part, Pritchard did not speak again to Laycock until 2011 when he testified against her in a preliminary trial. As he walked passed her on the way out of the courtroom, he said quietly “Sorry.” This, according to his testimony last January under cross-examination by Laycock.
**
Sue Laycock, former vice-president, Spearhead Management: “This case has been in my life for 10 years, half of my youngest child’s life. The allegations against me have impacted my family, my reputation and my employment. More importantly, these allegations are false.”
Chamberlain appears to have had little difficulty accepting his nephew’s description of the conversation with Laycock.
If what Pritchard thought was true, Chamberlain was right to worry.
Ridge Falls had nearly 20 consultants under exclusive contract at CBSA – representing an estimated $1.5 million plus in annual billings – and was earning at least a 13 per cent profit on the business. Competing suppliers such as Laycock’s were forming teams capable of undercutting Ridge Falls on price. Those profits would have to come down – a lot.
Chamberlain and Pritchard met with Thauvette on July 20 to try to persuade him to re-issue the CBSA procurements under the old rules. They were coy – perhaps because just one of the agency’s RFPs had actually closed and none had yet been awarded. According to Pritchard, Chamberlain did not name names – he merely suggested to Thauvette that his people keep an eye out for evidence of a gaming scheme. The Ridge Falls executives returned to company headquarters in Dunrobin, satisfied their concerns were being heard.
But in the first week of September CBSA revealed the shortlist for the first two RFPs. Ridge Falls was out and TPG Technology was in. Though Laycock’s Spearhead had failed to make the cut, Pritchard was convinced the gaming scheme was still in play. Ridge Falls set up a second meeting with Thauvette to complain some more.
Chamberlain and Pritchard didn’t know their push for an investigation was already acquiring momentum. Sandra Labbé, the acting manager for information technology professional services at Public Works, had been present at the first meeting between her boss Thauvette and the Ridge Falls executives.
She had taken a second look at the early CBSA submissions, including one dubbed Paxis – short for passenger information systems. Though she was relatively new to the world of computer services, she was a seven-year veteran of the department, and had accumulated experience in purchasing military gear, ammunition and armoured vehicles.
Labbé had also recently attended a Competition Bureau presentation aimed at alerting officials about signs of bid-rigging and other improper behaviour. It was part of an outreach program meant to educate the wider community about the Competition Act. The bureau was acknowledging that the existence of the act, let alone its provisions, was not well known. This knowledge gap would be a constant theme in the years to come.
Labbé was surprised by some of the results in the Paxis competition: TPG, Tipacimowin and Spearhead had submitted proposals in which technical scores were exactly the same. Labbé called the bureau official who had hosted the bid-rigging seminar. On Sept. 8, Fitzpatrick took a short walk from his office to Public Works to pick up the Paxis file.
On the other side of the Ottawa River, Norman Carr – the head of TPG competitor Ajilon – had reached a similar conclusion. The winning scores of TPG and its team members – which included financial as well as technical assessments – were too close to be anything other than collusion, he believed. Carr emailed Thauvette on Sept. 13 to complain about a TPG conspiracy to win contracts at CBSA.
Don Powell, president of TPG Technology: ‘People need laws that are written down and clearly documented so they can understand in advance what’s legal and what isn’t legal. That didn’t happen here.’
Carr was not a neutral party. Not only was Ajilon competing directly against TPG and its teammates at CBSA, it had lost a considerable amount of business to Powell’s firm at Public Works. TPG years earlier had snagged a $30-million-a-year contract to manage the federal government’s main computer networks, including the ones responsible for sending out social security cheques. This contract made TPG the government’s third-largest computer services firm – and was the source of much of Powell’s wealth. (Indeed, Powell would finance most of the legal wars in the years to come.)
Labbé and Carr were right to question the scores at CBSA but neither seemed to appreciate the special circumstances. Agency officials had written such detailed requests for proposals it was clear which computer services contractors they wanted to see returned under new contracts. It was a process called ‘wiring’ – and CBSA was very good at it. TPG and its team members mounted a very aggressive campaign to include CBSA’s incumbents in their responses to the RFPs.
Shannon Lambert, vice-president of Veritaaq Technology and a Crown witness: Lambert testified that Veritaaq collaborated with the accused though it’s not clear she helped the Crown’s case. She explained her presence by noting it was a tactical decision ‘to have me take the fall.’
“If I could have,” Veritaaq vice-president Shannon Lambert testified, “I would have stood at the Tim Hortons at Billings Bridge with a big sign saying, ‘Any incumbent, please come and talk to me’.”
CBSA contractors – the computer services experts actually doing the work – were well aware of their bargaining power. CBSA managers consulted them before preparing the statement of work and technical requirements that would form part of the requests for proposals. The contractors’ skills often bore an uncanny similarity to what was specified in the RFP.
For their part, TPG, Spearhead and Veritaaq knew that if they failed to include these skills in their proposals, they would be declared non-compliant during the evaluation phase. CBSA contractors banded together, union-like, to extract the maximum possible wage rates from these suppliers. In the case of one CBSA bundle, the three firms put forward exactly the same wage rates because the contractors insisted on a rate so high it left no room for profit.
This is why the full proposals submitted by TPG, Spearhead, Veritaaq and others contained so many common features. Each prepared competitive proposals by including certain contractors and then submitting a final price based on how much profit they wanted to make. Information about contractors’ costs was shared by these suppliers, which is allowed. But the Crown produced no convincing evidence that TPG and its team members had shared information about profit margins. Had they done so, then the case that bid-rigging had occurred would have been much stronger. The accused all testified they had not shared proposed profit margins.
**
Public Works spent weeks evaluating the eight RFPs based on criteria established by CBSA. Team TPG did well, securing spots on six of the eight it contested. Veritaaq was a finalist in all seven of its proposals. Spearhead won five of seven.
Ridge Falls, meanwhile, was all but shut out – losing six of seven RFPs. Ajilon fared somewhat better, winning two of five.
Ajilon’s Carr was furious. “What burden of proof does the Crown require before somebody goes to jail or is fined?” he wrote in an Oct. 3 email to Thauvette at Public Works. “The issue is clearly worse than I thought … what will happen with tenders currently being colluded on?”
Carr had no proof. He only suspected collusion. Trial exhibits suggested the TPG team won because it had been willing to accept lower profit margins. Even Pritchard noted that in order to win its single spot on a shortlist, Ridge Falls had had to slash its profits by more than 50 per cent. Carr said later he simply wanted Public Works to dig into what looked to him like suspicious numbers; he’d had no personal knowledge of the final financial proposals put forward by his competitors.
But Carr made a separate allegation in that Oct. 3 email – one that spread like a virus into the Department of Transport and would eventually infect Devon Group and its partners Ron Walker and David Watts, Tom Townsend, Donna Cona Inc., and a handful of other firms and individuals.
Again, this was done without direct knowledge on Carr’s part. Instead, he urged Thauvette to get in touch with Louis Perron, who ran S.i. Systems’ Ottawa operations. Perron, he said, knew about the situation at Transport.
In fact, Perron knew relatively little. Calgary-based S.i. Systems had only very recently purchased Ottawa-based S&S Software, which was part of a joint venture trying to win business at Transport Canada. The joint venture included TPG, Devon Group, Veritaaq, Donna Cona Inc. and others. Perron had attended just one meeting involving the joint venture’s activities.
Just days before Carr made his allegations, Walker had sent his potential partners a copy of a proposed umbrella joint venture aimed at supplying 39 technical contractors to Transport Canada. When he read it, Perron was concerned about some of the language. The offending paragraph – which would later show up in the Competition Bureau’s information to obtain a search warrant – was an effort by Walker to describe proposed responses led by three companies under a single umbrella: Devon Group, TPG and Donna Cona.
Walker testified he had been trying to make clear that whichever firm led a proposal, the other two would be part of it, just “not named.” Those two words caused Walker no end of grief because bureau officials interpreted them to mean Walker was hiding members of the joint venture – in contravention of competition law.
“That’s not correct,” Walker said on the stand. “We have a contractual joint venture and if you don’t name a partner, it means they’re a subcontractor. It’s only if they’re named that they become a member of CJV,” he added. Federal procurement officials do not require suppliers to identify subcontractors – they’re interested only in the joint venture partners or prime contractors, the ones who can be sued if things go wrong.
“When we started this, we didn’t understand how complicated and hard it was going to be,” Walker said. This, from someone with decades of experience in the industry. It was little wonder that confusion reigned on this RFP.
The Department of Transport had changed the rules dramatically and frequently during this procurement. Each of the 39 consultants initially were to be exclusive to just one supplier, but when the department realized no firm could produce the required numbers on its own, it permitted different suppliers in late September to propose the same consultants. Two days later – with a final deadline for submissions just one week away –Transport also allowed firms or groups of companies to submit multiple proposals.
No one in the business had experienced such a convoluted RFP.
In proposing an umbrella joint venture, Walker was responding at great speed to the latest rules changes. With deadlines imminent, TPG Technology and Donna Cona ignored Walker’s proposal – and submitted ones of their own. That left Walker with Team Devon, which included S&S Software.
He had no idea that S.i. Systems, the new owner of S&S, was working behind the scenes to get a favourable deal with the Competition Bureau and would soon pull out S&S Software and scuttle the whole deal.
**
Veterans of the computer services industry initially were baffled by the bureau’s interest in pursuing a case.
“They said ‘Things will go easier for you if you co-operate,’” said a target of the bureau’s search and document seizure in 2006, “But we asked ourselves: ‘Co-operate about what?’ We had no idea what they were talking about.” This particular target heard nothing more from the bureau for nearly two years. Nor would any of the accused.
Competition Bureau investigator Colette Morin-Wade been working at the bureau in administration since 1995 and became a competition officer in 2005.
Stephen Fitzpatrick had been called to the bar three years earlier. Colette Morin-Wade had been working at the bureau in administration since 1995 and became a competition officer in 2005. Jurors learned that among her qualifications was a one-day training program in competition law.
Despite their lack of familiarity with the computer services industry, Fitzpatrick and Morin-Wade were quick to apply the provisions of Section 47 of the Competition Act. This is the piece of legislation that defines bid-rigging. The offence occurs, the act reads, when “two or more bidders” come to an “agreement or arrangement” without making the collaboration known to the “person calling for or requesting the bids or tenders.”
As early as October, the bureau’s investigators had established a pattern. When they met with industry executives, they would first explain the bureau’s mandate and powers, along with their interpretation of Section 47. Had the suppliers disclosed their teaming arrangements explicitly to Public Works, the investigators wanted to know. This caused considerable heartburn in many quarters of the suppliers’ community.
The firms, it is now clear, had never heard of Section 47.
“We weren’t trying to hide anything and it was clearly obvious to us that everybody was aware of the approach we were taking,” Veritaaq executive Blair Richardson testified, “We disclosed exactly what we were doing.” But he and other suppliers hadn’t been doing it in the precise manner expected by the bureau.
While ignorance of the law is no excuse, this particular law is unclear. For instance, Section 47 does not define bid or tender, a rather crucial omission in this business. When the firms won a spot on the CBSA shortlist, they were not guaranteed work. This would come only when the government issued a task authorization – and each of the three firms on the shortlist would have to compete for it. Only then would they be able to bill for their services. The defendants maintained that only the second part, the TA, involved a call for a bid – one that resulted in a contract.
The Crown argues the RFP and task authorizations are two steps in a single process. Crown attorney Denis Pilon suggested that suppliers who won a spot on a shortlist knew that “money was at the door.” He added: “It was something that was real, concrete,” querying why suppliers would do all that work preparing a proposal “if there is nothing at the end.”
This argument of course ignores the fact that this is how competitive businesses operate – they take their time determining which contests they believe they can win, then invest time and money in preparing their proposal. Sometimes they win, sometimes not. And that’s also how it played out for TPG and Spearhead in 2005.
Section 47 also fails to explain just who is to be informed of joint ventures or other forms of collaboration. In the context of the federal government is it the department that negotiates the contracts (Public Works) or those that actually purchase the services (Canada Border Services Agency for instance)?
Federal competition law also neglects to provide guidance about how this information is to be conveyed – it is to be written down or given orally or can suppliers assume that bureaucrats are aware of their teaming arrangements by the sheer volume of interactions involving contractors?
Fitzpatrick and Morin-Wade determined that suppliers should have notified Public Works of collaborations explicitly in writing. They considered no other opinion as is evident in this crucial exchange during the trial between Fitzpatrick and defence attorney Patrick McCann.
Patrick McCann, counsel for TPG executive Phil McDonald: ‘During this trial, you’ve heard from 19 Crown witnesses and we’ve had thousands of e-mails dumped on us. Most of the Crown witnesses have been very helpful to the defence. Most of the e-mails quite frankly were irrelevant.’
McCann: And the second assumption you made was that as long as (the federal contracting authority) was not formally advised of any discussions or co-operation amongst the defendants, then there was a failure to make it known. Was that your understanding?
Fitzpatrick: Generally speaking, yes.
McCann: You never considered the possibility that it could be made known in other manner, in other ways?
Fitzpatrick: Made known in other ways?
McCann: Yes.
Fitzpatrick: I’m sorry. I’m not sure what you mean.
McCann: Without a formal notification.
Fitzpatrick: Well, I mean, there’s some law on that.
McCann: Very little.
Fitzpatrick: There’s an Ontario Court of Appeal decision that says there has to be explicit notice.
McCann: It’s over 30 years old, before the Charter (of Rights). So that’s what you went on?
Fitzpatrick: That’s right, that’s what we go on.
McCann: So it never sort of occurred to you that the first level managers (at CBSA) were actually the ones designing the technical requirements, and Public Works (managers) were simply their agents?
Fitzpatrick: I was aware that CBSA employees wrote the technical requirements that they provided to Public Works to be posted through the requests for proposals.
McCann: But you didn’t consider that they would be the people who were calling for the bids or tenders?
Fitzpatrick: No.
McCann: Did you even investigate the relationship between the (CBSA contractors) and their immediate managers during the course of your investigation?
Fitzpatrick: Generally no.
Indeed, so convinced was the bureau that Public Works was the only relevant authority, its investigators declined to seek documents or emails from CBSA officials – let alone serve them with subpoenas.
The investigators were not shy about reminding people of their considerable powers, and that bid-rigging was a criminal act. They also noted the existence of a provision that offers immunity to firms that co-operate with the investigation. Some suppliers, faced with a potentially ruinous loss of the government as a client, accepted a plea bargain.
Within days of Fitzpatrick’s October interview of Louis Perron, the bureau got a call from a lawyer representing S.i. Systems, inquiring about an immunity deal. The company was concerned about whether S.i. Systems – or rather its new acquisitions in Ottawa – had been playing by the rules to the satisfaction of the bureau.
The Attorney General forwarded a provisional grant of immunity to S.i. Systems early in 2006 – in exchange for helping the bureau with its investigation.
Perron provided only a few documents and these were of little apparent value. “He didn’t give us too much information,” Morin-Wade testified. Perron also refused to sign a legal document outlining his knowledge of the facts. “My recollection of the facts is a little fuzzy,” Perron wrote later to Crown prosecutor Denis Pilon. “I no longer have access to notes.”
Perron’s allegations did not stop at Transport Canada. In March 2006, shortly after he got his immunity deal nailed down, Perron pointed to what would became the 10th procurement at issue in this trial. This was a single RFP involving the provision of computer services to the Canada Online program administered by Public Works. Oddly, when Fitzpatrick executed search warrants that autumn, he didn’t feel there were enough grounds to include documents related to Canada Online.
**
On an unseasonably cool Sept. 12, 2006, nearly 50 officials from the Competition Bureau descended on the offices of eight Ottawa firms. At TPG, Spearhead, Veritaaq, Donna Cona, Devon Group, Brainhunter, TRM and Tipacimowin, bureau employees proffered search warrants and seized computer hard drives and paper records.
Leslie Wilbur, counsel for Ron Walker: ‘The Crown’s star witnesses are rumour and hearsay. Hearsay alleges there was a crime. Rumour spread the story. Hearsay triggered the Investigation. The truth is there was no crime.’
Leslie Wilbur, the counsel for Ron Walker, later queried the justification for some of these searches. She noted that the Information to Obtain – the document written by the bureau to support its request for a search warrant – talked about “interviews conducted with Transport personnel” that suggested the department had not been made aware of teaming arrangements. Wilbur noted that at the time the bureau wrote the ITO, it had interviewed just one Transport employee, Bev Shawana – a procurement specialist.
Wilbur: It was only Ms. Shawana.
Fitzpatrick: They had interviewed Ms. Shawana and they’d spoken to (Transport manager Marc) Whelan but since I wasn’t present, I can’t recall what Mr. Whelan told them.
Wilbur: Interviews in the plural.
Fitzpatrick: It’s a typo, yes.
Wilbur: It’s a typo.
Thousands of documents and email strings secured by these searches would eventually find their way into evidence in Judge Warkentin’s courtroom. Oddly, the suppliers at this stage were still more puzzled than alarmed. “It seemed like a fishing expedition, quite honestly,” said the owner of one of the targeted firms, “but since we didn’t think we were doing anything wrong, we weren’t that concerned.”
There was a similar attitude at Veritaaq, but there was also concern about potential risks to the business. If the bureau was determined to go down a certain path, perhaps it didn’t matter if the company believed it had acted properly in collaborating with TPG, Spearhead and Tipacimowin on the CBSA technology bundles. Veritaaq president Paul Genier had carefully examined Veritaaq’s strategies the previous year and satisfied himself that the CBSA requests for proposals did allow for teaming, and for including the same consultants on multiple responses.
But after the search warrants were served, Genier consulted Michael Osborne, Toronto lawyer who suggested the bureau’s views on Section 47 – the competition law – were narrow and potentially troublesome. Osborne suggested it might be time to seek immunity in exchange for helping out with the investigation.
There was a lot at stake. Paul’s father, Jean Genier Sr., had acquired a nearly bankrupt Veritaaq in 1995 and transformed it into a profit-making machine. Jean Sr. did this by converting its computer services employees to contractors. This way, if there was downtime between projects, the cost would be born by the contractors, not the firm.
By the late 1990s, Veritaaq had dozens of contractors under its roof and was generating very healthy profits. Jean Sr. sold the firm to his sons – Paul and Jean Jr., as well as a third party in 2001.
Shannon Lambert, Jean Sr.’s step-daughter, is a vice-president.
Veritaaq was a family compact, in other words – and it had a huge vulnerability. In 2005 its head count was about 150, including 15 head office staff — and it generated nearly every penny of its revenues by renting contractors to the federal government. Paul didn’t feel he had a choice – he instructed Osborne to call the bureau for immunity. Yes, the lawyer confirmed, Veritaaq would help with their investigation.
There was something odd about the bureau’s approach, though. Maybe Veritaaq hadn’t notified Public Works explicitly in writing about its teaming arrangements, but the latter had been widely known to government contracting officials. Now the bureau seemed to be inferring there had been something wrong about the conversations the firms had had about lining up the right contractors at CBSA – about sharing information about what these experts cost. This was baffling – you couldn’t prepare a financial proposal without knowing what your costs were. And you had to have the right skills or you couldn’t qualify to enter the CBSA competition.
The bureau interviewed Veritaaq owners and executives into 2007. The investigators had downloaded thousands of emails showing discussions between Veritaaq and its fellow suppliers. More puzzlement. The electronic communications showed Veritaaq’s Shannon Lambert working prodigious hours to secure contractors with the right skills – then copying more than a dozen people on the results. Everything looked to be done openly. This is how the business worked.
By the spring of 2008, the bureau had spent 18 months going over the information provided by Veritaaq. Everything seemed to be on pause. Perhaps, some thought, the investigators had changed their mind about taking things to the next step – a criminal prosecution of Veritaaq’s former team partners. Perhaps the bureau had finally recognized this wasn’t much of a case.
**
If others had doubts about the strength of case, the bureau certainly didn’t. On June 30, the bureau sent letters to TPG, Spearhead and others warning that charges of bid-rigging were imminent. Should the companies wish to discuss the matter, they were welcome to do so. The offer seemed less than sincere. The matter would be forwarded in two days to federal prosecutors – a period of time that included the country’s national holiday.
The federal prosecutors were just getting rolling – and it would soon become clear the government’s central contracting agency intended to pile on. On Oct. 1, bureau investigators briefed senior Pubic Works officials including Jérôme Thauvette – the recipient of the initial complaint by Ridge Falls House three years earlier. Thauvette learned that the Bureau believed there was enough evidence to lay charges of bid-rigging.
During a follow-up meeting six weeks later, Public Works legal counsel David Colvert brought up the subject of debarment – banning the firms in question from doing business with the federal government for at least three years. Colvert suggested debarment could take effect upon the laying of charges.
In December, Liliane Saint Pierre – the assistant deputy minister of Public Works – offered some insight into how the department viewed suppliers such as TPG and Spearhead. She called them “body shops” in reference to their form. Unlike all-employee firms such as IBM and CGI Group, body shops employ a small group of head office employees who co-ordinate the activities of dozens of independent contractors. Saint Pierre was concerned that the firms could avoid debarment by simply changing shape.
Towards the end of the December session, Competition Bureau commissioner Sheridan Scott reminded her colleagues “you believe innocent until proven guilty in Canada.”
Nevertheless, Saint Pierre instructed Thauvette to fax letters to the firms that would soon be charged. The note said that Public Works “proposes to implement measures to suspend” the firms from entering into contracts for at least three years.
Dec. 23 had been a good day for Ted Martin. He had just finalized the sale of his stake in the company, TRM Technologies, and was looking forward to retirement. He had put on his coat and was about to head out when the company’s fax machine spat out one more message. It was Thauvette’s fax.
The company’s partners were astonished. They had spent many months putting the share sale agreement together. Lawyers and bankers had signed off – no one could believe federal prosecutors would move ahead with charges on what seemed such a thin case. It was especially weak in the case of TRM because its only role in any of the 10 procurements at issue was to agree to provide one or two of its consultants in a team response to the Department of Transport RFP. The fact that Public Works was warning of debarment even before those charges were laid seemed extraordinary.
(Indeed, TPG’s Don Powell challenged the debarment policy of Public Works – and his lawyers proved convincing. The department agreed that it would continue to do business with the accused unless they were convicted.)
TRM president Gareth Hughes and the company’s new partner Norman Carr – yes, that Norman Carr – called Competition Bureau investigator Stephen Fitzpatrick the next day to demand a meeting. They and Martin eventually reached a deal covered by settlement privilege – meaning its details can’t be made public.
Nevertheless, the shape of the deal is not difficult to discern. The Crown declined to charge TRM. The sale of Martin’s shares went through in June after Martin pleaded guilty to one count of bid-rigging in connection with the Department of Transport RFP and paid a fine of $25,000. Charges against a second TRM employee were dismissed for lack of evidence in 2011, following a preliminary trial.
At Veritaaq, the shock upon receiving Thauvette’s fax was complete. Debarment threatened the entire company. As with TRM, the company reached out to the bureau and federal prosecutors. Again, the outlines of the deal can be seen. Shannon Lambert pleaded guilty to one count of bid-rigging. But in exchange for an agreement to testify for the Crown, her charges were expunged. (Paul had offered to take the fall but the Crown declined – Lambert’s name was on most of the emails of interest.)
When asked by the defence why she pled guilty, Lambert responded: “Veritaaq is our retirement, our kids’ future,” she explained. “Government has the ability to change the rules any time for any reason,” she added. “Our only business was with the government – we made a business decision to have me take the fall.” (Tactically it would prove a good decision. Veritaaq used the reprieve to expand its business across the country and diversify into the private sector. It now has 80 employees and more than 800 consultants.)
**
Gareth Hughes was despondent. The TRM executive had watched the Competition Bureau race down what he was convinced was the wrong track. Now, on Jan. 7, 2009, criminal charges were pending against nearly two-dozen individuals and firms – among them, at least for the time being, a TRM principal and and an employee from the same firm.
Hughes felt it was somehow important to record what had gone wrong and why. He relayed his thoughts to Stephen Fitzpatrick.
“We have a classic case underway here whereby more awareness at the time would have produced a very different outcome,” Hughes wrote in an email disclosed at trial, “I think (everyone) would have benefited and taxpayers would have been spared what promises to be a riveting and expensive ride.”
Hughes’ point was that had the bureau simply notified the industry that a formal notice to Public Works about teaming was what was required, so much pain would have been avoided. The accused testified they would have had no difficulty with such a notification.
There were two reasons they didn’t include one in 2005. The first was that they were operating under the belief that the line departments – CBSA and Transport – were already well aware of their teaming arrangements. The second was that the very detailed RFP documents did not ask for such a declaration.
The legal wars have consumed millions of dollars in legal fees, damaged the reputations of longstanding government suppliers, and contributed to ruining the health of several of the defendants and at least one marriage.
One defence lawyer suggested to the Crown early on the following compromise: the industry would contribute to a fund that would be used to educate suppliers about rules the Bureau wanted them to play by. The Crown turned him down flat.
Six weeks after Hughes sent his note, the bureau announced that federal prosecutors had charged 14 individuals and seven companies with rigging bids.
The laying of charges marked the beginning of what Hughes called the “riveting and expensive ride” – five years of legal preliminaries leading last September to the start of a criminal jury trial.
**
Judge Bonnie Warkentin, during the last part of the Crown’s closing submissions: “We’re at the point now in the trial where the jury is wearing out and so are all of you no doubt, but we do have to be mindful that the jury has dedicated an enormous amount of time and we don’t want to have this fail because they say they can’t continue any longer.”
A couple of minutes past the usual closing time for Courtroom 36 on April 14, Judge Warkentin was close to exhausting her rich supply of patience. The jury had been sent home for the day and the Superior Court Justice was listening to attorney Valérie Chénard discuss plans for wrapping up the Crown’s case.
Chénard said she was reasonably sure she could complete final submissions in the next two days, “but at this juncture I’m not sure.”
The judge betrayed no emotion but reminded Chénard that she intended to begin her charge to the jury as soon as the Crown was done. Then Warkentin added this: “We’re at the point now in the trial where the jury is wearing out and so are all of you no doubt, but we do have to be mindful that the jury has dedicated an enormous amount of time and we don’t want to have this fail because they say they can’t continue any longer.”
Warkentin had been consuming evenings and weekends in the race to complete a charge to the jury that would approach 300 pages in length – such were the permutations and possible combinations in a trial involving nine defendants and 10 procurements. For weeks, the lawyers had been weighing in with suggestions about how the various elements of her charge should be worded.
The questions to be answered by the jurors are grouped under four broad branches:
- Is an RFP a bid or tender? There’s little question the defendants submitted requests for proposals in 2005 as part of their effort to win computer services contracts at Canada Border Services Agency, Department of Transport and Public Works. But are requests for proposals the same as bids or tenders? If jurors agree with the defence position that winning an RFP does not result in an actual contract for services — that the latter occurs only when the government issues a task authorization — then that’s the end of their decision-making. The rest of the Crown’s case won’t apply and all defendants will be acquitted.
- Was there a mistake of fact? If jurors conclude RFPs are the first of a two-step process that results in a contract, then they must consider whether the defendants honestly believed they were not submitting a bid or tender. If they do, then they must acquit. In legal terms, this is known as “mistake of fact”.
- Were the bids arrived at “by agreement or arrangement”? If the jury concludes the Crown met its burden on the first two elements, then it must analyze whether the bids were developed “by agreement or arrangement”. This gets into the question of whether the accused deliberately set out to game the procurement system. If jurors believe the accused had no such intention, they must acquit.
- Did the defendants telegraph their teaming? Finally, if the jurors liked the Crown’s arguments on the first three elements, they will still have to acquit if the burden of proof was not met on the fourth: Did the defendants make contracting officials aware of their teaming arrangements? The Crown has maintained all along that such declarations had to be explicit and made known to Public Works, the government’s central contracting agent. However, the language of the Competition Act is less than clear. “If CBSA actually knows what’s going on you don’t have to send a formal letter,” defence attorney McCann told jurors, “They expected teaming and sharing of resources,” he added.
The permutations allow for one or more guilty verdicts on one or more charges in connection with one or more of the procurements.
The extraordinary complexity of the judge’s jury charge is of course a function of how the Crown chose to wage its campaign. It entered into evidence thousands of emails showing the accused discussing which contractors they needed to fulfill technical requirements at CBSA, Transport and Public Works – and what they expected for their services. The defendants agreed they did this and the evidence by nearly all the Crown’s witnesses suggested such behaviour was permitted, even encouraged by the departments seeking the contractors.
Crown prosecutor Denis Pilon elaborated to the jury that “necessarily there is some sharing of resources, but it goes further than that. It’s about an agreement or arrangement about three things: resources, rates and the number of bids to be submitted. So remember that.” It was the manner in which the accused were assembling and pricing their contractors that appeared to trouble the Crown.
“They went beyond (creating) the pool of resources,” he had explained earlier. “They exchanged rates, they developed a pricing structure.”
But in order to make the case that the accused rigged bids, the Crown needed to establish that the defendants shared financial information other than the costs of the contractors – the final prices of their proposals. Here, the Crown’s case is razor thin.
Pilon in his final arguments put stock in an email sent by a TPG Technology staffer to a second firm involved in the alleged conspiracy to rig bids. The email contained financial details but it may well have been sent by mistake – the TPG staffer was substituting for one of the accused, Phil McDonald, who was on holiday. The Crown brought no evidence showing the employee had been instructed by McDonald to do anything; nor were there any other emails introduced that suggested a pattern.
Indeed, the defendants appear to have jealously guarded what profits they intended to make. They collaborated to create a pool of contractors that would allow them to qualify on the technical side of things – but that meant the technical scores would be fairly close. The profit margins would determine who got on the short list of each RFP.
In opening his final submissions earlier this month Pilon noted that the purpose of the Competition Act is to “protect the caller and competitor” – in this case, the government and the rivals of the accused.
The government, it appears throughout the evidence, seemed not in need of protection – it was the one controlling the play. The line departments, especially CBSA, pointed the accused to the contractors who should be included in their proposals. And government lawyers drafted the requests for proposals and detailed how these should be answered.
The competitors, for their part, were the ones who wanted to preserve profits – which meant taxpayers would likely have paid more for the services they provided had they won spots on the shortlists. This wouldn’t have applied had the accused implemented a sophisticated gaming scheme – but the evidence is paper-thin here as well.
Did the Crown think through its strategy of dumping reams of data on a court proceeding to be decided by a jury? Not much can be revealed about the makeup of juries in Canada – in this case there are six men and seven women, some with experience in business, others not. The average age looked to be in excess of 50, with the men at the higher end.
The trial was initially billed as a four-month event and by next week it will have moved into its eighth month. The jurors could be forgiven a deep fatigue produced by the repetitive arguments. In this sense, it may not have been an advantage for the Crown to present its final arguments after the defendants spent many days delivering theirs – especially given Chénard’s enthusiasm for entering documents. Nor could the Crown have been pleased with the judge’s instructions to the jury when Chénard finished.
Judge Warkentin clarified ten statements made by the two crown attorneys during their final arguments. In one instance, Pilon had stated that evidence was “quite overwhelming” that departmental managers were not involved in discussions between suppliers and contractors. In fact, the judge told jurors, there had been evidence of communications involving managers – and there was also a shortage of evidence about managers’ activity because the competition bureau had not conducted searches at CBSA.
“An absence of evidence is not evidence of overwhelming evidence,” she said.
For the jury, the judge, the accused – this sprawling, decade-long affair cannot end soon enough.
Email: jbagnall@ottawacitizen.com
Twitter.com/JamesBagnall1
**
The timeline:
2005
June to Oct.: Series of requests for proposals issued for the provision of information technology services at Canada Border Services Agency, Transport and Public Works.
Summer: Ridge Falls House of Ottawa, a supplier, complains to Public Works about the process.
Sept. 7: Public Works contacts Competition Bureau, which begins to investigate.
2006
Sept. 12: Search warrants are executed to search the offices of TPG Technology and other Ridge Falls House competitors.
2008
June 30: Competition Bureau sends letters to TPG and others, warning that charges of bid rigging are imminent.
July 2: Bureau refers matter to Director of Public Prosecutions.
Dec. 23: Public Works tells companies they will be barred from future business when charges are laid. TPG lawyers convince the department to back track, arguing this amounts to presumption of guilt.
2009
Feb. 17: Bureau announces criminal bid-rigging and conspiracy charges against 14 individuals and seven companies. Barry Dowdall, Marina Durward, Perry Henningsen, Shannon Lambert, Susan Laycock, Wendie Loudon, Theodore Martin, Philip McDonald, Kevin O’Rourke, David Gelineau, Don Powell, Thomas Townsend, Ronald Walker, David Watts, Brainhunter Inc., The Devon Group Ltd., Donna Cona Inc., Nortak Software Ltd., Tipacimowin Technology Inc., Spearhead Management Canada Ltd. and TPG Technology.
Feb. 23: Shannon Lambert pleads guilty to one count of bid rigging. She co-operates with the Crown in preparation for the upcoming criminal trial and receives a discharge. Judge signs order committing Veritaaq to implement a compliance program educating its employees about bid-rigging offences.
June 9: Theodore Martin, the former owner of TRM Technologies, pleads guilty, pays $25,000. TRM was not charged.
2010
Aug. 25: TPG president Don Powell files an amended claim against the bureau for defamation, seeking $125 million in damages.
2011
Oct. 5: Ontario Superior Court Justice Ann Alder rules after a preliminary inquiry that the Competition Bureau’s bid-rigging case against several Ottawa-area companies should be heard at full trial. Alder dismisses charges against Kevin O’Rourke, Nortak Software, and Tipacimowin Technology for lack of evidence. Crown had earlier dropped charges against Wendie Loudon.
2012
July 18: Ontario Superior Court dismisses appeal of Alder’s ruling that the case should go to trial.
2013
April 2: Ontario Court of Appeal upholds Superior Court ruling.
June 19: Tipacimowin Technology launches constitutional challenge to s. 47 of the Competition Act under section 7 of the Charter of Rights. Claims it’s “a vague law” that should be “struck down.” Challenge is later withdrawn.
2014
Sept. 8: Beginning of scheduled six- or seven-month trial.
2015
Feb.: Judge Warkentin dismisses charges against David Watts in a directed verdict.
April: Crown stays conspiracy charges against six remaining individuals. Bid rigging charges remain.
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