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Tim McGrath, Executive Director, Real Property, Public Works & Government Services Canada, spoke at the Executive Seminars on Corporate and Investment Real Estate in Toronto, Ontario, Canada, Tuesday, June 15, 2005.

Deborah Baic/The Globe and Mail

Ottawa has changed its contracting rules to block firms that engage in bid-rigging from simply paying a fine and then getting back in line for more federal work.

Under the old system, firms that were suspected of cheating by the Competition Bureau could enter into the agency's "leniency program." After collaborating with the bureau's investigation, pleading guilty and paying a fine, the firms were eligible to bid on additional federal government contracts.

However, Public Works quietly cancelled its "leniency exemption" in November, retroactively blacklisting firms that were recently involved in the program. The move is seen as a clear signal in Ottawa that the federal government is cracking down on suppliers that engage in unethical business practices.

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Federal and industry sources added that the rule change is linked to a recent bid-rigging case involving the Corporate Research Group (CRG), a company that has received more than $30-million in federal contracts over the past decade.

The Competition Bureau announced last July that the firm had pleaded guilty to a charge of bid-rigging in relation to one of its contract proposals. In addition to having paid a $125,000 fine to settle the case, CRG has now lost the federal government as a potential client because of its involvement in the Competition Bureau's leniency program.

The move puts an end to the long-standing – and at times rocky – relationship between CRG and the real-estate division of Public Works and Government Services Canada. According to internal documents and a number of sources, the department has conducted an extensive investigation into an alleged conflict of interest between CRG president Brian Card and Tim McGrath, the assistant deputy minister in charge of real estate at Public Works from 2005 to 2009.

The investigation was launched in late 2008, when a whistleblower filed a formal complaint under the Public Servants Disclosure Protection Act. The matter was handled by the Special Investigations Directorate at Public Works, which looked through Mr. McGrath's cellphone records, e-mails and expense statements.

Records show that investigators found thousands of phone calls over a two-year period between Mr. McGrath and Mr. Card, usually early in the morning and sometimes on weekends. In addition, investigators found that Mr. McGrath had received hockey tickets from Mr. Card (Mr. McGrath said he paid for them in cash). It was also determined that Mr. McGrath attended a birthday party for Mr. Card's wife at the Château Laurier with one of his employees.

Mr. McGrath said his relationship with Mr. Card was "strictly business," but investigators said it crossed the line into the realm of friendship and concluded that the allegations of a conflict were "founded."

In addition, records show that investigators looked into Mr. McGrath's use of his government-issued AMEX credit card, including purchases at hotels in the Ottawa-Gatineau area. According to the records, Mr. McGrath told officials at Public Works that he used the card "from time to time to rent local hotel rooms in order to be in the city for early morning" committee hearings on Parliament Hill.

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The investigation's findings went up to the then-deputy minister, François Guimont, who threatened to impose "disciplinary measures" against Mr. McGrath. In late 2009, Mr. McGrath quietly retired from the department.

Federal investigators continued to look into Public Works' dealings with CRG. Under a contract obtained in 2004, CRG received nearly 100 per cent of all real-estate consultancy deals with Public Works between 2004 and 2007.

When the contract expired and went back to tenders, Public Works decided the winner of the competition would get 50 per cent of the work and the second-place company 30 per cent, with the remaining 20 per cent for the third-place bidder.

Investigators at Public Works looked back at the various bids that were submitted, including the winning bid from CRG and the one from second-place finisher First Porter Consultancy. The investigators determined that the two bids were "almost identical" and transferred the file to the Competition Bureau.

The agency found that CRG and First Porter Consultancy concluded a secret agreement before submitting their bids in 2007 in an attempt to share 80 per cent of the contract, which led to the charge of bid-rigging against CRG.

In a statement, the Competition Bureau praised its leniency program for offering "incentives for parties to address their criminal liability by cooperating with the Bureau in its ongoing investigation and prosecution of other alleged cartel participants."

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In a recent newsletter, however, CRG's lawyers at McMillan LLP decried the fact that the new contracting policy at Public Works "applies retroactively to companies that are already participating in or have exited from the leniency program.

"At the time of entry into the leniency program and negotiation of their guilty plea, such companies expected to be able to continue to do business with the federal government," the lawyers said.

Mr. McGrath and Mr. Card did not respond to requests for comment.

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