On November 5, 2019, the Department of Justice (DOJ) announced the formation of the Procurement Collusion Strike Force, which will focus on one of the DOJ’s top priorities: protecting public funds from bid rigging and fraud. As DOJ’s Deputy Assistant Attorney General for Criminal Enforcement stated in a speech just before the announcement, it is DOJ’s view that public procurement is “particularly vulnerable to collusion” because the predictable and repetitive nature of the procurement process, and the availability of few qualified sellers for any given procurement render the system particularly susceptible to manipulation. The Strike Force, therefore, seeks to deter, detect, investigate and prosecute antitrust crimes, such as bid-rigging conspiracies and related fraudulent schemes, which undermine competition in government procurement, grant, and program funding.
The announcement comes in the wake of DOJ’s more intense focus on government contracting, including two high-profile criminal antitrust prosecutions involving US government contracts. In November 2018 and March 2019, five South Korean petroleum and refinery companies plead guilty to criminal charges relating to their alleged participation in a bid rigging conspiracy involving defense fuel supply contracts with US military bases in South Korea. The government alleged that, between 2005 and 2016, these companies rigged bids and fixed prices by allocating line items of solicitations to a different co-conspirator, while other conspirators either agreed not to bid or agreed to submit bids high enough to ensure they would not be awarded that item.
DOJ recently announced that these companies agreed to pay $156 million in criminal fines and over $205 million in separate civil settlements. The civil settlements were the largest civil recoveries the Antitrust Division has ever obtained. DOJ also has charged seven individual defendants, including associates, managers, and executives, for their participation in the conspiracy.
Also in 2019, DOJ announced that two individuals plead guilty to rigging public surplus auctions conducted by the General Services Administration. In those cases, the government alleged that participants in the conspiracy communicated before and during auctions to discuss which co-conspirator would submit the winning bid and whether any items purchased would be split among the co-conspirators.
DOJ has made clear its position that these instances of bad conduct are not “one-off occurrences,” and estimates that eliminating bid rigging could reduce procurement costs by 20 percent, saving US taxpayers tens of billions of dollars. In previous public discussions regarding bid rigging in government contracting, DOJ has said it intends to use all available resources to combat this fraud. In addition to prosecuting collusion in government contracts under Section 1 of the Sherman Act (the section that DOJ traditionally uses for bid rigging cases), DOJ also intends to use Section 4A of the Clayton Act, which allows the government to recover treble damages for antitrust violations when the government itself is the victim.
DOJ’s formation of the Strike Force is consistent with its recent focus on combating alleged bid rigging and anticompetitive conduct in government procurements. The Strike Force is an interagency partnership consisting of prosecutors from DOJ’s Antitrust Division and a number of US Attorneys’ Offices, and investigators from the Federal Bureau of Investigation and four Offices of Inspector General. In addition to the aggressive prosecution of criminal bid rigging and antitrust violations and pursuit of related civil penalties, the Strike Force’s efforts will include increasing education efforts on both the “buy side” and the “sell side” of the procurement process, and improving data analytics programs to better analyze government procurement data to identify potential “red flags” of bid rigging and anticompetitive conduct. The Strike Force will also maintain a public website that will not only feature training materials and resources, but will include a “citizen complaint” form that members of the public can use to report suspected criminal violations related to government procurement.
DOJ’s launch of the Procurement Collusion Strike Force provides an important reminder for government contractors that they should review and, if necessary, strengthen their compliance and oversight programs to avoid running afoul of the antitrust laws. In particular, a robust compliance program should address teaming and other collaborative arrangements with competitors, and the importance of ensuring that employees do not engage in the exchange of information outside of such collaborations for the purpose of coordination in the pursuit of government business. The Federal Acquisition Regulation and the antitrust laws recognize the procompetitive benefits of teaming and competitor collaborations; nonetheless, well defined processes, procedures, and safeguards for such practices can help detect and prevent potentially unlawful arrangements.
Such compliance programs should also incentivize the internal reporting of bid coordination, “signaling,” and other forms of anti-competitive information exchanges as early as possible so that the company can take advantage of the Antitrust Division’s longstanding leniency program rewarding companies that first report such conduct with complete amnesty and extending other forms of leniency to other companies offering early cooperation. The early detection incentivized by the leniency program, which permits companies to report early any potential False Claims Act violations to the DOJ’s Civil Division in parallel, could also yield additional leniency regarding its potential FCA liability under the DOJ’s recently announced guidance regarding cooperation in FCA investigations. And such early disclosure to DOJ’s Civil Division could have the added benefit of fending off qui tam complaints filed by relators subsequent to such disclosures. Conversely, companies that are currently engaged in FCA investigations should be on the lookout for any potential violations of antitrust law so that the company can take advantage of the Antitrust Division’s leniency program as soon as possible.
In a previous alert, we addressed the Antitrust Division’s new guidance regarding what it considers to be an effective antitrust compliance program and its new approach toward crediting such programs when making charging and sentencing decisions. You can access that alert here.