On June 7, 2021, as part of the US Department of Justice’s (DOJ) continuing commitment to prosecuting cases where the government is a victim, a government contractor pleaded guilty to one count of bid-rigging and one count of conspiracy to commit mail and wire fraud in connection with the DOJ’s ongoing investigation into public works contracts for the North Carolina Department of Transportation (NCDOT).
Ohio-based Contech Engineered Solutions LLC (Contech) entered its plea of guilty before a federal judge in the US District Court for the Eastern District of North Carolina and was sentenced to pay a $7 million criminal fine. Contech was also ordered to pay an additional $1,533,988 in restitution to the NCDOT. Notably, the DOJ did not impose a term of probation on Contech because Contech agreed to improve its compliance program to prevent recurrence of anticompetitive conduct. Contech, however, is required to cooperate with the DOJ, including producing documents and making witnesses available for interviews or testimony.
Contech and its former executive were indicted in October 2020 on six counts of alleged bid-rigging, conspiracy to commit fraud and mail and wire fraud in connection with a decade-long conspiracy involving public works projects in North Carolina.
This prosecution highlights the DOJ’s ongoing commitment to the Procurement Collusion Strike Force (PCSF) and its efforts to scrutinize public procurements and combat collusion and related fraud in government contracting.
The PCSF has conducted extensive training of law enforcement officers and procurement officers, among others, to help identify scenarios and situations where collusion is more likely to occur. The PCSF is also utilizing data analytics to advance its investigations, building on technological advancements and more useable data sets to target and prosecute anticompetitive conduct.
Importantly, the PCSF has recently doubled in size and has gone global just as the United States has approved unprecedented stimulus spending in response to the global COVID-19 pandemic and as the Biden administration is poised to approve a new infrastructure plan. The PCSF has provided tools that allow any individual to report suspected collusion via email or an online tip center. Enforcers’ renewed commitment to procurement collusion—coupled with increased government spending—will likely lead to more investigations and additional prosecutions in 2021.
Contech, a manufacturer of aluminum and other products, conspired with its supplier in bidding on numerous NCDOT public works projects. According to the indictment, the former Contech executive would obtain (or direct his subordinate to obtain) the supplier’s total bid price in advance. Using that information, Contech then submitted bids to be intentionally higher than its supplier. The indictment also alleged that Contech submitted false certifications that its bids were competitive and free of collusion throughout the conspiracy.
The indictment alleged bid-rigging between a manufacturer and its supplier, which is typically a vertical relationship and generally subject to the Rule of Reason rather than per se criminal analysis. Under the Rule of Reason, antitrust enforcers balance the anticompetitive effects of the conduct in question against the procompetitive benefits. Certain anticompetitive conduct, however, is so egregious that it is per se unlawful under the antitrust laws—meaning once the conduct is committed a violation is automatically incurred. There is no legal defense or business justification that can overcome per se unlawful conduct.
The DOJ alleged the manufacturer and its supplier held themselves out as competitors when submitting the bids in question to the NCDOT for nearly a decade. In a motion to dismiss the indictment, Contech argued that this manufacturer-supplier relationship should control how the court should analyze the conduct, i.e., Rule of Reason rather than per se. In its opposition, the DOJ focused on the specific, alleged conduct present in the transactions before NCDOT. In those transactions, the DOJ alleged that the manufacturer and supplier were holding themselves out to the NCDOT as competitors and, as such, this was classic bid-rigging conduct subject to per se analysis. On March 15, 2021, the court denied Contech’s motion to dismiss and agreed with the DOJ that the alleged conduct would be considered under a per se, rather than Rule of Reason, analysis.
This prosecution demonstrates that the DOJ is willing to aggressively investigate and prosecute competitor relationships that are traditionally examined under a Rule of Reason analysis and focus on the specific, alleged transaction(s) between vertical entities. Such prosecutions may be more common where joint venture or similar teaming agreements are not in place.
Companies doing business with government agencies should expect increased scrutiny of procurement bids and the bid award process, and they should be attentive in ensuring compliance with antitrust and government procurement laws. This guidance applies whether the procurement represents 100% or 10% of an entity’s business and whether a company is based in the United States or is a US subsidiary of an international entity.
Companies should also be mindful that the PCSF’s reach extends beyond its partner districts. Collusive conduct in the United States is subject to prosecution no matter where it occurs.
Based on our recent experience with the PCSF, companies can minimize their risks in the following ways:
Carefully review and document any no-bid or high-bid decisions, and provide business justifications for such decisions;
Have counsel review any decisions to team and/or joint bid with other companies in advance;
Have counsel review any sub-contracting arrangements with other companies that bid (or regularly bid) on the same projects in advance;
Ensure bids are legitimate and pricing decisions are determined in good faith and without collusion;
Monitor the procurement process;
Understand the red flags of collusion (indicators, patterns and/or circumstances where collusion may exist) and other indicators that suggest to the government that additional scrutiny of the bid process is warranted;
Ensure your corporate compliance program is consistent with DOJ guidance and appropriately tailored to your company and industry; and
Regularly train procurement personnel on appropriate conduct with respect to competitors and the consequences of collusion.