Recent Indictments Demonstrate Increased Focus on Bid-Rigging in Government Procurements

Overview


Companies involved in the government contracting industry should take note that the government is honing in on anticompetitive conduct affecting government procurements. The federal government has demonstrated an increased interest in this area, and companies should refresh and audit their compliance programs to avoid hefty civil and criminal penalties and potential prison terms for implicated employees.

In Depth


In the last month, the United States Department of Justice (DOJ) has announced three sets of indictments in recent months relating to bid-rigging of various government procurements and solicitations, evidencing an increased focus on anticompetitive conduct targeting federal, state and local governments.

Indictment 1: Military Fuel Supply Contracts

In March 2019, DOJ expanded an ongoing probe into bid-rigging relating to contracts to supply fuel to United States military bases in South Korea. See Department of Justice Office of Public Affairs, More Charges Announced in Ongoing Investigation into Bid Rigging and Fraud Targeting Defense Department Fuel Supply Contracts for U.S. Military Bases in South Korea (Mar. 20, 2019); Department of Justice Office of Public Affairs, Three South Korean Companies Agree to Plead Guilty and to Enter into Civil Settlements for Rigging Bids on United States Department of Defense Fuel Supply Contracts (Nov. 14, 2018). Three companies pled guilty in November 2018, and two more pled guilty in March, coinciding with seven indictments against individuals that were alleged to be involved in the conspiracy. The conspiracy centered on the procurement process for fuel required by American military bases in South Korea, and the DOJ made a recent statement about the investigation to emphasize that it is cracking down on anticompetitive conduct targeting the federal government and other public entities. Assistant Attorney General Makan Delrahim, head of DOJ’s Antitrust Division there said that “[t]hese charges reflect the Antitrust Division’s commitment to prosecuting bid rigging and fraud—especially when those crimes directly target taxpayer dollars that fund the US military’s critical work. We will not waver in our dedication to prosecuting corporations and individuals, wherever they are located, that seek to profit at the expense of American taxpayers.”

Indictment 2: Online Auctions for Surplus Government Equipment

On April 10, 2019, DOJ announced an indictment of and guilty plea by the owner of a company that purchases computers for resale, indicating that the defendant “conspired with others to rig bids at online public auctions of surplus government equipment” between February 2017 and May 2018. See Department of Justice Office of Public Affairs, Texas Bidder Pleads Guilty to Rigging Bids at Online Auctions for Surplus Government Equipment (Apr. 10, 2019). The alleged conspiracy eliminated competition in the auctions and allocated particular lots to particular co-conspirators. Assistant Attorney General Delrahim said about this indictment that “[t]he Department . . . will not tolerate collusion that corrupts online markets and deprives taxpayers and the federal government of the benefits of competition, . . . [and further that DOJ] will work tirelessly to prosecute online bidders who cheat taxpayers for their own benefit.”

Indictment 3: Government Procurement of Insulation Installation Contracts

Just two days earlier, on April 8, 2019, DOJ announced another indictment relating to bid-rigging of insulation installation contracts for various facilities including public universities, hospitals and schools. See Department of Justice Office of Public Affairs, Insulation Contractor Branch Manager Pleads Guilty to Bid Rigging and Fraud (Apr. 8, 2019). Here, the conspirators prepared collusive bids, shared information with competitors and used encrypted messaging apps in an attempt to avoid detection. Assistant Attorney General Delrahim noted here that this investigation “is the result of a coordinated effort . . . to root out collusion and fraud that undermined the competitive process and defrauded hospitals, schools and other victims out of millions of dollars.”

Takeaways for Companies Involved in Government Contracting

An effective compliance program helps employees meet their key performance indicators as well as identify other companies who may not be competing fairly for government contracts. Auditing the company compliance program allows stakeholders to rest assured that the program is working as intended. McDermott’s antitrust and government procurement groups can help companies with all facets of their compliance programs as they relate to government contracting, and can readily assist with developing, instituting and maintaining compliance programs to minimize exposure, while allowing the company to effectively compete within the marketplace.