DOJ Plans Heightened Scrutiny of Government Contractors

The new "Procurement Collusion Strike Force" aims to root out antitrust crimes like bid-rigging and price-fixing in the procurement of government c...
David McCannNovember 8, 2019

The Justice Department announced on Tuesday the formation of a new unit aimed at deterring, detecting, investigating, and prosecuting procurement-related antitrust crimes such as bid-rigging and price-fixing conspiracies.

Such fraud undermines competition in government procurement, grant, and program funding, the DOJ said.

The new Procurement Collusion Strike Force (PCSF) will be an inter-agency partnership. It will consist of prosecutors from DOJ’s Antitrust Division and 13 U.S. attorneys’ offices, FBI investigators, and inspectors general offices of the Defense Department and the Postal Service, among others.

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Rigging bids and “allocating market share” during the procurement process inevitably causes a rise in prices offered to the government, according to the DOJ.

“The PCSF will train and educate procurement officials nationwide to recognize and report suspicious conduct,” said Assistant Attorney General Makan Delrahim “We will aggressively investigate and prosecute those who violate our antitrust laws to cheat the American taxpayer.”

The PCSF will protect taxpayer-funded projects at the federal, state, and local levels from antitrust violations and related crimes.

DOJ’s Antitrust Division and its law enforcement partners have a history of prosecuting criminal antitrust conspiracies that take advantage of government contracts.

In late 2018 and early 2019, for instance, five South Korean oil companies agreed to plead guilty for their involvement in a decade-long bid-rigging conspiracy that targeted contracts to supply fuel to U.S. military bases in South Korea.

The division also indicted seven individuals for conspiring to rig bids and to defraud the government, and one executive was also charged with obstruction of justice. In total, the companies have agreed to pay $156 million in criminal fines and more than $205 million in separate civil settlements.

This year, the Justice Department and the General Services Administration inspector general’s office indicted individuals for involvement in rigging bids submitted to the GSA.

“Companies should understand that the shifting of resources to closer examine this industry indicates a greater likelihood of the DOJ reviewing bids and making inquiries of government contractors,” said Jeff Martino, a partner with law firm BakerHostetler and former chief of the department’s Antitrust Division in New York.

He added, “It is unique and commendable that the division proactively sought out other enforcement and prosecution partners. This strike force will have the resources to address a broader range of crimes that fall into public procurement and increase the efficiency of investigations.”

In an Oct. 25 speech at the American Bar Association’s 2019 Public Procurement Symposium, Richard Powers, deputy assistant attorney general for criminal enforcement, cautioned that the public procurement industry features certain characteristics that make it vulnerable to antitrust violations:

  • Government projects are lucrative and numerous, but there are generally few providers. The fewer the sellers, the easier it is for them to collude on bids.
  • It is difficult to monitor government contractors consistently.
  • During disasters, the government’s need for services outweighs its ability to remain parsimonious. Contractors can take advantage and rig prices in these times of need.

Severe potential consequences for engaging in public procurement corruption include being barred from government contracting, paying treble damages for anti-competitive conduct where the government is the victim, and parallel civil and criminal investigations, BakerHostetler noted.

DOJ is offering incentives for companies to comply with antitrust laws and avoid prosecution for criminal antitrust violations should they occur.

The Leniency Program provides companies and individuals that meet certain conditions an opportunity to avoid prosecution for criminal antitrust violations. To qualify for leniency, a company must be the first to self-report the conduct and fully cooperate with the Antitrust Division’s investigation, among other conditions.

Further, the division recently announced that going forward, companies that demonstrate they had in place robust and effective antitrust compliance programs at the time of an offense will be eligible to be considered for a deferred prosecution agreement.

Here too, companies must self-report the conduct to the division and cooperate with antitrust enforcement authorities.

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