Author: Luis Blanquez
What is Bid-rigging?
The DOJ describes bid rigging as an agreement among competitors as to who will submit the most competitive bid and who won’t, i.e., who should win and who should lose, in a competitive bidding situation. Typically, bid rigging occurs when a purchaser solicits bids to purchase goods or services, and the bidders agree in advance who will bid what. The desired result is that the purchaser pays a supracompetitive price.
Bid rigging is considered––together with price fixing and market allocation–– a “per se” violation of the Sherman Act. Restraints analyzed under the “per se” rule are considered so inherently anticompetitive that they warrant condemnation without a robust market analysis or the existence of a competitive justification.
Below, we briefly discuss two of the most recent bid-rigging cases from the long list at the DOJ Procurement Collusion Strike Force website.
Bid-Rigging is a Per Se Violation of the Antitrust Laws
Bid rigging can take at least 5 different forms:
- Bid Suppression: One or more competitors agree not to bid, or to withdraw a previously submitted bid, so that a designated bidder will win;
- Complementary Bidding: Co-conspirators submit token bids that are intentionally high or that intentionally fail to meet the bid requirements. “Comp bids” are designed to give the appearance of competition;
- Bid Rotation: All co-conspirators submit bids, but by agreement, take turns being the low bidder on a series of contracts;
- Customer or Market Allocation: Co-conspirators agree to divide up customers or geographic areas. The result is that the coconspirators will not bid or will submit only “comp” bids when a solicitation for bids is made by a customer or in an area not assigned to them.
- Subcontracting: Subcontracting arrangements are often part of a bid-rigging scheme. Competitors who agree not to bid or to submit only a losing bid frequently receive subcontracts or supply contracts in exchange from the successful low bidder.
The DOJ has provided a list of patterns and suspicious indicators of a potential bid-rigging scheme. These include:
- the same company always wins a particular procurement;
- companies seem to take a turn being the successful bidder;
- some bids are much higher than published price lists, previous bids by the same firms, or engineering cost estimates;
- fewer than the normal number of competitors submit bids;
- one company appears to be bidding substantially higher on some bids than others with no apparent cost differences to account for the disparity;
- bid prices drop whenever a new or infrequent bidder submits a bid.
Additionally, the DOJ looks out for some sort of compensation by the winning company to a losing company, such as:
- a successful bidder subcontracts work to competitors that submitted unsuccessful bids on the same project;
- a direct payoff in the form of goods, cash, or check, normally disguised as a legitimate payment.
Government Procurement for Construction and Infrastructure
Because bid-rigging has been an historical problem in bids for government contracts, in November 2019, the DOJ created the Procurement Collusion Strike Force (“PCSK”) to combat antitrust crimes that affect government procurement and for victims to report suspected anticompetitive conduct related to construction or infrastructure. And they’ve been extremely busy. As the Director of the PCSK mentioned recently during the Seventh Annual White-Collar Criminal Forum at the University of Richmond Law School “more than 100 investigations opened, more than 45 guilty pleas and trial convictions, over 60 companies and individuals prosecuted and more than $60 million in criminal fines and restitution, all relating to over $375 million worth of government contracts.”
The Caltrans and Michigan Asphalt Paving Recent Cases
The California Department of Transportation (Caltrans) Case
According to a DOJ’s information dated March 2022, a former Caltrans contract manager, a contractor, and two construction companies engaged in a conspiracy from early 2015 through late 2019, to rig bids. Caltrans is a California state agency that manages California’s highway and freeway lanes, provides inter-city rail services and permits public-use airports.
Choon Foo “Keith” Yong––a former Caltrans contract manager––was sentenced to 49 months imprisonment and ordered to pay $984,699.53 in restitution. According to a plea agreement filed on April 11, 2022, Young was part of a scheme to thwart the competitive bidding process for Caltrans contracts to ensure that companies controlled by Yong’s co-conspirators submitted the winning bids and would be awarded the at-issue contract. According to the DOJ’s information, Yong also accepted bribes in the form of cash payments, wine, furniture and remodeling services on his home. The total value of the payments and benefits Yong received exceeded $800,000.
William D. Opp.––a former construction contractor––also pleaded guilty in the scheme. He was sentenced to 45 months’ imprisonment and ordered to pay $797,940.23 in restitution. According to a plea agreement filed on Oct. 3, 2022, he submitted sham bids on Caltrans contracts and provided nearly $800,000 in cash bribes and other benefits to Yong.
Last, in April 2023, former construction company owner Bill R. Miller was also sentenced: 78 months imprisonment and nearly $1 million in restitution. According to his guilty plea, Miller engaged in the same conspiracy and recruited others to submit sham bids on Caltrans contracts. In addition to pleading guilty to bid rigging, Miller also pleaded guilty to paying bribes to Yong.
Michigan Asphalt Paving: The United States v. F. Allied Construction Company, Inc., No: 2:23-cr-20381 (E.D. Michigan)
On August 17, 2023, a senior executive of Estimating for Clarkston-based F. Allied Construction Company Inc (“Allied”) ––a Michigan asphalt paving company––pleaded guilty in the U.S. District Court in Detroit for his role in two separate conspiracies to rig bids for asphalt paving services contracts in the State of Michigan. The services included asphalt paving projects such as large driveways, parking lots, private roadways, and public streets.
On August 29, 2023, the company and its president pleaded guilty in the same court to violating the Sherman Antitrust Act. According to the plea documents, the company, its senior executive and its president participated in a conspiracy with one competitor by agreeing to rig bids for asphalt paving services in Michigan between June 2013 to at least June 2019, and with a second competitor from July 2017 to May 2021.
The co-conspirators:
- discussed which contracts each co-conspirator would win;
- agreed to rig bids for asphalt paving services contracts;
- solicited intentionally non-competitive bids from each other so that an agreed-upon co-conspirator would win a particular contract;
- exchanged pricing-related information to enable co-conspirators to submit non-competitive bids;
- submitted non-competitive bids with above-market prices; and
- provided asphalt paving services and accepted payment in accordance with contracts that were obtained through a collusive and non-competitive process.
The three defendants and the DOJ agreed to recommend a fine to the Court of $733,000 for Allied and $30,580.84 to $152,904.2 and imprisonment for both senior officers. A federal district court judge will now determine any sentence after considering the U.S. Sentencing Guidelines and other factors.
Conclusion
Understanding the signs and symptoms of bid-rigging is an integral part of any compliance program where customers issue RFQs or other invitations for competitive bids. Individuals and executives who prepare and submit bids should be trained and required to report internally any potential concern immediately, keeping in mind that “agreements” as to specific bid amounts are unnecessary. Even general or vague “understandings” about who is supposed to win a competitive bid—even without exchanging specific dollar figures—can be treated as criminal.
Besides a criminal sentence, a corporation or individual convicted of a Sherman Act violation may be ordered to make restitution of ill-gotten gains for all overcharges. The victims may also seek civil recovery of up to three times the number of damages suffered.
Image by 3D Animation Production Company from Pixabay