November 08, 2019

New Department of Justice Task Force Targets Anticompetitive Conduct in Government Contracts

4 min

On November 5, 2019, the U.S. Department of Justice (DOJ) announced the formation of a Procurement Collusion Strike Force (PCSF) to deter, detect, investigate, and prosecute antitrust crimes involving taxpayer-funded projects at the federal, state, and local levels. The formation of the task force builds on prior DOJ efforts to target anticompetitive conduct in the government contracts space, including recent enforcement actions involving bid rigging in fuel contracts to supply U.S. military bases in South Korea. Understanding these developments is critical for any business that contracts with government agencies, including those that receive grants or similar funding.

What Is the PCSF?

The PCSF comprises prosecutors from the DOJ's Antitrust Division, prosecutors from 13 U.S. Attorneys' Offices, investigators from the Federal Bureau of Investigation, and investigators from the Offices of Inspector General of the Department of Defense and U.S. Postal Service, among others. In addition to investigating and prosecuting anticompetitive conduct in procurement, the PCSF will train and educate procurement officials in agencies across the country on how to identify and report potentially anticompetitive conduct.

What Are the Antitrust Laws?

The principal federal laws governing competitive conduct are the Sherman Act (15 U.S.C. § 1 et seq.) and Federal Trade Commission Act (15 U.S.C §§ 4–58), both of which prohibit anticompetitive conduct. These laws prohibit price fixing, which includes bid rigging. Violation of the antitrust laws can result in criminal and civil penalties, including imprisonment. The Federal Acquisition Regulations (FAR) expressly apply the antitrust laws to government contracts. Section 48 C.F.R. § 52.203-2, for example, requires bidders in federal agency procurements to certify that the bidder has not colluded with its competitors in connection with the RFP. Under U.S. law, a company that submits a false certification, and the individual who signs it, may be subject to fines and, in the case of the individual, imprisonment of up to 5 years. Antitrust violations can also serve as a basis for administrative action, such as suspension and/or debarment from federal contracting.

What Are Examples of Anticompetitive Conduct in Procurement?

When it comes to government procurement, bid rigging can take various forms, including comparing bids before submission, operating bid depositories, rotating bids, agreeing to refrain from bidding, knowingly submitting noncompetitive bids, and agreeing to rig bids by creating sham competition. For example:

  • Bid Suppression: With bid suppression, one or more competitors who otherwise would be expected to bid, or who have previously bid, agree to refrain from bidding or withdraw a previously submitted bid so that the competitors' designated bid will be accepted.
  • Complementary Bidding: Complementary bidding occurs when some competitors agree to submit bids that are too high to be accepted or contain special terms that will not be acceptable to the buyer. Such bids are not intended to win, but instead give the appearance of genuine competitive bidding.
  • Bid Rotation: Bid rotation involves competitors taking turns as the low bidder, often resulting in a pattern of awards to a certain set of contractors/offerors.
  • Anticompetitive Subcontracting: In an anticompetitive subcontracting arrangement, competitors may agree not to bid or to submit a losing bid in return for subcontracts or supply contracts from the successful low bidder.

Note that teaming agreements, when structured appropriately, generally do not present antitrust concerns. In most cases, an agreement to pursue an award through a team or joint venture will be viewed as ancillary to an efficiency-enhancing integration of activities. A sham teaming arrangement, however, would be subject to the same types of bid rigging concerns as are discussed above.

How Can Contractors Minimize the Risk of Violating the Antitrust Laws?

Given the potential antitrust risks and consequences of such violations in the federal procurement space, it is important for government contracts to implement antitrust compliance policies and procedures. As a starting point, every government contractor should maintain a formal written policy requiring employee adherence to the antitrust laws. Such a policy should cover bidding practices; communications with competitors; and the management of subcontracting, teaming, and other business relationships. In addition, training should be scheduled regularly to educate employees on how to comply with the antitrust laws. Such training should stress that even seemingly benign coordination with competitors or potential competitors could be found to violate the antitrust laws. Employee training and refresher courses can also help employees distinguish when another company is acting as a competitor from when it is acting as a re-seller, and so act accordingly. Finally, contractors should perform regular audits of bidding efforts and bidding-related activities. Having programs of these sorts in place can also serve to demonstrate the present responsibility of a contractor should an allegation or violation arise, thereby mitigating the chances of more damaging and long-term effects, such as suspension and/or debarment.

* * * * *

For additional information on the PCSF, DOJ has launched a publicly available website.