DOJ Launches Strike Force Targeting Antitrust Crimes in Government Procurements
The Department of Justice (DOJ) recently announced a newly formed Procurement Collusion Strike Force (PCSF) to heighten efforts to identify, investigate, and prosecute antitrust crimes in the government procurement process. The task force highlights DOJ's efforts to revive prosecutions of cartel conduct after a several-year decline. It also signals a renewed focus on targeting vulnerabilities in the government procurement process generally.
In light of this new task force, government contractors should be vigilant and anticipate heightened scrutiny of their interactions with competitors, particularly during the bidding process. Comprehensive compliance programs will be critical to safeguard against potential antitrust violations and ensure early identification of potential risks. This is especially true in procurement markets with shrinking industrial bases, few major players, significant private equity ownership interests, and industries with tight-knit social and business circles amongst competitors.
However, contractors should also be mindful that the creation of new government task forces does not always lead to an uptick in successful prosecutions. And with a modest budget of less than $1M in new funding, it remains to be seen whether this task force will have teeth to back up its mission.
The "Procurement Collusion Strike Force"
The PCSF is a multiagency partnership that will emphasize deterrence, detection, investigation, and prosecution of antitrust crimes related to federally funded programs. The partnership combines resources from DOJ's Antitrust Division and select U.S. Attorneys' Offices, as well as investigative partners from the Federal Bureau of Investigations, the Department of Defense, the General Services Administration, the United States Postal Office, and the DOJ. Special PCSF liaisons have been identified at each of the partner organizations to lead the initial effort to focus on thirteen specific districts. The liaisons will coordinate training for government and industry personnel to identify potential bid-rigging, price fixing, and other collusive conduct while also providing input to government programs to eliminate antitrust-related vulnerabilities in their acquisition procedures.
The PCSF primarily will rely on existing DOJ funding and will receive less than $1M in additional funds to fulfill its mission. The task force will be "virtual" and not have a centralized, physical location.
The PCSF's webpage provides resources to help identify potential antitrust risks and red flags in the government procurement process and offers a simple process to report potential violations. Contractors should be mindful of the identified red flags, which include the following:
- Shrinking markets with few vendors that provide the goods or services;
- Standardized requirements that ultimately make price the de facto determining factor for award;
- Similarities between proposals, including similar technical mistakes, contact information, or document properties that indicate common creators;
- Patterns in bidding or awards such as rotating winners, awardees subcontracting to losing vendors, or consistent reductions in the number of offerors for a requirement; and
- Conditions favorable to collusion such as offerors that are not technically capable to perform, offerors that submit multiple proposals, statements that indicate awareness of a competitor's prices or likelihood of winning a competition, or industries where competitors know each other well through business, trade, and social organizations.
Signal of DOJ's Renewed Focus on Antitrust Crimes?
The PCSF may signal the Antitrust Division's attempt to revive prosecutions of antitrust crimes in the face of a several-year downturn. Since the conclusion of the auto parts investigation, the Antitrust Division's largest criminal investigation in history, the Antitrust Division has struggled to find a significant, major investigation to replace it. As a result, the number of companies and individuals charged has declined dramatically in recent years, from 20 companies and 66 individuals in 2015 to five companies and 28 individuals in 2018. This represents a decline of 75 percent for companies and 58 percent for individuals. Corporate fines have also plummeted 95 percent during this time period, from $3.6B to $172M.
Several recent procurement-related prosecutions highlight the Antitrust Division's renewed focus on targeting bid-rigging in the procurement process, particularly of foreign companies. As we previously reported, in March, two South Korean oil companies pled guilty and agreed to pay $126M for rigging bids on contracts to supply fuel to U.S. military bases in South Korea. These two companies join three additional South Korean oil and transportation and logistics companies that pled guilty and agreed to pay a total of $236M in 2018. Seven South Korean nationals also have been charged with bid-rigging fuel supply contracts. The federal government's ability to successfully prosecute these individuals is uncertain, however, because all seven remain abroad beyond U.S. jurisdiction.
It remains to be seen whether the creation of the PCSF will result in an increase in prosecutions of government contractors for antitrust crimes.
The PCSF has a broad mission to ferret out bid-rigging and other antirust crimes in the government procurement process. Given the significant decline in antitrust prosecutions in recent years, it is no surprise that the Antitrust Division would broadcast its efforts to crack down on these antitrust crimes. Going forward, contractors should review and be mindful of the PCSF's "red flags" throughout the procurement process. The PCSF could investigate activity related to any federally funded awards from traditional Federal Acquisition Regulation-based procurements, to federal grants, and even alternative acquisition instruments such as Other Transaction Authority awards.
Contractors should also reexamine their antitrust and procurement-focused compliance programs to ensure they are they have the teeth to effectively prevent and detect antitrust violations. This is particularly true in light of the Antitrust Division's recent rollout of a new compliance policy that incentivizes corporate compliance. While many of the identified red flags could be indicative of collusive conduct, they are also common place conditions in certain industries and may be the product of legitimate and lawful business conduct. A robust compliance program can serve to head off a potential antitrust violation or to demonstrate compliance if subjected to more extensive DOJ scrutiny.
Time will tell whether the PCSF will lead to significant, new investigations of government contractors for antitrust crimes or whether it will simply be another new government task force with an unfunded mandate. Contractors should be prepared for the former.
For more information, please contact:
Abigail T. Stokes*
*Former Miller & Chevalier attorney
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