August 12, 2022

Volume XII, Number 224

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Government Contractors Facing Increased Antitrust Scrutiny

Procurement Collusion Strike Force

The Procurement Collusion Strike Force, formed by the Department of Justice in 2019, is ramping up enforcement pressures against government contractors. The Strike Force brings together the DOJ Antitrust Division criminal offices, state Attorneys General, and federal agencies such as the Department of Defense and Federal Trade Commission.[1] The Strike Force is an effort to crack down on anticompetitive activities in public procurement, which the DOJ views as particularly susceptible to the costs of collusive activity.[2] The Department was already devoting significant resources to public procurement crimes,[3] and the Strike Force represents an intensified, all-hands approach to enforcement.

In order to utilize the diverse expertise and market vantage points of Strike Force members, enforcers are training these partners to recognize signs of collusive activity in procurement. At the April 4, 2022 Enforcers Summit hosted by the FTC and DOJ, Assistant Attorney General Kanter highlighted this training and the Division’s investment in procurement enforcement actions, and panelists shared lessons from interagency procurement training.[4]

Recent Enforcement Actions

With so many government actors involved in enforcement, companies in every procurement market face increased scrutiny. The Strike Force has recently undertaken the investigation and prosecution of a number of cases of government contract bid rigging.

In early April, the Antitrust Division obtained a guilty plea in its ongoing investigation of bid rigging and bribery at California Department of Transportation (Caltrans).[5] The plea came from a Caltrans employee, who is accused of conspiring with at least two contractors to suppress bid competition in exchange for cash and gifts.

A day later, the Division announced a grand jury indictment against three contractors accused of rigging bids for U.S. Army promotional products, costing the Army millions of dollars over the five-year scheme.[6] The indictment alleged multiple forms of anticompetitive activity, including sharing bids in order to predesignate a winner, submitting bids on each other’s behalf, and forming shell companies to submit fake bids. Notably, the Strike Force’s training materials detail indicia that bids have been copied or faked.[7]

The Strike Force is equally focused on illegal activity affecting local government customers. In March, a grand jury indicted contractors who submitted predetermined-losing bids for concrete construction with local governments in Minnesota.[8] One contractor in the scheme pled guilty last year.

Teaming Arrangements

Teaming arrangements pose particular risk to government contractors and are ripe for increased enforcement.[9] Teaming arrangements can provide competitive advantages in the form of economic efficiencies and expertise, especially on large government contracts. But, they present a number of antitrust hazards to companies without robust compliance programs.

When not in compliance with antitrust guidelines, teaming agreements can be charged as market allocation or bid rigging.[10] In addition to more obvious competitive harms such as removing competitors from the market, the FTC is alert to the potential for teaming agreements to create conditions for collusive behavior.[11] Companies who engage in teaming agreements are vulnerable to becoming too familiar with competitors or allowing cooperation to spill outside of the agreed scope of work—especially in the typically small supplier markets of government procurement.

Takeaways

The stakes in enforcement actions are particularly high for government contractors who risk debarment and license revocation on top of criminal penalties.[12] With so much on the line, and more resources than ever devoted to discovering anticompetitive actors, government contractors must be certain to implement robust compliance programs. These programs must be continually updated and reinforced. Prosecutors will subject them to sophisticated and thorough review early in their investigations—often beginning with their first grand jury subpoena.

ENDNOTES

[1] Justice Department’s Procurement Collusion Strike Force Caps Off Successful Inaugural Year by Adding Eleven New National Partners | ATR | Department of Justice

[2] The PCSF (justice.gov)

[3] Id.

[4] Enforcers Summit | Federal Trade Commission (ftc.gov)

[5] Former Caltrans Contract Manager Pleads Guilty to Bid Rigging and Bribery | OPA | Department of Justice

[6] Three Florida Men Indicted for Rigging Bids and Defrauding the U.S. Military | OPA | Department of Justice

[7] See Recognizing Antitrust Conspiracies and Working with the Antitrust Division (justice.gov)

[8] Minnesota Concrete Company and its CEO Indicted for Rigging Bids for Public Contracts | OPA | Department of Justice

[9] See Mitigating Antitrust Risk In Defense Deals Amid Scrutiny – Law360

[10] Id.

[11] See Antitrust Guidelines (ftc.gov) at 2.2.

[12] 4 Consequences Of Gov’t Contractor Antitrust Violations – Law360

Copyright © 2022, Sheppard Mullin Richter & Hampton LLP.National Law Review, Volume XII, Number 118
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About this Author

Rachel Guy Antitrust Attorney Sheppard Mullin Washington DC
Associate

Rachel Guy is an associate in the Antitrust and Competition Practice Group in the firm's Washington, D.C. office.

202-747-2188
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