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The United States spends a lot of money on goods and services each year. How much? In 2018, the federal government spent more than $550 billion on goods and services. Additionally, the federal government spent $79 billion that year in the form of grants, awards, and transfers to state and local governments to pay for public works and infrastructure projects. Consequently, as a senior Justice Department official recently observed, roughly one out of every ten dollars of federal spending now goes to pay for government contracting. All of that spending opens the door for private companies to commit bid rigging and increase their profits by fraudulently overcharging the government on public contracts. In other words, overcharging the taxpayers.
As our firm has warned before, some of the most serious and most expensive cheating takes place before any item or any service is provided to the government. This happens when a group of private firms get together to collude on bids for public contracts. Because of the collusion, an open competition becomes into a fixed race.
In a classic bid rigging scheme, companies take turns choosing one of their own to be the winning bidder for a government contract. The other companies intentionally overbid to drive up the contract price. Once the contract is awarded, the helper companies often get hired in as subcontractors, usually at their own inflated rates. Subsequently, the group agrees to let a different company be the winning bidder. And on and on. Everyone wins. Except for the taxpayers.
On November 5, 2019, the U.S. Department of Justice (DOJ) announced that it is forming a new government Procurement Collusion Strike Force. DOJ will be joined by the FBI, the Department of Defense, the United States Postal Service, and the General Services Administration. The strike force will focus “on deterring, detecting, investigating and prosecuting” bid rigging among companies and individuals involved in public contracts procurement. Within DOJ, the strike force will include senior prosecutors from the Antitrust Division and from thirteen United States Attorney’s offices from around the country. These include Chicago, Dallas, Detroit, New York, Los Angeles, Miami, and Washington, D.C.
Certainly, that is a considerable amount of investigative resources and prosecutorial firepower that will be going after this type of cheating. But it is also a clear sign that the government intends to change the business–as–usual approach to getting overpriced government contracts. Bid riggers beware.
In announcing this new Strike Force, Deputy Attorney General Jeffrey A Rosen noted “When government contractors collude with each other to rig bids for government contracts at the federal, state, or local level, it leads to artificially higher prices for those goods or services. When the government has to pay those artificially higher prices, all American taxpayers are paying for it.” Mr. Rosen added “this Administration will not tolerate criminal activity that seeks to profit unfairly at the expense of taxpayers.”
The creation of the Procurement Collusion Strike Force is another sign that the Department of Justice intends to use the full arsenal of antitrust laws to deter and punish those who cheat the government through bid rigging on public contracts. The official DOJ announcement singled out the results in a recent case. In that case, five oil companies pled guilty for their involvement in a decade-long conspiracy that rigged the contracts to supply fuel to U.S. military bases in South Korea. As a consequence, the five defendant companies have agreed to pay $156 million in criminal fines and over $205 million in separate civil settlements.
That case originated with a whistleblower complaint brought by our distinguished colleagues at the law firm Constantine Cannon. Importantly, the case result in the largest–ever False Claims Act antitrust recovery. It also, helped spur the creation of a new national strike force to combat collusion among government contractors.
Due to the increased federal law enforcement resources that are now being directed at this type of anticompetitive fraud, we expect to see a growing number of significant government procurement cases, financial recoveries, and whistleblower awards in the coming years.
If you believe you have information regarding bid rigging or other types of procurement fraud, we urge you to contact us for a free, confidential, consultation.