Bribery, Kickbacks & Bid Rigging

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The government spends hundreds of billions of dollars each year on all manner of goods and services. These expenditures occur in a wide variety of sectors, including military, transportation, education, community development, disaster relief, and environmental protection. The federal government pays many of these funds directly to private contractors. It also provides grants to state and local governments to fund large-scale public projects and programs. States and localities then award a significant portion of those funds to private contractors to perform construction and other service contracts.

Bribery, Kickbacks, and Exploitation of Public Office

Public officials who select private companies or individuals to perform public work, approve change orders or other contract adjustments, or authorize contract payments are prohibited from receiving any payments or other things of value, such as discounts, hidden ownership interests, or priority investor or customer status, in return for their official actions. The law prohibits bribes that a private contractor pays, or agrees to pay, in advance of being selected to perform a public contract. The law likewise prohibits gratuities or ‘thank you’ gifts that a contractor makes to a public official after the fact. And the law prohibits private contractors from making bribe or gratuity payments directly to public officials or indirectly to any third party (such as a relative or an associate) who receives an illegal payment on behalf of a public official.

Over the past decade, law enforcement and regulatory agencies have increased their focus on potential corruption in the massive municipal bond markets. Municipal bonds are debt securities issued by states, cities, counties, and other public agencies to finance major capital projects such as building schools, highways, water and sewer systems, and other infrastructure. The Federal Reserve estimates that the value of the U.S. municipal bond market stood at more than $3.8 trillion as of 2018.

The same laws that prohibit private contractors from paying to win traditional construction or service contracts also prohibit underwriters, advisors, investment banks, and other financial firms from paying bribes or kickbacks to public officials to win a share of the lucrative municipal bond business. Firms and individuals who participate in the municipal bond market are prohibited from using undisclosed consulting fees, finder’s fees, or pay-to-play contributions to disguise conflict-of-interest payments made to public officials.

Bid Rigging, Illegal Cartels, and Anti-Competitive Collusion

Private companies and individuals also defraud the government when they secretly collude with one another to rig bids on government contracts. In bid rigging, a group of private contractors or vendors agree to take turns submitting artificially inflated ‘sham’ bids. One of their members then submits the winning ‘low’ bid for government work at a price well above what an honest contractor or vendor would submit through open competition. Other forms of anti-competitive collusion involve private firms dividing up available government contracts by region or territory and explicitly agreeing not to compete with one another in those markets.

Many government procurement offices and development authorities now require bidders to submit non-collusion affidavits as part of their original bid package. Even in the absence of such an affidavit, contractors may be held liable under the False Claims Act (FCA) for collusive conduct in obtaining government contracts.

Successful Bribery, Kickback, and Bid Rigging Cases and Awards

The DOJ has been active in this area, with several notable cases, including:

  • Bid rigging to obtain military contracts: Three South Korea-based companies (SK Energy Co., Ltd., GS Caltex Corp., and Hanjin Transportation Co., Ltd.) agreed to plead guilty to criminal charges and pay a total of approximately $82 million in criminal fines and a total of $154 million under the FCA and the antitrust laws for a bid rigging conspiracy that targeted contracts to supply fuel to U.S. Army, Navy, Marine Corps, and Air Force bases in South Korea. As a result of their illegal conduct, the armed forces overpaid for fuel supply services.
  • Bribery and kickpacks to obtain military contracts: Two Alaskan companies (Kikiktagruk Inupiat Corp. and KIC Development, LLC) agreed to pay $2,025,000 to settle FCA allegations that they bribed and paid kickbacks to obtain a contract for construction at Fort Bliss Army base in Texas. The kickbacks and bribes were paid to an Army Corps of Engineers worker who in turn directed the contracts to the companies. Among the kickbacks and bribes were airline flights, money for hotels and vacations, and payments to the worker’s family.

How to Report Bribery, Kickbacks, Bid Rigging, or Similar Fraud

These are just a few examples of the sorts of fraud cases that can be brought under the FCA. A wide variety of misconduct can constitute fraud in the area of bribery, kickbacks, bid rigging, and similar fraud involving public contracts. If you believe you have information regarding fraud, please contact us for a free, confidential consultation.