1. Collusion in Department of Transportation Contracts

2. Agenda  History.  What is Collusion?  Types of Collusion.  Detection of Collusion.  What can be Done?

3. History of Collusion and Legal Means  The Sherman Act enacted in 1890, prohibits any agreement among competitors to fix prices, rig bids, or engage in other anticompetitive activity.  The Antitrust Division of the Department of Justice (DOJ) is responsible for the criminal enforcement of this act.

4. Sherman Act Penalties  Fine up to $10,000,000 for corporations.  Fine up to $350,000 and/or 3 years in prison for individuals.  Responsible for restitution to victims.  Possible civil suits for up to 3x the amount of damages suffered.

5. History of Collusion and Legal Means  49 CFR “Code of Federal Regulations” Part 29 Government Debarment and Suspension (Non- procurement) and Government Requirements for Drug-Free Workplace (Grants) Subparts A-F outline the purpose, effect of action, debarment procedures, suspension procedures, and the responsibilities of the GSA, Agency and participants, Drug-Free workplace requirements. Appendix A,B, and C to Part 29, provide instruction for the Debarment and Suspension certification requirements.  http://www.fhwa.dot.gov/hep/49cfr29.htm http://www.fhwa.dot.gov/hep/49cfr29.htm

6. History of Collusion and Legal Means  The Federal Antitrust Division (of the DOJ) has successfully prosecuted regional, national, and international conspiracies affecting construction.

7. What is Collusion?  Collusion by definition is an illegal, secret agreement between two or more parties for a fraudulent or wrongful purpose.

8. Price Fixing  Price Fixing is an agreement among competitors to raise, fix, or otherwise maintain the price at which their goods or services are sold. This does not mean that competitors agree to charge the same price. And not all competitors have to be amongst the conspiracy.

9. Examples of Price Fixing  Establishing or adhering to price discounts.  Holding prices firm.  Eliminating or reducing discounts.  Adopting a standard formula for computing prices.  Maintaining a certain price differential between different types, sizes, or quantities of products.

10. Examples of Price Fixing  Adhering to a minimum fee or price schedule.  Fixing credit terms.  Not advertising prices.

11. Bid Rigging  Bid Rigging occurs when conspiring competitors agree in advance as to who will win the bid for a contract, with the contract being let through the normal competitive bidding process.

12. Bid Rigging  Bid Rigging typically is one of 4 forms. Bid Suppression. Complementary Bidding. Bid Rotation. Subcontracting.

13. Bid Suppression  When one or more contractors, who typically would be expected to bid, agree to refrain from bidding or withdraw a previously submitted bid so that another contractors bid will be accepted.

14. Complementary Bidding  This is a form of bidding, where similar to Bid Suppression there is a predetermined winning contractor, but in this case, the competing contractors submit bids that are too high or where they violate special terms of the contract and are therefore not accepted.

15. Bid Rotation  All conspirators take turns being the winning bidder. The terms of the rotation may vary depending on agreement.  “Defies the law of chance”

16. Subcontracting  This occurs when one party gets awarded a contract and then awards subcontracts to the conspiracy members in exchange for not submitting a winning bid.

17. Market Division  When competitors allocate certain customers, products, or territories amongst themselves.  (X, can sell to Y, as long as they don’t sell to Z)

18. Detecting Collusion  Collusion is difficult to detect as it is done in secrecy.  Indicators of collusion: Suspicious bidding patterns. Suspicious pricing patterns. Suspicious statements or behaviors.

19. Suspicious Bids  The same competitor always wins the contract, especially when there are the same competitors placing bids.  The same competitors submit bids and they seem to take turns winning.  Some bids are unnecessarily higher.  Fewer than normal number of competitive bids.

20. Suspicious Bids  A company appears to bid substantially higher on some bids than others, with no apparent reason.  Bid prices drop when a new or infrequent bidder submits a bid.  Successful bidder subcontracts work, to competitors that submitted unsuccessful bids.

21. Suspicious Bids  A company withdraws its successful bid and subsequently is subcontracted by the winning bidder.

22. Suspicious Prices  Identical prices may indicate a price-fixing conspiracy, when: Prices stay identical for long periods of time. Prices previously were different. Price increases do not appear to be relative to increased costs.

23. Suspicious Prices  When discounts are eliminated, especially when they historically have been given.  Vendors charge higher prices to local customers than to distant customers. (This indicates possible local price fixing).

24. Suspicious Statements/Behaviors  Irregularities in bids indicate that both parties combined efforts on bids. Similar handwriting, type, or stationary.  Bid documents contain last minute price alterations. White out or physical alterations.  One person submits bid for two parties.  Submitting a bid when they are incapable of performing the contract.

25. Suspicious Statements/Behaviors  A company brings multiple bids to an opening and submits a particular bid based on who else is submitting bids.  A bidder, or person, makes a suspicious statement indicating some acknowledgement of a conspiracy.

26. Suspicious Statements/Behaviors  While these are indicators of possible collusion, they are not proof of collusion. They may choose to do certain things for their own business use, and only does it become illegal if and when an agreement is made between competitors.

27. What can be done?  Computer system to detect collusion.  Strengthen estimating techniques.  States should conduct periodic Antitrust Audit to look for evidence of Collusion and/or Bid Rigging.  Engineers estimate must remain confidential.  States should continue to find improved methods of cost estimation.

28. What can be done?  Bidders list must be confidential on project by project basis.  Bid depositories must be located on State Property.  Department should continue to encourage competitive bidding and more responsive bids. Advertise pre-bid conferences. Increase number of pre-qualified bidders. Structuring of contracts.

29. What can be done?  Ensure purchasing department employees are familiar with indicators of bid rigging.  Know and understand the dynamics of the markets in which you make purchases.  Ask questions: If the bids or prices don’t make sense, ask why this is. You may find a reasonable explanation or your suspicions may be increased.

30. What can be done?  The most important part of a fraud investigation is documentation. It is vital that the Agency be proactive in its approach. Information should be collected on an on-going basis and should be dynamic in nature. The day that a contractor is suspected of collusive activity is not the day to begin gathering information; the Agency should already have an extensive amount of information about, and related to, that (and every) contractor and their bidding, contracting, financial, and professional history.

31. What can be done?  If inappropriate activity is suspected, contact: Supervisor. Division Engineer. Chief Engineer’s Office. Antitrust Unit (in-house). Attorney General’s Office. USDOT. New Case Unit of Department of Justice, Antitrust Division.

32. Resources  Antitrust Organization http://www.antitrust.org/ http://www.antitrust.org/  Excluded Parties List http://www.epls.gov/http://www.epls.gov/  Department of Justice http://www.usdoj.gov/http://www.usdoj.gov/  FHWA Notices http://www.fhwa.dot.gov/legsregs/directives/ notices.htm http://www.fhwa.dot.gov/legsregs/directives/ notices.htm

33. Resources  USAID: Office of the Inspector General http://www.usaid.gov.oig/pressreleases.htm http://www.usaid.gov.oig/pressreleases.htm  USAID: Office of the Inspector General “Office of the Inspector General Investigations: Fraud Indicators” http://www.usaid.gov/oig/hotline/fraudaware ness_handbook_052201.PDF http://www.usaid.gov/oig/hotline/fraudaware ness_handbook_052201.PDF

34. Resources  FHWA Contract Administration Core Curriculum Participants Manual and Reference Guide http://www.fhwa.dot.gov/infrastructure/prog admin/contracts/coretoc.htm http://www.fhwa.dot.gov/infrastructure/prog admin/contracts/coretoc.htm

35. References  Price Fixing & Bid Rigging – They Happen: What they are and what to look for; An antitrust primer for procurement professionals. Department of Justice  The Ethics of Preparing, Awarding and Administering Department of Transportation Contracts. North Carolina DOT. Steven D. DeWitt, PE  FHWA Contract Administration Core Curriculum Participant’s Manual and Reference Guide