1. Virginia Association of Governmental Purchasing March 12, 2008 Richmond, Virginia

2. Antitrust/Competition Issues in Procurement: Collusion among Vendors/Suppliers Robert E. Connolly robert.connolly@usdoj.gov (215) 597-7405 robert.connolly@usdoj.gov

3. Sherman Antitrust Act (1890) Every contract, combination, or conspiracy in restraint of trade is declared to be illegal.

4. Antitrust Enforcement Criminal Enforcement Merger Review Monopolies and Other Civil Violations

5. Bid Rigging Any agreement between competitors concerning who will bid, what the bids will be, or who will be the low bidder.

6. One Railroad

7. Monopoly or Collusion?

9. Atlantic Disposal Corp. McGuire AFB - Fort Dix Low Bid$2,354,104 Medium$2,566,185 High$3,108,805 Comp Bid$3,509,527 Loss to Gov’t: $754,701

10. Nucero Electric Corp. Digestion Tank Total Prime Cost Overhead Profit Total Bid Escalation of Prices Submitted Bid $1,472,256 $441,67630% $286,50015% $2,200,432 $220,000 10% $2,420,432

11. Subcontracting to Losing Bidders

13. Surplus Goods Auctions

14. Private “Knockout” Company D$500,000 Public Bid$200,000= $300,000 Split of $75,000 each

15. Complementary Bids Bandages Year 1 Frass $10.00 Brenner $13.00 Year 2 Frass $10.00 Brenner $15.00 Year 3 Frass $14.00 Brenner $17.00 Medical Boxes Brenner $10.00 Frass $13.00 Brenner $12.00 Frass $15.00 Brenner $14.00 Frass $17.00

16. Rotation of Bids Men’s Outdoor Gloves Firm A$10.00 Firm B$12.00 Firm C$13.00 Firm D$14.00 Men’s Dress Gloves Firm C$10.00 Firm D$12.00 Firm A$13.00 Firm B$14.00 Women’s Outdoor Gloves Firm B$10.00 Firm C$12.00 Firm D$13.00 Firm A$14.00 Women’s Dress Gloves Firm D$10.00 Firm A$12.00 Firm B$13.00 Firm C$14.00

17. Suspicious Price Changes 1995Company A$13.00 Company B$15.00 1996Company A$13.00 Company B$15.00 1997Company A$14.00 Company B$16.00 1998Company A$15.00 Company B$16.00 Company C$9.00 1999Company A$7.10 Company B$7.30 Company C$7.50 2000Company A$12.00 Company B$16.00 2001Company A$16.00 Company B$17.00 Company C$18.00

18. WHEN Might Collusion Occur? Few Sellers/Friendly Competitors Restrictive Specifications Standardized (Commodity) Product Repetitive Purchases International Trade

19. HOW Do Antitrust Conspiracies Work? Opportunity to Scheme Means to Divide Illegal Overcharge Method of Communication Mechanism to Monitor the Agreement

20. Why? Very Effective Way to Overcharge (make a lot of money) Very Difficult to Detect and/or Convict Conspirators “Justify” Overcharges Modest Penalties (Not anymore!)

21. WHAT Products or Services are Subject to Collusion? 1. Services --trash collection 2. Construction --electrical/mechanical 3. Office Supplies --fax paper 4. Raw Materials --lysine --citric acid --vitamins

22. United States v. Atlantic Disposal Bid Documents 1. Few Bidders 2. Atlantic Disposal Always Won 3. Common Typeface 4. Common Mathematical Errors 5. Subcontracts to Losing Bidders 6. Sham Bidder

23. Indicators Of Collusion Bid Patterns Over Time Clues in Bid Documents Non-Competitive Pricing Vendor Comments Sham Bidders

24. Three Bid Rule Sham Companies Multiple Bids from Same Source Complementary/Friendly Bid Create the Appearance of Competition

25. Staying on The Bidders List Non-Competitive but Unilateral Amount of Bid/Profit not Illegal Agreement is the Crime

26. Possible Indicators of Collusion (Competitive Bidding) Identical (Losing) Bids Competing Bids Have Identical Typos, Miscalculations, or Handwriting Bid Appears to Have Been Altered (Upwards) at Last Minute Significant Gap between Winning Bid and Losing Bids Same Increment between Winning Bid and Losing Bids Unexpectedly High Bids

27. More Possible Indicators of Collusion (Competitive Bidding) Same Company Bids Higher for Same Item than on Other Contracts Where Cost Factors are the Same Winning Bidder Subcontracts Part or All to Losing Bidder Prices on Some Line Items are Much Higher Each Company Appears to Have Bid High on Some Parts and Low on Other Parts Some Qualified or Interested Bidders Did Not Bid Prices Drop when a New Bidder Enters the Picture Same Company Always Wins the Same Contract or Part of Contract

28. More Possible Indicators of Collusion (Competitive Bidding) Bidders Seem to Win on a Fixed Rotation or Geographical Pattern High Bids Lack Detail or Specifics Company Not Capable of Performing Submits a High Bid Fewer Bidders than Normal on Advertised Contract Bidder Submits a Competitor’s Bid Along with His Own Bidders Have Met in Advance of Bid Local Bidders are Bidding Higher Prices for Local Delivery than to Distant Points

29. Suspicious Comments “You aren’t going to get a lower quote from anyone else.” “Our information is that (A COMPETITOR) isn’t offering that price.” “Prices are going up throughout the industry next season.” “Everybody will be coming out with a price increase in July.”

30. More Suspicious Comments “We are following industry pricing” or “These are the industry terms.” “I know I’m not the low bid.” “The industry is going to a new pricing schedule.” “We all do it this way.” “We don’t sell in that area.”

31. More Suspicious Comments “Only (Competitor X) sells in your area.” “Their salesman shouldn’t be calling you.” “It is our / their turn to get this contract.” “We can’t service you. You’ll have to call (Competitor X).”

32. The Cost of Collusion Conspiracies are Lengthy Often Spread to Other Goods and Services The Result is that Victims are Overcharged and Defrauded

33. Criminal Enforcement Punishment Restitution for Victims Return to Competitive Markets

34. Antitrust Facts Criminal Penalties--Include fines up to $10 million for corporations and $350,000 for individuals. Individuals can also go to jail for up to 3 years. 18 U.S.C. Section 3571 penalties uncapped. Civil Actions--Victimized purchasers are also entitled to treble damages. (False claims for Govt purchasers) Lower Prices--The restoration of competition generally results in substantially lower prices. Statute of Limitations--5 years Per Se Violation

35. What You Can Do 1. Ask Questions 2. Keep an Active Bidders List (Don’t ask Bidder to get another bid(s) 3.Non-Proprietary Specs 4.Non-Collusion affidavits 5. Report Your Concerns

36. Concerns of Buyers 1.Are You Almost Done? 2.But I Can’t Prove Anything 3. I Have to Work With These People 4. We Have to Award the Contract

39. THE END