As a contracting professional, you are well situated to spot and report illegal antitrust conspiracies, and as such you are invaluable to the endeavor of protecting American consumers from these crimes.

BY KATHRYN B. KUSHNER, ESQ.

More likely than not, the first thing you think of when you look at a can of tuna fish isn’t an antitrust crime—more likely, it’s lunch. However, in addition to being a versatile salad or sandwich ingredient, canned tuna recently made headlines as the subject of an antitrust conspiracy involving household names such as Bumble Bee and StarKist.

Executives at these competing companies agreed on prices to charge for this pantry staple, artificially inflating the price paid by millions of Americans. That type of agreement—called “price fixing”—is illegal under U.S. antitrust law.

The U.S. Department of Justice Antitrust Division, which investigates and prosecutes crimes against competition, including price fixing, uncovered the illegal scheme, and obtained guilty pleas from two companies and three executives. The fourth executive charged—the CEO of Bumble Bee—went to trial in late 2019, was convicted, and was sentenced in June 2020 to 40 months in prison.^[1]

Believe it or not, this was not the Division’s first foray into illegal seafood schemes. Decades earlier, the Division uncovered a decade-long conspiracy involving another type of antitrust crime: “bid rigging.” Companies competing for Department of Defense contracts to provide frozen seafood agreed on which companies would win which bids—before the bids were let.^[2]

What do these examples highlight, other than an indication that the seafood industry is not immune to fishy conduct? The effects of antitrust crimes can be wide-reaching, and penalties are significant. These crimes affect both the public and private sectors. In both contexts, American consumers end up paying for the crimes of others—either directly, for a can of tuna at the grocery store that costs more than it should because of a price-fixing conspiracy, or indirectly, as taxpayer money is used to fund government contracts for which prices are artificially inflated due to a bid-rigging conspiracy.

Why Should You Care?

As you might imagine, the scope of antitrust and procurement collusion crimes reaches far beyond the seafood sector—they could affect any market or industry. The Division has prosecuted crimes in a panoply of industries, ranging from auto parts to generic drugs, and everything in between.

Contracting is ripe ground for these types of crimes to occur. As a contracting professional, you can help the Procurement Collusion Strike Force uncover these illegal conspiracies. The Strike Force is a collaboration between the Antitrust Division, U.S. Attorneys’ Offices, and other law enforcement agencies dedicated to deterring, detecting, investigating, and prosecuting procurement collusion. A core mission of the Strike Force is to work with you—the contracting community—to identify potential violations of criminal antitrust laws in the contracting process.^[3]

Reducing illegal and anticompetitive collusion in public procurement could save U.S. taxpayers tens of billions of dollars per year, and in the private sector, could significantly affect a company or organization’s bottom line. Based on an estimate by the Organization for Economic Cooperation and Development, eliminating bid rigging could help reduce public procurement costs by 20% or more.^[4]

Being on the lookout for indicators of these crimes is always important, and is even more so now, amid the economic devastation and unrest caused by the COVID-19 pandemic. During times of emergency and disaster relief, there can be a marked increase in the number of bad actors looking to take advantage of contracting processes, when they move more quickly than usual in order to deliver goods and services to those in need as soon as possible.

In this article, we will discuss:

• The basics of what antitrust crimes are,
• Red flags you can be on the lookout for that indicate an antitrust conspiracy may be afoot, and
• Practical tips to deter and detect antitrust crimes in the contracting process.

What are Antitrust Crimes? Price Fixing, Bid Rigging, and Market Allocation Agreements

What makes the price-fixing and bid-rigging schemes described above illegal? The Sherman Antritrust Act, under which “every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal.”

So, what does all that legal jargon actually mean? In a nutshell, it is a crime for competitors to agree to:

• Fix prices,
• Rig bids, or
• Allocate markets or customers.

A common thread runs through all three of these crimes: They involve an agreement between two or more horizontal competitors (c

Price Fixingompanies that provide, or have the capability to provide, competing goods or services). Let’s look at basics of each. While bid rigging is most common in the contracting context, bid-rigging schemes can often contain elements of price fixing and allocations, so familiarity with all three is important. (Refer to FIGURE 1.)

In a price-fixing conspiracy, like the one we saw in the canned tuna market, competitors agree to fix or otherwise determine the price at which their products or services are sold. Price fixing encompasses more than agreements about the actual price charged to customers—it includes any agreement to affect price.

Price-fixing agreements can manifest in a variety of ways. Examples include agreements between competitors to:

• Charge the same price or raise prices together;
• Add fees or other surcharges, eliminate discounts, or have uniform discounts;
• Establish minimum or floor prices or establish a standard pricing formula; or
• Coordinate or not compete on other commercial terms such as credit terms or warranties.

Bid Rigging

In a bid-rigging conspiracy, like the one we saw for seafood purchased by DOD, competitors agree in advance who will win a bid. This allows the predetermined winner to bid a higher amount than it otherwise would if it had to compete to win the contract. The contracting entity is then forced to pay a higher amount than it otherwise would have, had the bidders legitimately been competing with one another. Often, as part of these schemes, competitors will give the illusion of competition to the contracting entity, when in fact there is none.

There are three basic variations of bid rigging:

• Bid rotation—In this type of scheme, competitors agree to take turns winning bids.
• Complementary bids—Here, competitors agree to submit intentionally high, or otherwise unacceptable, bids. (This could be part of a bid rotation scheme, with competitors submitting bids they know are not viable in order to ensure that the predetermined winner is awarded the bid.)
• Bid suppression—This scheme involves competitors agreeing to refrain from bidding. (This could also be done to implement a bid rotation scheme.)

You might wonder why a competitor would agree to intentionally lose out on business. Bid-rigging agreements are generally “quid pro quo” crimes—meaning that in exchange for intentionally losing a bid, a competitor expects to receive something of value in return. That could be winning a different bid, being awarded a subcontract, or receiving gifts or cash payments.

Allocation

In an allocation agreement, competitors agree to divide up a market. This could be done in several different ways, including division by geographic area, customer, or product. In allocation agreements, competitors agree on who gets what “piece of the pie.” Competitors might use a bid rigging scheme to ensure that each competitor gets its allocated piece of the pie.

How to Spot Something Fishy: Detecting Collusion

As contracting professionals, you are on the front lines of where these crimes frequently occur. It’s not surprising that some of the Antitrust Division’s most successful investigations and prosecutions arose from leads that contracting professionals called in after spotting something fishy in the procurement or contract administration process.

You can look out for some red flags that might be indicators that an antitrust crime is afoot and would merit contacting the Procurement Collusion Strike Force at [email protected] to further investigate. Some of the most common red flags are discussed as follows.

Favorable Conditions for Collusion

Certain conditions can make a customer or supply chain more vulnerable to antitrust crimes. (Refer to FIGURE 2.) These conditions do not mean there is definitely an antitrust crime happening—only that it can be even more important to keep your eyes and ears open for the suspicious patterns, statements, and conduct discussed in more detail as follows.

• If there are few sellers/vendors in the market.

   

  The fewer the number of competitors, the easier it is for those competitors to put an antitrust conspiracy into place. It also makes it more difficult for conspiring competitors to try to “cheat” on a bid-rigging agreement. For example, if Company A, Company B, and Company C are the only companies qualified to bid on Contract X and they have a bid rotation agreement in place (e.g., they have agreed beforehand that each company will win one bid in a series of three), Company B and C could feel secure in allowing Company A to win the first bid, because the risk is lower that a competitor from outside the conspiracy could swoop in to steal away the second or third bids that were allocated to them under the bid-rigging agreement.

   

• If competitors are already in communication with each other.

There are several vehicles through which this commonly occurs:

• Attendance at conventions, trade association meetings, and other industry gatherings;
• Participation in joint ventures, teaming arrangements, prime/subcontractor relationships, or other business arrangements; and
• As part of a “revolving door,” when employees move from one company to another in the same industry.

Of course, these types of relationships are not criminal, but they could increase the risk of collusion between competitors.

• If a market or industry has a practice or history of regularly scheduled purchases.

  This is especially relevant when competitors are made aware of details beforehand. When competitors know roughly how much business is coming down the pipeline and how often, it is easier for them to take advantage of that knowledge to enter into an agreement to divvy up future spoils equally with other competitors.

• If rush or emergency work is involved.

  In the wake of disaster, contracting processes often move more quickly to get help to those in need as soon as possible. During these times, we see an increase in bad actors coming out of the woodwork, looking to take advantage of this faster pace to cut corners without detection.

  Suspicious Patterns, Statements, and Conduct

  There are many red flags you can be on the lookout for throughout the contracting process that could indicate a price fixing, bid rigging, or allocation agreement is underway. FIGURE 3  lists some of the most common indicators. (No two conspiracies are the same, and this list does not include every red flag.)

  

  Practical Tips for Deterring and Detecting Collusion

  In addition to remaining vigilant to detect these red flags, listed in FIGURE 4 and described as follows are actions you can take to deter and detect illegal price fixing, bid rigging, and allocation agreements.

  

• Become familiar with suppliers and their typical pricing.

  This doesn’t just apply to list prices. The more you know about what’s typical in an industry, the better you’ll be able to spot what’s atypical.

• Become familiar with market dynamics.

  If you’re aware of industry changes in price and supply, you’ll be equipped to know if a company gives you a rationale for a price increase that is incongruent with market dynamics and may be a cover for prices being increased pursuant to an illegal conspiracy.

• Require bidders to sign a “no collusion” certification.

  Along with bid submissions, make vendors certify that they have arrived at their prices independently, had no improper contact with competitors, and arrived at their bids free of collusion.

  When dealing with government contracting, this certification may already be required by the Federal Acquisition Regulation (FAR). If not already required, it is best practice to implement your own.

• Examine bid files for similarities in bids submitted by competing vendors that would typically not occur if prepared independently.

  Examples include identical phrasing, typos, price calculations, and handwriting or font type.

• Maintain contracting records.

  Do this so bid files and other records are available for you to spot these indicators.

• Keep bids and identities of other bidders confidential.

  The more bidders know about each other and each other’s bids, the easier it is for them to get in touch and facilitate an agreement.

• Discourage or prohibit subcontracting to losing bidders.

  Subcontracts can be used as a vehicle to pay off members of a conspiracy. If you are working in an industry for which there are few qualified suppliers, this tip may not be feasible to implement. At a minimum, carefully scrutinize subcontracts.

• Maximize the size of a bidding pool.

The fewer the number of bidders, the easier it is for them to orchestrate and carry out an antitrust conspiracy. If few vendors submit bids, you may want to actively seek out new bidders. If the response from seemingly capable bidders is “no,” that could be a red flag that an allocation or bid rigging agreement is in play.

If You See Something Fishy, What Should You Do?

If you see something, say something! If you spot any of the red flags discussed in this article, report them to the Procurement Collusion Strike Force tip center at [email protected].

As you pass the tuna aisle during your next trip to the grocery store, remember how pervasive the effects of antitrust crimes can be. As a contracting professional, you are well situated to spot and report these illegal conspiracies, and as such you are invaluable to the endeavor of protecting American consumers from these crimes. CM

Kathryn B. Kushner, Esq.

• Trial Attorney, U.S. Department of Justice, Antitrust Division in New York.
• Represents the Antitrust Division as a member of the Procurement Collusion Strike Force for the Eastern District of Pennsylvania.

 

The views expressed in this article are solely those of the author and are not purported to represent those of the U.S. Department of Justice.

 

Endnotes