DOJ Antitrust Division Targeting Government Contractors
Government contractors take heed: the Department of Justice Antitrust Division (the “Division”) is prioritizing investigations of criminal antitrust violations in the public procurement process. Recent statements and activity indicates that prosecuting anti-competitive behavior in government contracting is a key initiative for the Division. Speaking to leaders of the ABA’s Antitrust Section at a conference in August, Assistant Attorney General Makan Delrahim, who helms the Division, announced that antitrust prosecutors are focused on collusion in the contracting process and are collaborating with Inspectors General at multiple agencies to beef up the government’s ability to identify and investigate conduct that deprives federal, state, and local agencies, and the U.S. taxpayer, of fair competition. We anticipate a more formal, public announcement from the Division soon, including the possible unveiling of a multi-agency strike force focused on combating procurement collusion at all levels of government.
Procurement Prosecutions on the Rise
A number of the Division’s investigations and prosecutions in the last year have involved the procurement process. The most blockbuster one involved the indictment of several South Korean companies as part of an investigation into bid rigging and fraud on Department of Defense (“DOD”) fuel supply contracts for U.S. military bases in South Korea. At least five companies have since pleaded guilty. Evincing the Division’s commitment in this area, at least seven individuals also have been indicted for criminal antitrust violations and fraud against the U.S. government and prosecutors have pursued civil damages against the corporate offenders in addition to criminal charges. The Division also has announced indictments and pleas of companies and individuals related to schemes to rig bids in connection with contracts to provide goods and services to taxpayer-funded schools, hospitals, and other public and private entities. We are aware of other non-public investigations involving government contractors.
The penalties for criminal antitrust violations include maximum fines of $100 million or twice the collective gain or loss from the conspiracy (which often far exceed $100 million). Additional civil antitrust remedies are available under Section 4a of the Clayton Act and are subject to trebling. Depending on the particular conduct, additional damages may also be available to the government under the False Claims Act. For example, companies ensnared in the fuel supply investigation have paid hundreds of millions of dollars in criminal and civil penalties. Individual consequences are similarly steep, including fines up to $1 million and imprisonment up to ten years.
Enhanced Scrutiny by Procurement Officials
Recent intel, including comments by Division leadership, indicates that a key facet of the government’s initiative in this area will be robust training for government procurement officials to identify patterns and red flags suggestive of collusive behavior. We understand that antitrust prosecutors are working with Inspectors General, the FBI and other enforcement agencies to jointly roll out new training. Entities and individuals doing business with the government at all levels should expect increased scrutiny of the procurement process going forward.
Understanding of Antitrust Rules is Paramount
We anticipate that the Division will be focused on several areas:
- Bid rigging agreements in which competitors allocate bids will be the DoJ’s top priority. They will prosecute such agreements as criminal violations of the antitrust laws.
- Teaming agreements and joint ventures between competitors will be another priority for the Division. In particular, the DoJ will have concerns about teaming agreements where the only two possible bidders for a procurement team or where the two lowest cost and/or two most technologically capable competitors team, rather than compete.
- Another area of concern will be exclusive teaming agreements involving a prime contractor and a subcontractor where the subcontractor has a technology or product needed by all prime contractors in order to compete. In this situation, the harm is possible foreclosure of competition at the prime level.
- Anti-competitive mergers and acquisitions which reduce the number of competitors to one or two in a relevant market.
Ignorance of antitrust regulations will be no defense in the event of a violation. As we previously reported, in July, the Division announced a significant change to its policy on criminal antitrust compliance. Going forward, companies that demonstrate that they had in place robust and effective antitrust compliance programs at the time of an offense will be eligible to be considered for a deferred prosecution agreement (DPA), if they self-report the conduct to the Division and cooperate with antitrust enforcement authorities. Violations that involve conduct perpetrated by senior executives will not merit such consideration and the burden to show that a compliance program was effective despite a violation likely will be onerous. In connection with this policy change, the Division also issued detailed guidance regarding the criteria by which it will evaluate corporate compliance programs. Given this comprehensive roadmap, companies should understand that antitrust enforcers will neither forgive employee ignorance of antitrust requirements nor tolerate the lack of a strong and thoughtful corporate antitrust compliance regimen.
We Can Help
Given the Division’s new initiative, this would be a good time for government contractors to redouble their compliance activities. With the increased focus, we recommend companies be pro-active and conduct audits of key sales and pricing individuals to determine if there has been any wrong-doing. Detecting potential problems before the government finds them can be very beneficial for a company, as the Division has a robust amnesty program which provides very favorable protections for companies and individuals who self-report antitrust problems.
Our team continues to monitor developments and updates in this area, including investigations, prosecutions, pleas, and trends. We routinely interact with antitrust enforcement authorities and are well-positioned to be promptly aware of new initiatives, practices and risk areas. We have deep experience advising companies doing business with federal, state, and local agencies on the myriad of issues involved in procurement and contracting activities and requirements. Given the Division’s clear interest in this area, we strongly encourage companies that provide goods and services to government agencies to expeditiously take steps to protect themselves and their employees, including a thorough review of corporate compliance programs to ensure consistency with Division expectations and standards and enhanced training for employees involved in government contracting activities and relevant senior executives.
This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.