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Government Contractor’s Ties to Affiliate With Antitrust Law Violations Endangers Its Multi-Billion Dollar Contract Award

The intersection of government contracting and antitrust law keeps making the news. In a companion set of bid protest decisions released in October 2020, the Government Accountability Office (“GAO”) recommended reconsideration of a multi-billion dollar contract award on the grounds that the federal agency awarding the contract failed to adequately consider criminal antitrust violations committed by an affiliate of the intended awardee.1 The decisions reinforce that antitrust violations carry significant and expensive collateral consequences beyond the standard criminal penalties and fines. In light of the Department of Justice Antitrust Division’s increased focus on detecting and prosecuting antitrust misconduct in the public procurement process, businesses looking to do work with the federal government should carefully assess their antitrust compliance programs and urge key affiliates to do the same.

In December 2019, the Department of Defense’s United States Transportation Command (“USTRANSCOM”) announced the award of a multi-billion dollar contract for global household goods relocation services to American Roll-on Roll-off Carrier Group, Inc. (“ARC”). Two disappointed bidders, HomeSafe Alliance, LLC (“HomeSafe”) and Connected Global Solutions, LLC (“CGSL”), promptly protested the award at GAO, arguing, among other grounds, that USTRANSCOM failed to consider criminal antitrust misconduct committed by Wallenius Wilhelmsen Logistics AS (“WWLAS”), a company that ARC had identified as its corporate parent. The bid protests alleged that ARC failed to disclose WWLAS’s antitrust misconduct to USTRANSCOM and that, in light of the misconduct, USTRANSCOM improperly found ARC to be a responsible contractor. In response to the protests, the agency took corrective action, agreeing to reevaluate the original bidders’ proposals and make a new responsibility determination.

After completing its reevaluation and again determining that ARC provided the best offer, USTRANSCOM conducted a renewed responsibility assessment, including a review of hundreds of pages of ARC documents and extensive discussions with ARC regarding WWLAS’s antitrust issues. Specifically, USTRANSCOM considered that, in 2016, WWLAS agreed to plead guilty and pay a $98.9 million fine in response to allegations that the company had rigged bids and fixed prices in connection with international ocean shipping services. However, USTRANSCOM also found that ARC was never owned by, controlled by, or part of WWLAS’s corporate structure. Instead, USTRANSCOM found that ARC and WWLAS had become affiliates as a result of a merger, and now shared the same ultimate parent. In the course of its re-assessment, USTRANSCOM also determined that another ARC affiliate also had paid civil penalties to resolve alleged violations under the Shipping Act. However, USTRANSCOM determined that neither affiliate would have meaningful involvement in ARC’s performance of the contract, and therefore affirmed its original finding that ARC was responsible and again awarded the contract to ARC. Unsatisfied with USTRANSCOM’s determination, HomeSafe and CGSL again protested the award at GAO, arguing, among other things, that USTRANSCOM’s responsibility determination for ARC remained flawed.

GAO agreed with HomeSafe and CGSL. GAO found that USTRANSCOM failed to consider that ARC had proposed to perform the contract with heavy reliance on its affiliate network, including the two affiliates discussed above. Further, GAO noted that USTRANSCOM did not consider that the president/chief executive officer and the chief financial officer of ARC’s ultimate parent are also employed by WWLAS. In GAO’s view, this appearance of control was sufficiently significant such that USTRANSCOM should have conducted further investigation. As a result, GAO sustained the protests and recommended that USTRANSCOM again reconsider its award to ARC.

What This Means For You

This outcome illustrates the procurement consequences that may result from antitrust violations, even after a company has accepted responsibility, pleaded guilty, and paid a criminal fine. Moreover, GAO’s decision makes clear that it is not enough for the bidding entity itself to be free from a history of wrongdoing. The crimes of an affiliate may also doom a proposal or award, particularly if the tainted affiliate is not specifically excluded from the bidding entity’s proposal. As seen in the protests of the award to ARC, an agency may have an obligation to probe whether affiliates that may assist with contract performance have committed antitrust crimes or other statutory violations. If an agency believes that an offeror’s record of integrity and business ethics is negatively impacted by a history of antitrust or other type of misconduct, or that the offeror is not sufficiently distanced from an affiliate with a history of such misconduct, the agency may determine that the offeror is not responsible, making it ineligible to receive a contract award.

The Department of Justice Antitrust Division has partnered with a number of federal agencies and U.S. Attorneys’ Offices across the country to create a Strike Force to target antitrust misconduct impacting public procurement. It is now critically important for companies (and their affiliates) looking to do business with the government to be mindful of the competition rules and to ensure strong corporate compliance programs and policies are in place. In addition to steep criminal penalties, government contractors facing antitrust investigations and violations may also face dire collateral consequences, including suspension, debarment, and the loss of lucrative government contracts.

1 HomeSafe All., LLC, B-418266.5 et al., 2020 WL 6504948 (Comp. Gen. Oct. 21, 2020); Connected Glob. Sols., LLC, B-418266.4 et al.,  2020 WL 6504660 (Comp. Gen. Oct. 21, 2020).

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.