Nine Takeaways from the PLI Program, Antitrust Enforcement in Public Procurement: Government Contracting in the DOJ Crosshairs
The federal government spends in excess of $500 billion in a given year to purchase goods and services to support its operations. That number has been said to be roughly equal to the size of the Swedish economy.
On May 18, Vinson & Elkins’ Partners Craig P. Seebald and G. Zachary (“Zach”) Terwilliger and Counsel Lindsey Vaala spoke at a Practising Law Institute program, Antitrust Enforcement in Public Procurement: Government Contracting in the DOJ Crosshairs. Craig is the co-head of V&E’s complex commercial litigation practice and a leader of the firm’s renowned global Antitrust Group. Zach is the former United States Attorney from the prestigious Eastern District of Virginia and, Lindsey, in addition to her busy practice at V&E, is currently Co-Chair of the American Bar Association’s Cartel and Criminal Practice Committee. These lawyers, each leaders in their field, came together to update and provide insights to attendees who were representing the country’s largest and most sophisticated government contractors.
Here are some of the highlights of the discussion.
The panel agreed that in the new Biden administration they expect to see more robust antitrust enforcement action, with a focus on criminal behavior. They have already seen an increase in scrutiny evidenced by an increase in subpoenas and other requests for information. “They’ll be looking under the hood,” said Zach. Lindsey added, “While prosecutions have been lower in prior years, the division has been working to refill the investigation pipeline,” Lindsey also pointed out that the DOJ Antitrust Division believes that prosecuting individuals is a very effective deterrent tool.
Strike Force Evolution
Much of the increase in recent enforcement activity can be traced to the successful launch of the Department of Justice Antitrust Division’s Procurement Collusion Strike Force (the “Strike Force”), an organization created by the DOJ in November 2019 involving several U.S. Attorneys and a wide breadth of federal agencies. Zach pointed out that, with one out of every $10 of federal spending allocated to a government contractor, the government had a strong incentive for creating the group. With its mission to combat collusion, antitrust crimes, and fraud in procurement, thus far the Strike Force, led by a non-political career appointee, Daniel Glad, has been very successful.
With the Strike Force’s broad mission to root out unlawful conduct, educating a wide range of officials has been an integral part of their brief. More than 10,000 individuals have been trained, including more than 60 members of the Inspector General offices. Procurement officials are being prepared to actively perform due diligence and be vigilant as they look for certain patterns that may indicate antitrust infractions.
Complex Criminal Conduct in the Crosshairs
Criminal conduct in antitrust is a broad category. According to Craig, one of the many forms involves competitors coming together to rig their bids for competing goods or services. It may involve an agreement between competitors to manipulate the bidding process so that the winner is predetermined by the bidders, ultimately taking the choice away from the government customer. Another scheme may be based on advanced planning to divide up the business, by boundaries. “That may be based on agreeing with competitors to divide up a geographic territory, or to divide up customers, such as ‘You take the Naval contracts, and I’ll take the Air Force contracts.’”
International Impact and Local Lenses
There is a significant Strike Force focus on the international aspect of antitrust activity in which the US, as a buyer, is operating in a foreign country, for example, as an Air Force base in South Korea. There have been a number of these investigations, where there is enough evidence, that have led to grand juries. Yet, in addition to the often-larger international defense-related contracts, the group has seen an increase of antitrust investigations on a state and local level. There is a wide range of activity, both domestic and international that falls under the Strike Forces purview.
Teaming agreements often take place when any two or more companies agree to work together in bidding for a contract. While there is nothing inherently wrong with teaming agreements, there is incredible complexity, especially when one parses through what is allowed and what is not allowed. According to Craig, “When you’re dealing with government procurement, whether it’s in regard to building a new ship or an airplane, projects often involve complicated risky procurements. When there are fewer prime competitors, and two of them team, that can lead to an issue.” Parties are best constructing narrow agreements for each particular contract and limiting provisions of the teaming agreement that might reduce competition. Teaming agreements must be tailor-made for a particular bidding circumstance in that particular contract.
The firm reviews internal documents for its antitrust clients on a regular basis and often reminds them that terms such as “locking up” are loaded language. Parties discussing the probability of a win is also problematic and, if located by the government, that language may be used as an arrow against a company. “Prosecutors just love bad documents and especially in the antitrust cases,” said Craig. “It’s very important to educate businesspeople educated so that no matter where they are writing it — chat groups, emails, text messages — they are aware that the government is sophisticated, and they can look for any sort of documents.” Government subpoena power is quite broad, and it is essential to have a solid compliance program. “We need to keep reminding people that they need to be really good about this,” emphasized Craig. “On the other hand,” he added, “it’s really important to have contemporaneous documents explaining, for example, why you’re teaming and why you’re meeting with a competitor. Have an agenda and have someone write notes.”
The Antitrust Division has a very robust leniency program for whistleblowers, and it is unique to the division that whoever goes to the government first to report possible misconduct can be eligible for complete immunity from prosecution. Immunity may also be granted for any culpable employees involved in the conduct.
There are several key indicators or red flags that indicate to the government that there may be an antitrust problem worthy of investigating. V&E has prepared a list of potential red flags. Craig Seebald, Zach Terwilliger, or Lindsey Vaala can provide the list to anyone interested.
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.