Procurement Collusion Strike Force Views Mission As More Important As It Enters Third Year
On October 13, 2021, the American Bar Association’s Section of Public Contract Law held its annual public procurement symposium to discuss important issues related to federal, state, and local government contracting. Daniel Glad, Director of the Department of Justice (“DOJ”) Antitrust Division’s Procurement Collusion Strike Force (“PCSF”), delivered the keynote address outlining the growing importance of PCSF’s work, its current enforcement priorities, and the pivotal role that companies and counsel play in deterring misconduct. The symposium also featured a panel discussion by senior leaders from PCSF who expounded on keynote address themes and highlighted other considerations, including important leniency and cooperation initiatives, and the increased utilization of data analytics to detect and prosecute procurement misconduct. Director Glad’s speech emphasized that the PCSF’s mission and scope evolve as new crucial government initiatives and spending are unveiled, including battling the COVID-19 pandemic, providing support for economic recovery, and responding to increasing numbers of natural disasters such as wildfires and hurricanes.
The PCSF was created two years ago, as covered by the V&E Report here, with the mission to protect American taxpayers from harms caused when competitors in an industry collude and conspire to rig bids, fix prices, or allocate markets for goods and services funded by tax dollars. Director Glad noted that in FY2019, the federal government spent more than $586 billion — about 40% of all discretionary spending — on contracts for goods and services. According to the Organization for Economic Cooperation and Development (“OECD”), eliminating bid rigging from public procurement would result in cost savings of 20% or greater, or $117 billion in FY 2019 alone. Those wasted funds are even more significant when you take into consideration the fact that the federal government also funds state and local projects, and has spent significantly more in recent years as a result of CARES Act funding to address the COVID-19 health crisis and economic recovery. As a result of the increasing need for the federal government to procure a widening scope of goods and services, as well as the sheer dollars at stake, the PCSF views its mission as even more important today than when it was originally created, and we expect this will result in increased deterrence and enforcement efforts.
In his speech, Director Glad emphasized two recent enforcement initiatives. First, the PCSF is focused on protecting government programs that are designed to facilitate the participation of underserved communities and individuals by combating “set-aside fraud.” Second, it is prioritizing enforcement in infrastructure-facing industries in light of the Biden administration’s infrastructure initiatives, which could generate a target-rich environment for bad actors to exploit. In addition to these enforcement priorities, Director Glad stressed the importance of deterring misconduct in the first place, particularly by encouraging companies to adopt strong compliance programs and educate workers about red flags of procurement collusion and fraud.
In response to President Biden’s January 20, 2021 Executive Order, which called for reducing barriers to full and equal participation in government contracting opportunities by underserved communities, the PCSF is prioritizing enforcement against actors seeking to exploit such programs. There are several government programs designed to provide procurement opportunities to underserved communities, and the PCSF works to ensure that those opportunities are preserved for the populations for which they are intended. For example, the PCSF recently uncovered a conspiracy to place a disabled veteran as the figurehead of several construction companies in order to win set-aside contracts valued at $250 million. The companies were not qualified to win the contracts because they were ultimately under the control of someone else, who was not a service-disabled veteran.
Director Glad also emphasized infrastructure as an area that demands “focused deterrence and aggressive enforcement.” He alluded to the fact that the Biden administration’s efforts to pass a multi-trillion dollar infrastructure bill could present “an ample opportunity — an attractive target — for greed to override ethical conduct.” Director Glad cited three examples of PCSF investigations that led to guilty pleas for bid rigging and fraud in various infrastructure related projects, including at state and regional levels. He noted that the examples ranged dramatically in scope, and federal dollars impacted, and noted that PCSF will go after procurement collusion wherever it exists, regardless of the amount of money at stake.
PCSF Leadership Panel Discussion
Director Glad’s keynote speech was immediately followed by a panel discussion among three senior members of the PCSF: Eyitayo St. Matthew-Daniel (Coordinator of PCSF Global), Sandra Talbott (Assistant Director of PCSF), and Rachel Neil (Special Agent-in-Charge, Department of Homeland Security, Office of Inspector General). Expounding on certain points from the keynote address, the panel also shared detailed information regarding the PCSF’s past year and vision for 2022.
Ms. St. Matthew-Daniel and Ms. Talbott explained that while antitrust misconduct often leads to significant criminal penalties as well as civil exposure, which can result in treble damages, participation in the Antitrust Division’s corporate leniency program may limit the negative consequences of a violation. Under the leniency program, companies that are the first to self-report misconduct may be able to secure non-prosecution agreements for the corporate entity and cooperating employees. In addition to avoiding criminal fines, penalties, and possible monitors, non-prosecution also comes with the benefit of not triggering suspension or debarment actions. In addition, the newly enacted Criminal Antitrust Anti-Retaliation Act (“CAARA”) prohibits companies from taking punitive actions against employees, agents, contractors, or subcontractors for reporting possible antitrust violations or assisting government investigations. The panel described CAARA, which went into effect in late 2020, as a “huge win” for the Antitrust Division, as it provides further incentive and protection for individuals to report misconduct to DOJ. Indeed, an individual who comes forward to report misconduct to the Antitrust Division can qualify for non-prosecution treatment instead of the company if the individual reports before the company does. This is another reason for companies to ensure that their compliance programs incentivize internal reporting and make the reporting of possible violations within the company safe and easy.
In addition to serving as the Assistant Director of PCSF, Ms. Talbott leads the Strike Force’s Data Analytics initiative. In her panel remarks, she discussed the increasing use and importance of data analytics to identify and prosecute procurement misconduct. Federal agencies receive significant amounts of data in connection with their procurement activities. PCSF works directly with agencies to encourage them to harness the particular procurement data to which each agency has access and employ analytics to identify suspicious patterns that may indicate collusion. In connection with these efforts, at least 25 agencies’ Offices of Inspector General are actively working to increase their respective analytics capabilities. The panel emphasized that companies also have access to their own procurement data and should strongly consider running analytics to look for possible misconduct as part of their antitrust compliance efforts. The panel further noted that the Antitrust Division will consider the extent to which companies that encounter antitrust violations have used their data resources to enhance their compliance efforts. While acknowledging that there are costs associated with employing data analytics capabilities, the panel noted that PCSF and the Antitrust Division expect companies to balance those costs against the size and resources of the company as a whole, as well as the consequences of criminal violations.
Competitor Collaborations and Labor Not Immune from PCSF Scrutiny
In response to audience questions, the panelists made two additional key points. First, PCSF will scrutinize joint ventures, teaming arrangements, and other competitor collaborations to ensure that such agreements are not shams for collusive conduct. They emphasized that there are no bright lines, and competitor collaborations must be evaluated on a fact-specific basis.
Second, the panel acknowledged that prosecuting labor collusion is a very significant priority for the Antitrust Division. While PCSF is focused on rooting out procurement collusion specifically, government contractors should expect heightened scrutiny of competition issues in labor as well. The Strike Force is on “high alert” in this area and will vigorously investigate any red flags indicating so called “no-poach” conduct relating to labor. Once detected, possible labor misconduct investigations may be spun off to other teams within the Antitrust Division.
Recapping 2021 and Looking Forward to 2022
A key part of PCSF’s mission is to deter and prevent collusion before it takes place. To that end, the PCSF has trained over 17,000 special agents, attorneys and prosecutors, investigators, analysts, auditors, data scientists, and procurement officials across more than 500 agencies regarding how to spot red flags of potential procurement collusion. PCSF has more than 25 open procurement-related investigations, and its efforts have been further bolstered by President Biden’s July 9, 2021 Executive Order on Promoting Competition in the American Economy, which repeatedly encourages agencies to harness their procurement power to influence improvements in competition in the respective industries in which they operate.
Looking ahead to 2022, PCSF expects more charges and resolutions to come out of the more than two dozen open investigations. As it enters its third year, PCSF also intends to continue to increase its focus on rooting out collusion impacting U.S. spending abroad. In June, PCSF announced its first international prosecution, which has netted a plea and several indictments relating to collusion impacting contracts to provide defense-related security services to U.S. operations in Belgium. The Antitrust Division recently announced that two Belgian nationals pleaded guilty to bid-rigging, price-fixing, and customer allocation charges related to the Belgium investigation. In addition to international efforts, PCSF expects to ramp up scrutiny in the areas in which federal spending is on the rise, including disaster relief, infrastructure, and COVID-19-related programs.
Overall, the keynote address and PCSF leadership panel reinforced the need for companies doing business with the government to continue examining and improving upon their compliance policies and training, including how best to effectively utilize data analytics to enhance those initiatives. Firms that participate in set-aside procurement programs, or are involved in infrastructure or disaster-related projects can expect increased scrutiny from regulators in those areas. In the event that a company uncovers potential misconduct, it should seek the advice of experienced counsel to determine the best course of action to address and remediate the situation. V&E has deep experience helping companies navigate all aspects of the procurement process, including complying with competition laws, and defending against government investigations.
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.