This month, and with great fanfare, the U.S. Department of Justice (DOJ) announced its creation of a Procurement Collusion Strike Force. We know what you’re thinking, and no – this Strike Force will not be starring in the next Avengers movie. Rather, DOJ created the Strike Force to combat antitrust crimes in Federal procurement.
The concept of a Strike Force is not novel. In October 2006, DOJ announced the formation of a then-new National Procurement Fraud Task Force within its Criminal Division, an effort that claimed credit for a large number of investigations and prosecutions in the ensuing years. The Central District of California established its own Procurement Fraud Task Force in 1991, focusing on alleged fraud in the defense industry. And there have been others. The idea behind all of them is to marshal federal enforcement resources from various agencies to focus on a single problem. In this case, the perceived problem is collusion among government contractors in violation of U.S. antitrust and procurement laws.
This article sets out our thoughts on the sort of contractor activities that could create a perception of collusion, and offers a few concrete actions you can take to make yourself less of a target for the new Strike Force (and the opportunistic plaintiffs’ lawyers that will follow closely behind).
What are they looking for?
According to DOJ, the Strike Force — made up of prosecutors and OIG agents from various federal offices and agencies — will focus on “deterring, detecting, investigating and prosecuting antitrust crimes, such as bid-rigging conspiracies and related fraudulent schemes . . . .” The Strike Force describes these activities collectively as “procurement collusion.”
DOD describes “collusion” as “bidders secretly agreeing to submit complementary high bids to allow preselected contractors to win,” and/or suppliers and contractors agreeing “to prohibit or limit competition and manipulate prices to increase the amount of business available to each participant.” In our experience, most companies do not intentionally rig bids, but rather often are accused of engaging in “anticompetitive behavior” that, while quite common in the commercial sector, garners the interest of overzealous prosecutors and agents in the public procurement arena. Some examples we’ve seen previously involve going to market through resellers/distributors, large businesses partnering with small businesses, and submitting multiple bids in response to a solicitation.
Note: we’re not saying these fact patterns evidence an antitrust violation. Indeed, these forms of collusion do not strike the traditional chords of a Sherman Act antitrust conspiracy to rig bids or to monopolize a particular product market. But we nonetheless must acknowledge the reality that they could create the appearance of collusion. Thus, it’s worth looking at these situations carefully to reduce risk where possible.
Moreover, looking beyond the perception risks outlined above, we all should keep in mind that the antitrust laws do apply in the procurement context to any form of collaboration or agreement among competitors, whether buyers or sellers, to allocate procurement bids or impact bid prices. Antitrust laws also can apply to agreements among competitors that exclude buyers or sellers from the procurement process. Indeed, the DOJ Antitrust Division has a Section devoted specifically to government procurements that works closely with the Department of Defense and other Government agencies responsible for procurement matters.
How will the Procurement Collusion Strike Force work?
DOJ’s press release describes the Strike Force as “an interagency partnership” consisting of prosecutors from both the Antitrust Division and 13 different U.S. Attorneys’ Offices, as well as investigators from the FBI and 4 OIGs (DOD, GSA, DOJ, and USPS). According to Antitrust Division AAG Makan Delrahim, the Strike Force has two primary goals: education and enforcement. Delrahim described it this way: “The [Strike Force] will train and educate procurement officials nationwide to recognize and report suspicious conduct in procurement, grant and program funding processes. We will aggressively investigate and prosecute those who violate our antitrust laws to cheat the American taxpayer.”
Our partner Chuck Kreindler co-led the Southern California Defense Procurement Fraud Task Force when he was an AUSA, and he says the real advantage of such an effort from the Government’s perspective is communication and coordination. A task force (or a “Strike Force” in this case) promotes information sharing, breaks down inter-agency silos, and generally raises the profile of certain topics government-wide. As a result, according to our partner David Douglass (also a former AUSA), auditors and agents are more likely to pick up on patterns that previously may have gone unnoticed.
In short, we can likely expect to see more audits and investigations in this area, often focused on certain industries the Government believes are high risk. Also, we think we are more likely to see collusion issues raised even in the course of routine audits and reviews – e.g., GSA OIG audits, GSA CAVs, VA OIG audits, and DCAA business systems reviews. And remember, the FAR directs contracting officers to “be sensitive to indications of unlawful behavior by offerors and contractors,” and to “report, in accordance with agency regulations, evidence of suspected antitrust violations in acquisitions for possible referral” to the Department of Justice. FAR 3.301(b). So perhaps even COs will jump on the anti-collusion bandwagon. Collectively, this greater scrutiny will result in more questions being asked – and, perhaps, more referrals being made – which, obviously, is what the Strike Force hopes for.
What should I do to prepare?
First, as famed Sci-Fi author Douglas Adams advised, don’t panic. The creation of a Strike Force does NOT mean YOU have a problem. But it does mean your actions and structures are likely to come under greater scrutiny. So it makes sense to use this as an opportunity to kick the internal compliance tires. Here’s a list of some simple things you can do to reduce your risk profile in this area:
- Review High Risk Practices Now. Far too often, industry kicks its tires after they are flat. Companies paid little attention to the TAA until after the FCA settlements of 2003. The FCPA received little attention until the Shot Show investigations of 2010. Colleges and universities were relatively blind to the risk of donor fraud until, well, very recently. Thus, now probably is a good time to evaluate risk in this area and, if necessary, take steps to mitigate that risk.
- Enhance Internal Controls. Meaningful internal controls are key. DOJ, DCAA, the OIGs, and Suspension/Debarment Officials pay very close attention to such things. We favor a risk-based approach, rather than a no-expense-spared approach. Identify the areas of your industry and your business that present greater risk, and spend more time and effort in those areas.
- Vet partners carefully. Business partners can create risk. Accordingly, it makes sense to establish a risk-based diligence process to vet all partners — new and existing. The nature/extent of the diligence will vary based on the risk presented by the partner, industry, and other factors. But every effort should involve, at least, a review of GSA’s excluded parties list and a basic google search.
- Implement Written Policies and Procedures. While your employees likely know you have zero tolerance for violations of the law, it is important to memorialize that zero tolerance in writing. Start with a good Code of Conduct. Make sure it covers antitrust issues in the GovCon space. Make sure you promote awareness of the Code as required by FAR 52.203-13. Likewise, make sure you have clear, written, practical policies available to those working in the GovCon space. Also consider developing relevant Standard Operating Procedures, which help to ensure experience and expertise is not lost with the inevitable transition of employees.
- Conduct Training. Training not only is required by FAR 52.203-13 (and is an explicit factor in DOJ’s published compliance program guidelines), but, when conducted in a meaningful way, training helps reduce violations. Keep your training practical, approachable, relevant, and fresh. Use real examples and incorporate scenario-based activities. When DOJ prosecutors review compliance programs, they look for evidence that the training incorporates lessons learned from prior compliance incidents.
- Hold Personnel Accountable. Mistakes happen, and usually can be dealt with through counseling and/or enhanced training. But misconduct calls for more stark corporate action. This does not mean you need to fire every employee who violates a policy, but it does mean discipline should be timely, meaningful, guided by the company’s stated values, and applied consistently regardless of the revenue generated by the employee. Remember, one of the first questions you will be asked by an OIG agent, prosecutor, or suspension/debarment official in the event things go south is “what did you do to the wrongdoer”?
- Disclose Violations. Not only does FAR Part 9 (and FAR 52.203-13) require the self-disclosure of criminal and civil fraud violations, but the antitrust laws incorporate their own self-disclosure incentive in the form of a leniency program. Consequently, companies need an effective system to ensure potential violations of law are reported to the law department so they can be evaluated under the privilege to see if they amount to “credible evidence” of reportable conduct.
Obviously, not every organization will have to do all these things to the same extent. But, as in most GovCon-related settings, an ounce of prevention here likely will be worth a pound of cure down the road.