virginia association of governmental purchasing march 12, 2008 richmond, virginia
TRANSCRIPT
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Virginia Association of Governmental Purchasing
March 12, 2008March 12, 2008Richmond, VirginiaRichmond, Virginia
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Antitrust/Competition Issues in Procurement:
Collusion among Vendors/Suppliers
Robert E. [email protected]
(215) 597-7405
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Sherman Antitrust Act(1890)
Every contract, combination, or conspiracy in restraint of trade is
declared to be illegal.
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Antitrust Enforcement
• Criminal Enforcement
• Merger Review
• Monopolies and Other Civil Violations
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Bid Rigging
Any agreement between competitors concerning who will bid, what the bids will be, or who will be the low bidder.
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One Railroad
B&O RAILROAD
Rent $25.If 2 R.R.’s are owned $50.If 3 “ ” $100.If 4 “ ” $200.
Mortgage Value $100.
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Monopoly or Collusion?
SHORT LINE R.R. B&O RAILROAD
READING RAILROAD P E N N S Y L V A N I A R . R .
Rent $25.If 2 R.R.’s are owned $50.If 3 “ ” $100.If 4 “ ” $200.
Mortgage Value $100.
Rent $25.If 2 R.R.’s are owned $50.If 3 “ ” $100.If 4 “ ” $200.
Mortgage Value $100.
Rent $25.If 2 R.R.’s are owned $50.If 3 “ ” $100.If 4 “ ” $200.
Mortgage Value $100.
Rent $25.If 2 R.R.’s are owned $50.If 3 “ ” $100.If 4 “ ” $200.
Mortgage Value $100.
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Unilateral Pricing
Collusion
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Atlantic Disposal Corp.
McGuire AFB - Fort Dix
Low Bid $2,354,104
Medium $2,566,185
High $3,108,805
Comp Bid $3,509,527
Loss to Gov’t: $754,701
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Nucero Electric Corp.Digestion Tank
Total Prime CostOverheadProfitTotal Bid
Escalation of Prices
Submitted Bid
$1,472,256$441,676 30%$286,500 15%$2,200,432
$220,000 10%
$2,420,432
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Subcontracting to Losing Bidders
$5.5 millionCompany C
$5.1 millionCompany B
$4.8 millionCompany A
ElectricalContracting
AgreedPre-Bid
Company C bids $5.5 million, but later accepts a subcontract fromCompany A at an inflated price.
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$4.2 millionCompany C
$5.1 millionCompany B
$4.8 millionCompany A
ElectricalContracting
AgreedPost-Bid
Company C withdraws winning bid in exchange for a subcontract atinflated price from Company A.
Subcontracting to Losing Bidders
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Surplus Goods Auctions
N o B idC o m p a n y D
N o B idC o m p a n y C
N o B idC o m p a n y B
2 0 0 ,0 0 0C o m p a n y A
2 0 0 C o p ie r sU s e d
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Surplus Goods Auctions
Private “Knockout”
Company D $500,000
Public Bid $200,000=
$300,000
Split of $75,000 each
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Complementary Bids
Bandages
Year 1 Frass $10.00 Brenner $13.00
Year 2 Frass $10.00 Brenner $15.00
Year 3 Frass $14.00 Brenner $17.00
Medical Boxes
Brenner $10.00Frass $13.00
Brenner $12.00Frass $15.00
Brenner $14.00Frass $17.00
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Rotation of Bids
Men’s Outdoor Gloves
Firm A $10.00Firm B $12.00Firm C $13.00Firm D $14.00
Men’s Dress Gloves
Firm C $10.00Firm D $12.00Firm A $13.00Firm B $14.00
Women’s Outdoor Gloves
Firm B $10.00Firm C $12.00Firm D $13.00Firm A $14.00
Women’s Dress Gloves
Firm D $10.00Firm A $12.00Firm B $13.00Firm C $14.00
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Suspicious Price Changes
1995 Company A $13.00
Company B $15.00
1996 Company A $13.00
Company B $15.00
1997 Company A $14.00
Company B $16.00
1998 Company A $15.00
Company B $16.00
Company C $9.00
1999 Company A $7.10
Company B $7.30
Company C $7.50
2000 Company A $12.00
Company B $16.00
2001 Company A $16.00
Company B $17.00
Company C $18.00
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WHEN Might Collusion Occur?
• Few Sellers/Friendly Competitors
• Restrictive Specifications
• Standardized (Commodity) Product
• Repetitive Purchases
• International Trade
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HOW Do Antitrust Conspiracies Work?
• Opportunity to Scheme
• Means to Divide Illegal Overcharge
• Method of Communication
• Mechanism to Monitor the Agreement
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Why?
• Very Effective Way to Overcharge (make a lot of money)
• Very Difficult to Detect and/or Convict
• Conspirators “Justify” Overcharges
• Modest Penalties (Not anymore!)
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WHAT Products or Services are Subject to Collusion?
1. Services --trash collection
2. Construction --electrical/mechanical
3. Office Supplies --fax paper
4. Raw Materials --lysine --citric acid --vitamins
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United States v. Atlantic Disposal
Bid Documents
1. Few Bidders2. Atlantic Disposal Always Won3. Common Typeface4. Common Mathematical Errors5. Subcontracts to Losing Bidders6. Sham Bidder
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Indicators Of Collusion
• Bid Patterns Over Time
• Clues in Bid Documents
• Non-Competitive Pricing
• Vendor Comments
• Sham Bidders
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Three Bid Rule
• Sham Companies
• Multiple Bids from Same Source
• Complementary/Friendly Bid
• Create the Appearance of Competition
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Staying on The Bidders List
• Non-Competitive but Unilateral
• Amount of Bid/Profit not Illegal
• Agreement is the Crime
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Possible Indicators of Collusion(Competitive Bidding)
• Identical (Losing) Bids• Competing Bids Have Identical Typos,
Miscalculations, or Handwriting• Bid Appears to Have Been Altered (Upwards) at
Last Minute• Significant Gap between Winning Bid and Losing
Bids• Same Increment between Winning Bid and Losing
Bids• Unexpectedly High Bids
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More Possible Indicators of Collusion(Competitive Bidding)
• Same Company Bids Higher for Same Item than on Other Contracts Where Cost Factors are the Same
• Winning Bidder Subcontracts Part or All to Losing Bidder• Prices on Some Line Items are Much Higher• Each Company Appears to Have Bid High on Some Parts and
Low on Other Parts• Some Qualified or Interested Bidders Did Not Bid• Prices Drop when a New Bidder Enters the Picture• Same Company Always Wins the Same Contract or Part of
Contract
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More Possible Indicators of Collusion(Competitive Bidding)
• Bidders Seem to Win on a Fixed Rotation or Geographical Pattern
• High Bids Lack Detail or Specifics• Company Not Capable of Performing Submits a High Bid• Fewer Bidders than Normal on Advertised Contract • Bidder Submits a Competitor’s Bid Along with His Own• Bidders Have Met in Advance of Bid• Local Bidders are Bidding Higher Prices for Local Delivery
than to Distant Points
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Suspicious Comments
“You aren’t going to get a lower quote from anyone else.”
“Our information is that (A COMPETITOR) isn’t offering that price.”
“Prices are going up throughout the industry next season.”
“Everybody will be coming out with a price increase in July.”
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More Suspicious Comments
“We are following industry pricing” or “These are the industry terms.”
“I know I’m not the low bid.”
“The industry is going to a new pricing schedule.”
“We all do it this way.”
“We don’t sell in that area.”
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More Suspicious Comments
“Only (Competitor X) sells in your area.”
“Their salesman shouldn’t be calling you.”
“It is our / their turn to get this contract.”
“We can’t service you. You’ll have to call (Competitor X).”
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The Cost of Collusion
• Conspiracies are Lengthy
• Often Spread to Other Goods and Services
• The Result is that Victims are Overcharged and Defrauded
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Criminal Enforcement
• Punishment
• Restitution for Victims
• Return to Competitive Markets
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Antitrust Facts• Criminal Penalties--Include fines up to $10 million for
corporations and $350,000 for individuals. Individuals can also go to jail for up to 3 years. 18 U.S.C. Section 3571 penalties uncapped.
• Civil Actions--Victimized purchasers are also entitled to treble damages. (False claims for Govt purchasers)
• Lower Prices--The restoration of competition generally results in substantially lower prices.
• Statute of Limitations--5 years
• Per Se Violation
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What You Can Do
1. Ask Questions
2. Keep an Active Bidders List (Don’t ask Bidder to get another bid(s)
3. Non-Proprietary Specs
4. Non-Collusion affidavits
5. Report Your Concerns
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Concerns of Buyers
1. Are You Almost Done?
2. But I Can’t Prove Anything
3. I Have to Work With These People
4. We Have to Award the Contract
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Cadillac Copiers
Region III AuthorizedService Rep
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Copier Competition
A B C D
Rule of Reason v. Per Se
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THE END