Last month, a jury in the United States District Court for the
Eastern District of North Carolina found a former executive of
Ohio-based Contech Engineered Solutions LLC, Brent Brewbaker,
guilty of conspiracy to rig bids, conspiring to commit fraud, and
related charges on over 300 North Carolina Department of
Transportation (NCDOT) projects. Brewbaker faces a maximum of 10
years in prison for the bid-rigging conspiracy count and 20 years
for each of the other counts.
Between 2009 and 2018, Brewbaker submitted multiple
non-competitive, inflated bids to NCDOT for aluminum headwalls and
other drainage structures on various road and bridge projects.
Contech, at Brewbaker’s direction, would identify NCDOT
projects on which a co-conspirator and customer planned to bid,
discover the co-conspirator’s bid price, and submit
intentionally higher bids on the project to create the illusion
that the two companies were competing. Meanwhile, Contech supplied
the aluminum structures to be installed on the project, benefiting
from the project being awarded to its “competitor.”
Brewbaker attempted to conceal his scheme by varying the amount of
said bids and deleting evidence of the conspiracy from his cell
phone. Brewbaker’s criminal convictions come on the heels of
Contech’s prior guilty plea to one count of bid rigging under
the federal Sherman Antitrust Act, and one count of conspiracy to
commit wire and mail fraud, which resulted in a $7 million fine and
$1.5 in restitution to NCDOT.
Given the forthcoming investment in infrastructure projects
expected under the federal Infrastructure Investment and Jobs Act,
and the recent influx of federal monies in COVID-19 and disaster
relief, Brewbaker’s conviction highlights the critical
importance of understanding the basics of public procurement
obligations, both legal and ethical, and the consequences involved
in undermining processes designed to foment participation and free
and open competition for publicly funded projects.
Statutes and Common Law Claims Creating Liability
Statutes aimed at criminalizing or civilly penalizing bid
rigging, collusion, fraud, and abuse in public procurement act as a
safeguard for taxpayer funds. Promoting free and open competition,
theoretically, ensures cost efficiency and responsible use of tax
dollars. At the federal level, the Sherman Act, 15 U.S.C. §1,
prohibits agreements among competitors that unreasonably limit
competition, including price fixing and bid rigging. Violation of
the Sherman Act’s antitrust provisions can result in up to 10
years’ imprisonment or exorbitant fines – individuals may
be fined up to $1 million, while corporations may be fined up to
$100 million, or per 18 U.S.C. §3571, twice the gross
financial loss or gain resulting from the violation.
The Clayton Act, 15 U.S.C. §12-27, supplements the Sherman
Act and likewise provides civil and criminal penalties for
anti-competitive behavior. The Clayton Act’s reach is broader
than that of the Sherman Act, regulating general practices with a
negative impact on competition. The Clayton Act prohibits mergers
and acquisitions, and interlocking directorates, wherein the same
individual makes business decisions for competitors, that may have
the effect of substantially lessening competition or creating a
monopoly. The Clayton Act may be enforced by the federal
government, state governments, or private individuals and entities,
with treble damages and injunctive relief available to successful
prosecutors.
Where the federal government is involved, the False Claims Act,
originally enacted in response to contractor fraud during the Civil
War, creates both civil and criminal liability for conspiracies
between competitors or attempts to defraud the federal government.
The criminal False Claims Act 18 U.S.C. §287 criminalizes
knowingly false statements made to the United States government,
which includes false or fraudulent statements made to induce the
award of contracts or payment of monies on public projects. False
claims under 18 U.S.C. §287 are punishable by up to five
years’ imprisonment and substantial fines. The civil False
Claims Act, 31 U.S.C. §3729, creates civil penalties,
including treble damages, for conduct such as bid rigging or
collusion on public projects.
Beyond provoking federal investigations and lawsuits,
whistleblower, or “qui tam,” provisions in the
civil False Claims Act incentivize private citizen reporting and
civil prosecution of suspected bid rigging or other noncompetitive
practices by permitting civilians to file suits on behalf of the
government. The Act offers successful qui
tam litigants rewards for successful prosecution of
fraudsters, including payment of up to 30% of the government’s
recovery and insulation from retaliation. Privity of contract with
the federal government is not required; False Claims Act liability
may be imputed to anyone who causes a false claim to be submitted
to the federal government. This means False Claims Act claims may
be asserted against contractors bidding on federally-funded
projects, regardless of whether the bid solicitor is the federal
government or a federal grant recipient, as well as subcontractors
submitting bids as part of a larger bid package, and federal grant
recipients procuring goods and services with federal dollars.
In addition to liability under the federal statutes discussed
above, parties involved in bid rigging or other anti-competitive
schemes surrounding public projects may be subject to criminal wire
fraud or mail fraud charges, as well as other statutory and common
law fraud claims under both state and federal law. In Kentucky, bid
rigging conspirators may be subject to liability under
Kentucky’s antitrust statute, KRS § 367.175. KRS §
367.175(1) declares “[e]very contract, combination in the form
of trust and otherwise, or conspiracy, in restraint of trade or
commerce in this Commonwealth shall be unlawful.” KRS §
67.175(2) further declares it unlawful to “monopolize, or
attempt to monopolize or combine or conspire with any other person
or persons to monopolize any part of the trade or commerce in this
Commonwealth.” Both private citizens and the Kentucky Attorney
General may pursue claims for unreasonable restraints on trade
under Kentucky’s antitrust statute. Ohio’s Valentine Act,
Ohio Rev. Code § 1331.01-.99, and Tennessee’s Unlawful
Restraint of Trade and Discrimination Act, Tenn. Code Ann. §
47-25-101 et seq., similarly prohibit agreements
restraining trade and impeding competition.
Outside of civil and criminal penalties, anticompetitive
behavior such as bid rigging may prohibit federal contractors and
grant applicants from receiving future contracts or awards. The
Federal Acquisition Regulations (“FAR”) allow contractors
to be suspended or disbarred doing business with the federal
government for violation of antitrust statutes, commission of
fraud, violating federal criminal laws, engaging in unfair trade
practices, and making false statements. FAR’s debarment and
suspension provisions reach anyone directly or indirectly involved
in a wrongdoing associated with a federal government contract. The
federal government’s System for Award Management
(“SAM”) maintains publicly-available information on
federal contractors and grant recipients, including reports of
unethical behavior and lists of debarred and suspended individuals
and entities. Grant recipients involved in anticompetitive behavior
may also be barred from receiving future grants. Federal
regulations governing federal grant recipients require recipients
to conduct all procurement transactions “in a manner providing
full and open competition” and prohibit practices restrictive
of competition such as “[n]oncompetitive pricing practices
between firms or between affiliated companies[,]”
“noncompetitive contracts to consultants that are on retainer
contracts[,]” and “organizational conflicts of
interest[.]”1 2 C.F.R. § 200.206(2)
requires federal agencies awarding grant monies to review
information available from SAM determine that applicants have
demonstrated “a satisfactory record of executing programs or
activities under Federal grants, cooperative agreements, or
procurement awards; and integrity and business ethics.” Thus,
all entities transacting with federal funds are subject to
extensive penalties, as well as damage to reputation and
limitations on future opportunities, for unethical, anticompetitive
conduct.
Conduct Giving Rise to Liability
Contech and Brewbaker’s scheme is not the only form of bid
rigging or collusion subject to civil and criminal prosecution. Any
arrangement involving pre-determination of, or agreement to, the
party awarded a contract may subject your business to liability for
antitrust violations or fraud. Another often-prosecuted behavior is
price fixing, or an agreement between competitors to standardize or
“fix” pricing or wages to both parties’ benefit.
Agreements as to market share, or specific allocations of
customers, territories, or personnel between competitors are
likewise anti-competitive and sanctionable under the Sherman Act,
as are collective efforts to boycott competitors’ entry into a
market.
A single individual or entity may also violate antitrust law
through “tying” arrangements, where a seller conditions a
buyer’s ability to purchase one item from the seller on the
buyer’s agreement to purchase a second item from the seller or
refrain from purchasing the second item from seller’s
competitor. Tying arrangements may arise in the bidding or
competitive procurement context when procuring goods and services
under a single award, particularly in long-term supply
arrangements. This type of anticompetitive practice can give rise
to liability under both the Sherman and Clayton Acts.
Most notably, success in a bid rigging scheme is not necessarily
a consideration in determining liability. The Sherman Act provides
for “per se” violations or liability, meaning the
government need not prove violator gain, effects on the market, or
governmental harm to successfully prosecute Sherman Act claims.
Furthermore, a defendant alleged to have committed a per se
violation may not justify its conduct by demonstrating other
business or competitive justifications for the tactic. Practices
considered per se violations include price fixing agreements,
market allocation agreements, bid rigging between competitors, and
occasionally, tying arrangements and market boycotts. Only true
joint venture arrangements, or other agreements that promote rather
than inhibit competition, are excepted from application of the per
se application of the Sherman Act.
Addressing the Brewbaker conviction, a U.S. Department of
Justice spokesperson highlighted the Justice Department’s
Procurement Collusion Strike Force, a task force drawing resources
from several federal law enforcement agencies with the shared goal
of combating antitrust and fraud in public and grant funded
procurement at all levels of government.2 Although
the Strike Force is just one example of federal enforcement
efforts, government scrutiny on federally-funded procurement is at
an all-time high. The recent swath of federal monies aimed at
addressing the COVID-19 pandemic and other emergency relief only
increases the government’s need for oversight, making
compliance with competitive procurement and contracting obligations
paramount for individuals and entities involved in public
procurement. Federal grant recipients, and contractors bidding
federally-funded projects, must maintain thorough and stringent
procurement compliance policies and procedures to avoid running
afoul of the legislation discussed herein.
Footnotes
1. 2 C.F.R. § 200.319 (a)-(b).
2. “Former Engineering Executive Convicted of Rigging
Bids and Defrauding North Carolina Department of
Transportation,” (Feb. 1, 2022).
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
