The U.S. Department of Justice (DOJ) has been increasing scrutiny of anticompetitive conduct in public procurements over the past several years, and this trend is certain to continue in light of DOJ’s formation of a new Procurement Collusion Strike Force (PCSF), announced in November 2019. What should government contractors know about the PCSF? Here are four key takeaways regarding the PCSF’s activities to help government contractors understand and prepare for increased enforcement of antitrust laws.
- The PCSF is an interagency partnership across the country aimed at preventing and prosecuting anticompetitive behaviors in government procurements.
The PCSF is an interagency partnership consisting of prosecutors from DOJ’s Antitrust Division, prosecutors from 13 U.S. Attorneys’ Offices, and investigators from the FBI, the Department of Defense Office of Inspector General (OIG), the U.S. Postal Service OIG, and other partner federal agency OIGs. The purpose of the PCSF is to deter, detect, investigate, and prosecute antitrust crimes which undermine competition in government procurement, with an initial focus on the conduct within the following 13 districts:
The PCSF has noted that a significant number of other U.S. Attorneys’ Offices and agencies have shown interest in joining the partnership and sharing resources, underscoring that this effort is a high priority across the federal government.
The main functions of the PCSF are to conduct outreach and training for procurement officials and government contractors to recognize and report antitrust violations, and to jointly investigate and prosecute cases that result from their targeted outreach efforts.
- The PCSF is focusing on criminal per se antitrust violations, but all types of procurement fraud will be investigated.
The PCSF recognizes that in the public procurement realm, exceptions to competition exist—such as explicit exceptions contained in the Competition in Contracting Act—and its goal is not to undo or prevent the proper use of these exceptions.
Instead, the PCSF is primarily focused on investigating criminal per se violations of antitrust law, whether by large or small contractors. Per se antitrust violations include bid rigging, price fixing, and market customer allocation. This typically involves horizontal competitors colluding with each other, but could also consist of vertical anticompetitive behavior between prime contractors and subcontractors. The PCSF is looking at whether there is an improper agreement or collusion impacting competition; it understands there may be times when market forces drive rational decisions by a contractor regarding its pricing and whether to participate in a procurement without any criminal wrongdoing.
While the PCSF may also investigate other types of procurement fraud, such as false certifications of eligibility for set-aside contracts, these types of allegations are more likely to be handed off to the relevant U.S. Attorney’s Office to pursue unless the investigation reveals some other element such as bid rigging, which has an effect on the competitive process.
And, while the PCSF is mainly concerned with detecting and deterring criminal antitrust violations, this does not mean civil violations will be ignored. If certain activity does not rise to the criminal level, the PCSF would refer the matter to DOJ’s civil side—though there could be parallel criminal and civil investigations depending on the conduct at issue.
- The PCSF’s areas of investigation are not limited to domestic federal contracts.
While the majority of cases come from domestic federal contracts, the PCSF also anticipates collaborating with state and local agencies to investigate anticompetitive behavior at the state and local level where the activity affects interstate commerce or where the contracts at issue involve federal funding. A significant amount of federal dollars are poured into state procurement efforts, such as state department of transportation construction contracts, which make those projects subject to federal laws and regulations and open contractors on those projects up to scrutiny of purported anticompetitive practices by the PCSF.
The PCSF will also investigate anticompetitive conduct on federal contracts performed internationally. For example, in late 2018 and early 2019, DOJ recovered $156 million in criminal fines and over $205 in separate civil settlements from five South Korea-based oil companies as a result of their involvement in a decade-long bid rigging conspiracy that targeted contracts to supply fuel to U.S. military bases in South Korea. Additionally, the PCSF is not limited to pursuing wrongdoing on contracts; it will investigate allegations of anticompetitive conduct on all types of federal funding such as grants, cooperative agreements, and other transaction authority awards.
Finally, while there is no dollar threshold on the size of the case that the PCSF will pursue, the effect on commerce and the harm done will impact the steps the PCSF will take. The PCSF has noted that in public procurement cases where the federal government is the victim, the threshold is much lower for the government to undertake an investigation to understand the impact of the alleged conduct. Whether the improper anticompetitive behavior is likely to be repeated across the country by other contractors—as opposed to an isolated incident—the PCSF may use the case to send a message, even if the dollar value of the case is not particularly high.
- The PCSF’s current priority is providing outreach and training within the federal government and among relevant industry groups.
Since its inception, the PCSF has begun conducting outreach and training within the 13 participating districts and partner federal agencies. The training is geared toward teaching federal agents, Assistant U.S. Attorneys, and procurement officials how to identify and investigate antitrust violations, emphasize the goal of considering the conduct at issue from both a fraud and antitrust perspective rather than just one or the other, and stress the importance of long-term collaboration and information-sharing among agencies. As part of its outreach, the PCSF is talking with these same groups to understand where federal funds are spent in terms of industries and major contractors and competitors, so as to better focus its investigative efforts and resources.
The PCSF also is beginning to reach out to trade organizations and industry groups within the 13 districts to provide training. In this regard, the PCSF seeks to help government contractors understand what types of anticompetitive behaviors are illegal, how to report such behaviors, and the benefits of reporting (including leniency for self-reporting and setting up an effective internal compliance system, and improving market competition when reporting collusion by competitors). The PCSF has noted that its outreach efforts are more geared toward small and midsized contractors, as they often are less likely to be aware of the red flags for improper conduct and the advantages of cooperating and self-reporting to the government.
In light of this targeted focus on anticompetitive conduct, and given the significant criminal, civil, and administrative penalties that are at stake, government contractors would be wise to review their procurement practices to protect against collusion in the first place and ensure they have an effective compliance program so that they can seek leniency if they find themselves under investigation.