Over the last two years, I have frequently written and spoken about the U.S. DOT Office of Inspector General’s (OIG’s) increased focus on fraud, waste and abuse. As part of that effort, the OIG has sponsored three fraud awareness conferences for government officials. The most recent conference was held in Seattle in June. The OIG also has participated in an AGC fraud awareness conference to help contractors become more aware of the issues. The OIG is particularly focused on bid rigging, DBE fraud and false claims. For bid rigging, investigators have looked at bid suppression, complementary bidding, bid rotation, subcontracting with competitors and geographic division. For DBE fraud, investigators have looked at fraudulent certifications and pass-throughs. For false claims, investigators have looked at inflated claims.
Undo harm
I believe honest contractors do not want to compete against those who commit fraud. Yet they do not want themselves or their competitors to be wrongly accused, suspended from bidding and brought to trial. Over the last few months, a contractor and its president were indicted, suspended and ultimately found not guilty. In August 2004, a contractor and its central division president were indicted in a federal court. According to the indictment, they conspired with an un-named firm to eliminate competition for an asphalt highway construction project.
The state DOT received only two bids for the project. The contractor faced a maximum fine of $10 million, and its president, who was responsible for bidding decisions, faced up to three years in prison and a fine of up to $350,000 if convicted. In a written statement, an assistant attorney general in the U.S. Justice Department said, “Today’s indictment demonstrates our ongoing commitment to prosecute anticompetitive conduct that undermines the competitive bidding process in the road construction industry and harms American taxpayers.”
According to the indictment, the contractor and another firm allegedly agreed to assure that the contractor would be the successful bidder by having the other firm submit an intentionally high bid on a project let in July 2000. In return, the other firm would be awarded a subcontract on the same project. The contractor bid $7,133,319 for the project and received $7,379,200 in payments. The un-named co-conspirator subcontractor received $2,947,139 as payment for its subcontract work.
The August 2004 indictment resulted in the contractor’s immediate suspension. That action had very significant implications because the contractor and other subsidiaries were awarded contracts worth nearly $332 million from 2000 through 2004. The state DOT met during August and rejected the contractor’s $16.5 million low bid submitted the previous month on a new project. The contractor’s bid was declared nonresponsive because (1) the company had been indicted for violating the antitrust laws and (2) the FHWA had recommended to the FHWA Debarring/Suspending Official that the contractor be suspended. In addition, the state DOT initiated efforts to disqualify the contractor under state law from bidding or eligibility on future state highway projects.
Faced with the inability to bid on new projects, the contractor exercised its right to pursue a speedy trial. On Oct. 29, 2004, a jury in federal court returned a not-guilty verdict for the contractor and its president. The state DOT subsequently removed the contractor’s suspension, so it is once again bidding on state DOT projects.
When I read the indictment and articles about this case, a few things came to mind. First, we all look at gray areas through the lens of our background. My bet is that the assistant attorney general still believes the contractor is guilty and “got off.” I do not know the details, but I do know that competitors become subcontractors all the time without an agreement to submit a higher bid. Second, I am certain the cost to defend the case was substantial. Third, smaller contractors can neither afford the cost to defend nor survive being removed from the bidder’s list.
