Accurate Information on how to Avoid Unlawful Practices

In the construction industry, competitive bidding is the cornerstone of fair business practices. It ensures a level playing field for contractors and fair prices for clients, whether they are private companies or public agencies. However, when competitors manipulate the bidding process through practices like bid rigging and price fixing, they not only undermine the market’s integrity but also violate federal law. These actions fall under the purview of the Sherman Antitrust Act and carry severe penalties. 

It is essential that contractors have accurate information about antitrust violations, their consequences and strategies to avoid unlawful practices.

Understanding the Sherman Antitrust Act

The Sherman Antitrust Act was established in 1890 as the first federal legislation aimed at prohibiting monopolistic practices. Named after Senator John Sherman of Ohio, this law was designed to eliminate trusts, which allowed corporations to dominate industries and stifle competition. 

The act makes it illegal for competitors to conspire to restrict trade, monopolize markets or manipulate competition. Key prohibited activities include price fixing, bid rigging and market allocation. Violations of the Sherman Act are classified as felonies, with individuals being fined up to $1 million and receiving prison sentences of up to ten years. Corporations can face fines of up to $100 million and may also be required to provide restitution to affected parties.

Key Antitrust Violations

Violations of the Sherman Antitrust Act take many forms.

1. Price Fixing: This situation occurs when competitors agree to set prices at a certain level, such as raising prices by a specific percentage or refusing to sell below a fixed amount. This practice eliminates genuine competition and forces clients to pay artificially high prices.
2. Bid Rigging: In this scheme, competitors collude to predetermine the winning bid. Common methods include:
   1. Bid Suppression: Some competitors agree not to bid, ensuring a designated contractor wins.
   1. Bid Rotation: Contractors take turns submitting the lowest bid for different contracts.
   1. Complementary Bidding: Companies submit intentionally high or non-compliant bids to ensure a pre-selected contractor wins.
3. Market Allocation: Competitors divide customers or markets among themselves, often by geographic region or customer type. This scheme eliminates competition in designated areas and inflates costs.

These practices harm clients by limiting competition and inflating costs, often under the guise of legitimate bidding.

Warning Signs of Collusion

Procurement officials and contractors can identify potential collusion by looking for certain red flags, such as the following:

• Identical bid amounts or patterns, including lump sums or specific line items
• Winning bids significantly lower than others or much higher than market expectations
• Qualified contractors failing to bid without clear justification
• Competitors meeting before or after bids are submitted
• Losing bidders receiving subcontracts or payments from the winning contractor

For price fixing and market allocation, additional warning signs include simultaneous price increases by competitors, elimination of discounts, or the same contractor repeatedly winning in specific regions.

Why Collusion Happens

Certain industry conditions make collusion more likely:

• Close Relationships: Competitors who know one another through industry associations, joint projects, or social connections may find it easier to conspire.
• Limited Competition: Markets with fewer players are more prone to collusion.
• Standardized Products: When services or products are uniform and non-substitutable, it’s easier for competitors to agree on pricing.

Although these factors may indicate potential collusion, legitimate reasons—such as high material costs or project-specific challenges—can also explain specific pricing patterns. Only actions taken as part of a conspiracy violate antitrust laws.

Prevention Strategies for Contractors

To avoid falling into unethical or illegal practices, contractors should:

1. Understand the Law: Familiarize yourself and your team with the Sherman Antitrust Act and its implications.
2. Avoid Suspicious Interactions: Decline discussions with competitors about prices, bids, or market territories.
3. Report Unethical Behavior: If approached to participate in collusion, consult legal counsel and consider reporting the incident to authorities.
4. Maintain Transparency: Document bidding processes and ensure compliance with ethical standards.

Procurement Officials’ Role in Preventing Collusion

Procurement officials are trained to detect and prevent antitrust violations. Key strategies include the following:

• Expanding the Bidder Pool: Increasing the number of bidders makes collusion more difficult. Collusion is more likely when fewer than five companies are bidding.
• Requiring Affidavits: Bidders may be required to sign statements affirming their awareness of antitrust laws and certifying that their bids are independent.
• Analyzing Bid History: Reviewing records can reveal suspicious patterns, such as bid rotation or market allocation.
• Asking Questions: Officials should challenge bids that appear unusually high or inconsistent with market trends.

Responsibilities of the PCSF 

The Procurement Collusion Strike Force (PCSF) is a coalition of federal agencies, including the Department of Justice Antitrust Division and the FBI, dedicated to preventing and prosecuting antitrust crimes in government procurement. The PCSF provides training to procurement officials, auditors, and law enforcement to identify collusion and fraud. As of October 2023, the PCSF has trained more than 31,000 individuals and is actively investigating more than 100,000 cases, resulting in convictions, guilty pleas, and significant restitution.

Contractors can use an online form (www.justice.gov/atr/webform/pcsf-citizen-complaint) to report suspected violations to the PCSF Tip Center, which reviews and investigates complaints. 

Final Thoughts

The construction industry thrives on fair competition, which benefits contractors, clients and the public. While the pressures of winning contracts can be intense, engaging in bid rigging, price fixing or other antitrust violations is never worth the risk. These practices harm the industry’s integrity, inflate costs and lead to severe legal consequences. By adhering to ethical standards and promoting transparency, contractors can contribute to a competitive, trustworthy marketplace while avoiding the pitfalls of unlawful behavior.

Author’s note: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation. 

About the author: Trent Cotney is a partner and Construction Practice Group Leader at the law firm of Adams and Reese LLP and NRCA General Counsel. For more information, call (866) 303-5868 or email [email protected].