On April 13, 2009, the US Department of Justice's Antitrust Division ("DOJ") announced its Economic Recovery Initiative ("Recovery Initiative"), which is designed to identify any fraud or collusive activity related to the federal government's stimulus spending under the American Recovery and Reinvestment Act of 2009 ("ARRA"). Under the ARRA, multiple federal agencies will be awarding billions of dollars in government stimulus spending to vendors in various markets. The DOJ noted that "the potential risk of fraud and collusion increases dramatically when large blocks of funds, such as those associated with the Recovery Act, are quickly disbursed." The purpose of the DOJ's Recovery Initiative is to train these federal agencies' procurement and grant officers, as well as their auditors and investigators, to identify fraud and collusion, and to prepare and distribute publication materials for fund recipients on fraud and collusion detection, prevention, and reporting. Under the Recovery Initiative, the DOJ set up a Citizen Complaint Center ("CCC") that encourages people to call in with tips about potential collusion in procurement and grant awards. The DOJ posted contact information for the CCC on its web-site, as well as its procedures for responding to tips.
Although the Recovery Initiative does not specifically mention Federal Reserve auctions, it could apply to the Federal Reserve's plan to purchase over one trillion dollars of agency mortgage-backed securities, Treasury securities, and agency debt. The antitrust laws apply to such auctions.
On its Recovery Initiative web-site, the DOJ includes a checklist entitled "Red Flags of Collusion," which identifies factors that make collusion, and thus investigations by the DOJ, more likely. This checklist outlines a four-part analysis the DOJ calls "MAPS": (1) Market – whether there are few vendors, or vendors with market power, and whether the good or service is standardized, so that the determining factor in the award is price rather than other competitive factors (such as design, quality, or service); (2) Applications – whether there are similarities between the vendor applications or proposals; (3) Patterns – whether patterns develop among the competing vendors (for example, a fixed pattern of rotating bid winners); and (4) Suspicious Behavior – whether vendors demonstrate behavior that suggests they worked together on the award (for example, a bidder showing knowledge of another competitor's bid).
It is clear the DOJ intends to increase its scrutiny of procurement and grant awards and likely will be more aggressive enforcing antitrust laws in this area. Moreover, the ready availability of a hotline is likely to lead to increased complaints that will generate investigations, even if the complaints are ultimately found to have been specious. Companies receiving stimulus money or bidding in Federal Reserve auctions should provide antitrust guidance to the employees involved and should conduct periodic antitrust audits of bids and applications, both to detect and deter misconduct and to put themselves in a better position if any misconduct occurs.
Under the Sherman Act, it is illegal for competitors to agree on prices, terms of sale, or the allocation of customers or territories or to rig bids. Serious criminal penalties (including imprisonment) are imposed on both companies and individuals found guilty of making these types of agreements, and criminal investigations often spawn expensive copy-cat civil actions against the companies involved. To minimize risk, companies should avoid communications with competitors regarding any of the following:
- Prices, including discounts and rebates, or any terms of sale;
- Bids, including RFPs, responses to RFPs, qualifications to bid, the submission or withdrawal of bids, etc.; or
- Profit margins, capacity or production, or specific customers.
In certain circumstances it is legal for competitors to collaborate in competitively sensitive areas, such as through the creation of a bona fide joint venture. Such activities should be undertaken only with the advice of experienced antitrust counsel.