Contech Engineered Pleads Guilty and Agrees to Pay $8.5 Million for Bid-Rigging and Fraud
The Antitrust Division has pushed bid-rigging and price-fixing prosecutions of government contractors. It is long overdue – fraud enforcement has uncovered a number of bid-rigging and price-fixing schemes among government contractors.
To focus on this enforcement priority, DOJ created the Procurement Collusion Strike Force, which was initiated in November 2019, and consists of a multi-agency task force designed to uncover antitrust price-fixing schemes.
The case against Contech Engineered Solutions and its former executives began in 2020, charging Contech and the executive for bid-rigging and fraud relating to the supply of aluminum pipes and plates for water diversion under highways in North Carolina.
On May 11, 2021, Contech plead guilty to one count of violating the Sherman Act and one count of conspiracy to commit fraud. Contech agreed to pay a $7 million fine and $1.5 in restitution to the north Carolina Department of Transportation (NCDOT).
Contech conspired to rig bids for aluminum structure projects funded by the US Department of Transportation and the NCDOT for nearly a decade. The aluminum products included corrugated metal pipes and plates of varying sizes and shapes that are used to drain water under highways.
Contech, an Ohio company, coordinated bids with a Contech dealer, Pomona Pipe Products, in the submission of bids for highway construction projects to the NCDOT. Contech submitted independent bids for the same highway projects at a higher price than Pomona Pipe Products to ensure that it did not undercut Pomona Pipe Products. When Pomona Pipe Products was selected for an NCDOT contract, Contech provided the aluminum structures to the project and profited from the contract.
Contech challenged the criminal prosecution by arguing that the alleged conspiracy was not a per se criminal violation of the Sherman Antitrust Act but that the case should be analyzed under the rule of reason analysis, effectively arguing that the case should be dismissed as a criminal case. To support its claim, Contech argued that the facts did not support an alleged conspiracy between “horizontal” competitors, but was in fact an agreement between vertically-related entities – supplier and reseller – which was not a per se criminal violation.
The district court judge denied the motion and ruled that the indictment alleged a per se claim because Contech and Pomona Pipe Products were horizontal competitors in the bidding process (in addition to the vertical supplier relationship).
Importantly, Contech agreed to cooperate in the DOJ Antitrust Division’s investigation. Such cooperation may be needed to prosecute Contech’s former executive, Pomona Pipe Products and any individuals who may be prosecuted.
The Antitrust Division continues to rack up indictments and guilty pleas from the federal contracting business, including the commercial construction industry, the ready-mix concrete business and now the aluminum highway construction business.
Some examples include: (1) prosecution of a contractor involved in a bid-rigging scheme related to use of non-public pricing and cost information to secure contracts for maintenance services at the U.S. Strategic Petroleum Reserve sites; and (2) prosecution of the former owner of several construction companies for a conspiracy to defraud the U.S. Small Business Administration by falsifying eligibility information for over $250 million in construction contracts.
The federal procurement process is an area that is ripe for antitrust and fraud prosecutions. For years, federal contracts were subject to focused fraud investigations, usually tied to the False Claims Act. With the maturation of the Procurement Collusion Task Force, the Antitrust Division has gained a foothold in an area where federal prosecutions will continue and companies are at enforcement risk.