Monday, January 16, 2006

Kickbacks and Bid-Rigging—Antitrust Division Investigations

A very under-reported story last week concerned a Puerto Rican man who was indicted with charges that he interfered with federal investigations into kickback schemes used to defraud a Puerto Rico restaurant company, which are violations of the federal statutes.[1]

According to the indictment, Mr. Guardiola interfered with and obstructed the investigations into illegal kickback payments made by his clients, Gate Engineering Corporation and its president, Albith Colón, to Jorge Luis Matos Burgos.[2] He did so by allegedly attempting to conceal the true nature of these kickback payments from the federal grand jury and the General Services Administration, Office of Inspector General investigations by attempting to persuade witnesses to provide false information about the kickback payments and by asking witnesses to explain that the kickbacks were personal gifts.[3] The indictment also charges that Guardiola drafted a phony services contract to conceal the true nature of the kickback payments.[4]

Mr. Guardiola is charged with , with attempting to influence the testimonies of persons in an official proceeding, and with attempting to corruptly obstruct, influence, and impede an official proceeding. While obstruction-related charges are indeed crimes which the Antitrust Division [hereinafter AD] of the US DOJ will prosecute,[5] bid-rigging and kickbacks are also crimes which the AD investigates aggressively.[6]

The AD has identified four categories of bid-rigging, which is a type of collusive agreement that restrains trade:
  • Bid Suppression: one or more competitors who otherwise would be expected to bid agree to refrain from bidding or withdraw a previously submitted bid so that the designated winning competitor’s bid will be accepted.
  • Complementary Bidding: also known as "cover" or "courtesy" bidding, this occurs when some competitors agree to submit bids that are not intended to secure the buyer's acceptance, but are merely designed to give the appearance of genuine competitive bidding. Complementary bidding schemes are the most frequently occurring forms of bid rigging, and they defraud purchasers by creating the appearance of competition to conceal secretly inflated prices.
  • Bid Rotation: in these schemes, all conspirators submit bids but take turns being the low bidder. The terms of the rotation may vary; for example, competitors may take turns on contracts according to the size of the contract, allocating equal amounts to each conspirator or allocating volumes that correspond to the size of each conspirator company. A strict bid rotation pattern defies the law of chance and suggests collusion is taking place.
  • Subcontracting: these arrangements are often part of a bid-rigging scheme. Competitors who agree not to bid or to submit a losing bid frequently receive subcontracts or supply contracts in exchange from the successful low bidder. In some schemes, a low bidder will agree to withdraw its bid in favor of the next low bidder in exchange for a lucrative subcontract that divides the illegally obtained higher price between them.[7]

[1] US DOJ, , Jan. 11, 2006.
[2] Id.
[3] Id.
[4] Id.
[5] See US DOJ, Antitrust Division Manual ., last visited Jan. 16, 2006.
[6] See US DOJ, , Jan. 2, 2001, rev’d Sep. 28, 2005.
[7] Id.

posted by McNabb Associates, P.C. @ 11:26 AM