Detect and Prevent Antitrust Violations

By Connolly, Robert | Public Management, January 1998 | Go to article overview

Detect and Prevent Antitrust Violations


Connolly, Robert, Public Management


Bid rigging, price fixing, and other typical antitrust violations have a more devastating effect on the American public than any other type of economic crime. Such illegal activity contributes to inflation, shakes public confidence in the country's economy, and undermines our system of free enterprise. In the case of government procurement, such crimes increase the costs of government, boost taxes, and erode the citizens' trust in their government.

Because managers receive bids and quotes and award contracts, they are in a good position to observe and identify violations of the antitrust laws. If all those involved in procurement had a working knowledge of the antitrust laws and understood how to identify violations, they could make a significant contribution to law enforcement.

Antitrust Violations and Procurement Personnel

The federal antitrust laws were enacted to preserve our system of free competition. They serve as our primary defense against unlawful attempts to limit competition and to raise the purchase prices of products and services. As purchasers of goods and services, purchasing departments can be both prime targets for, and sensitive detectors of, antitrust violations.

The Sherman Act, which prohibits any agreement among competitors to fix prices, is enforced by the Antitrust Division of the United States Department of Justice. Violation of the Sherman Act is a felony punishable by a fine of up to $10 million for corporations, and up to $350,000 or three years' imprisonment (or both) for individuals.

Civil actions for injunctive relief and for treble damages (under 15 U.S.C. [section] 15) also are effective enforcement tools. In addition, collusion among competitors may break the federal mail fraud law, violate the Racketeer-Influenced Corrupt Organization (RICO) statute, or constitute making false statements to a government agency, if false information has been provided on a noncollusion affidavit. All of these activities are felony violations punishable by a fine and imprisonment.

Bid Rigging, Price Fixing, And Other Types of Collusion

Commencement of criminal prosecution under Section 1 of the Sherman Act requires that the unlawful contract, combination, or conspiracy have occurred within the previous five years. The offense most likely to arise in a procurement context is commonly known as price fixing, or bid rigging, and also is referred to as collusion. A specific, expressed agreement is not always necessary, and the offense can be established either by. direct evidence (such as the testimony of a participant) or by circumstantial evidence (such as big awards that establish a pattern of business' being rotated among competitors).

Any agreement or informal arrangement among independent competitors by which prices or bids are fixed is per se unlawful. Where a per se violation is shown, defendants cannot offer any evidence to demonstrate the reasonableness or the necessity of the challenged conduct. Thus, competitors may not justify their conduct by arguing that price fixing was necessary to avoid cutthroat competition, that price fixing actually stimulated competition, or that it resulted in more reasonable prices.

Price fixing among competitors can take many forms. For example, competitors may take turns being the low bidder on a series of contracts, or they may agree among themselves to adhere to published list prices. It is not necessary that all competitors charge exactly the same price for a given item; an agreement to raise present prices is enough to violate the law.

There are other examples of price fixing, including agreements: to establish or adhere to uniform price discounts; to eliminate discounts; to adopt a standard formula for the computation of selling prices; not to reduce prices without prior notification to others; to maintain specified discounts; to maintain predetermined price differentials among different quantities, types, or sizes of products; and not to advertise prices. …

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