Thursday, November 15, 2018

$236 Million Settlement in Bid-Rigging Scheme

Back in the mid-70s, the Army began to realize that it was paying excessive prices for military construction projects in South Korea. In fact, many of these projects cost more than comparable construction projects would cost back in the States. Given that Korean labor at the time was earning $2 to $4 per day, something was obviously off balance. The Army CIC (Criminal Investigative Command) conducted an extensive investigation and found wide-spread collusion among contractors as well as Korean Government involvement in directing which contractor would win each bid. The solution at the time was to move from competitive bidding process to negotiated procurements complete with certified cost or pricing data and full pricing audits. It worked. Costs for construction projects fell significantly. Over the intervening years however contracting shifted back to competitive procurements. The Korean economy boomed and the U.S. Government's was not as significant economic influence as it once was. There was presumption that contractors' ethics had improved. The Army wanted to streamline its acquisition processes - it requires a lot more work to negotiate a contract based on certified cost or pricing data than it does to award based on competition. It didn't take too many years for the shift from negotiated competitive procurements to become complete.

For those involved in ferreting out the graft and corruption of that era, yesterday's announcement by the Justice Department of a massive collusion scheme by Korean suppliers of fuel to the Army, Marines, and Air Force in South Korea was not shocking. Three South Korean companies agree to plead guilty to bid rigging on Defense Department fuel supply contracts. Together the companies have agreed to pay $236 million in fines and damages. The three suppliers agreed to pay $82 million in criminal fines for their involvement in a decade-long bid-rigging conspiracy that targeted fuel supply contracts and $154 million in restitution. This bid-rigging conspiracy went on for more than ten years discovery and the $154 million settlement is less than the amount of the overcharging. The Government rationalized this by stating that it reflected the value of defendants' cooperation commitments and the cost savings realized by avoiding extended litigation. These three companies have also been barred from further Government contracts.

The Justice Department press release alluded to the fact that additional charges in this matter would be forthcoming. The press release did not indicate how the scheme was uncovered or specifically how the collusion occurred. Perhaps we'll learn more about this case later on.

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