Monday, October 7, 2019

Improper Business Practices - Antitrust Violations

This is the fourth installment in our periodic series on improper business practices as laid out in FAR (Federal Acquisition Regulations) Part 3. FAR Part 3 includes sections on the prohibitions of gratuities to Government personnel, contingent fees, subcontractor kickbacks, buying-in and antitrust matters. It also offers whistleblower protections to contractor employees, requires contractors to establish and implement codes of business ethics and conduct, and more.

In Part 1, we discussed the requirement for contractors and subcontractors to implement reasonable procedures to prevent and detect violations of the Anti-Kickback Act. In Part 2, we discussed the practice of "buying in" and tools for contracting officers to use to prevent subsequent cost growth when contractors do buy in. In Part 3, we discussed the prohibition against offering gratuities to Government personnel, a prohibitions that should be rather obvious to everyone. Today we will focus on practices that might be reportable as violations of antitrust laws.

The antitrust laws are intended to ensure that markets operate competitively. Any agreement or mutual understanding among competing firms that restrains the natural operation of market forces is suspect. There are known behavior patterns that are often associated with antitrust violations. These 'indicators' are not necessarily improper by themselves but are sufficiently questionable to warrant a referral to "appropriate authorities", which for DoD is probably of the Office of Inspector General.

  1. The existence of an industry price list or price agreement to which contractors refer in formulating their offers
  2. A sudden change from competitive bidding to identical bidding.
  3. Simultaneous price increases or follow-the-leader pricing
  4. Rotation of bids or proposals, so that each competitor takes a turn in sequence as low bidder, or so that certain competitors bid low only on some sizes of contracts and high on other sizes.
  5. Division of the market so that certain competitors bid low only for contracts awarded by certain agencies, or for contracts in certain geographical areas, or on certain products, and bid high on all other jobs
  6. Establishment by competitors of a collusive price estimating system
  7. The filing of a joint bid by two or more competitors when at least one of the competitors has sufficient technical capability and productive capacity for contract performance.
  8. Any incidents suggesting direct collusion among competitors, such as the appearance of identical calculation or spelling errors in two or more competitive offers or the submission by one firm of offers for other firms.
  9. Assertions by the employees, former employees, or competitors of offerors, that an agreement to restrain trade exists. Such assertions are not unusual in this age of whistleblowing.

When these or similar conditions are noted or suspected, contracting officers are required to report them. FAR Part 3 also includes specific reporting requirements. It is unlikely that contract auditors (e.g. DCAA or Defense Contract Audit Agency) would ever be in a position to identify suspected violations of antitrust laws as auditors are not typically involved in the award of competitive procurements. But the contracting officers and associated personnel are taught to be aware of such violations.

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