Consistent with the Trump Administration’s focus on procurement fraud, a recent settlement and guilty pleas secured by the DOJ demonstrate that bid rigging is in the Administration’s crosshairs.  Government contractors should be aware of the legal risks associated with bid rigging when engaging in the bidding process. 

Bid Rigging and the False Claims Act

Bid rigging involves colluding in the bidding process to impede competitive bidding, which the Government alleges results in higher prices. The U.S. Department of Justice (“DOJ”) has recognized four common bid rigging schemes:

  • Bid Suppression: A competitor(s) agrees to withhold a bid or withdraw a previously submitted bid.  The non-bidder could receive a sub-contract or other compensation in return.
  • Complementary Bidding: Bidders submit token bids that are intentionally inflated or inadequate on bid requirements to give the appearance of competition.
  • Bid Rotation: Bidders take turns submitting the lowest bid on a series of contracts, based on a prior agreement to do so.
  • Customer or Market Division: Competitors divide customers or geographies and refrain from bidding or submit complementary bids for contracts to which they are not assigned.

Although many false claims allegations are tied to issues that arise during performance, bid rigging in order to receive a government contract can also result in a False Claims Act (“FCA”) violation.  In particular, the government may allege that a contract awarded based on rigged bids was fraudulently obtained and subsequent claims for payment flow from that fraudulent bidding process. 

Berg Companies, Inc. FCA Settlement

Last month, the DOJ announced a $3.3 million settlement with Berg Companies, Inc. (“Berg”) to resolve FCA claims related to bid rigging for contracts with the Defense Logistics Agency (“DLA”).  The settlement resulted from coordination between the Commercial Litigation Branch, two U.S. Attorney’s Offices, GSA OIG, and multiple DoD investigation offices.

According to the settlement agreement, Noble Supply & Logistics (“Noble”) is a prime contractor for Maintenance, Repair & Operations contracts for EUROCOM.  The Government alleged that, for solicitations for rigid wall shelters, Berg, a sub-vendor, coordinated with Noble and other sub-vendors to submit inflated quotes so that the other sub-vendors would win the solicitations, i.e., a complementary bidding scheme.  The Government contended that the DLA’s requirements were “not competed as required by the prime vendor contract and the military customers were overcharged.”

The settlement arose from claims brought against Berg under the qui tam provisions of the FCA, providing two whistleblowers over $500,000 in recovery. 

Other Legal Risks

In addition to FCA risks, bid rigging activities could result in antitrust and other fraud risk, including with potential criminal penalties.  For example, the DOJ announced that two consulting companies and their owners pled guilty earlier this year to violating the Sherman Act by allegedly rigging bids for New York City Public School contracts, relying on a complementary bidding scheme.  Earlier this year, DOJ also announced guilty pleas for conspiracy to defraud the United States and wire fraud relating to a bid-rigging scheme for IT consulting contracts for federal government purchasers, including DOD. 

These developments also demonstrate that the DOJ Procurement Collusion Strike Force remains active in the second Trump Administration.  Government contractors should note that federal law requires agencies to report to the Attorney General any bids that evidence a violation of the antitrust laws, including collusive bidding.  See Federal Acquisition Regulation (“FAR”) 3.303(a). 

Considerations for Teaming Arrangements

Bid rigging should not be confused with appropriate teaming arrangements.  The FAR recognizes the value of such collaboration among contractors.  See FAR Subpart 9.6.  These arrangements can be desirable because they enable companies to complement unique capabilities and allow the government the opportunity to optimize performance and cost. 

Nevertheless, the FAR’s recognition of teaming arrangements does not authorize anticompetitive conduct.  FAR 9.604.  For that reason, government contractors considering entering into teaming arrangements should carefully mitigate FCA, Sherman Act, or other legal risks by proactively documenting the business case for the teaming arrangement and focusing negotiations on how to meet the customer’s needs.

Takeaways

The DOJ’s recent actions show that the Trump Administration remains focused on bid rigging as a source of procurement fraud.  Government contractors should be aware of FCA, Sherman Act, and other fraud risks associated with bid rigging and take steps to mitigate those risks when engaging in the bidding process.

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Photo of Susan B. Cassidy Susan B. Cassidy

Susan Cassidy co-chairs Covington’s Aerospace and Defense Industry Group, and has been advising government contractors for more than 35 years on the requirements imposed on companies contracting with the U.S. Government.

Susan’s practice focuses on the intersection of cybersecurity, national security, and supply…

Susan Cassidy co-chairs Covington’s Aerospace and Defense Industry Group, and has been advising government contractors for more than 35 years on the requirements imposed on companies contracting with the U.S. Government.

Susan’s practice focuses on the intersection of cybersecurity, national security, and supply chain risk management for companies that sell products and services to the U.S. Government. Susan advises contractors at all phases of the procurement cycle, and regularly:

advises clients on compliance obligations imposed by the FAR, DFARS, and other agency regulatory requirements;
leads internal and government False Claims Act (FCA) investigations addressing allegations of violations of government cybersecurity, national security, supply chain, quality, and MIL-SPEC requirements; and
advises clients who have suffered a cyber breach where U.S. government information may have been impacted.

In her work with global, national, and start-up contractors, Susan advises companies on all aspects of government supply chain issues including:

Government cybersecurity requirements, including the Cybersecurity Maturity Model Certification (CMMC), DFARS 252.204-7012, FedRAMP, controlled unclassified information (CUI), and NIST SP 800-171 requirements;
Evolving sourcing issues such as Section 889, counterfeit part requirements, Section 5949 semiconductor product and service restrictions, and limitations on sourcing a variety of products from China; and
Federal Acquisition Security Council (FASC) regulations and product exclusions.

 

Susan previously served as senior in-house counsel for two major defense contractors (Northrop Grumman Corporation and Motorola Incorporated) and is Chambers rated in both Government Contracts and Government Contracts Cybersecurity. Chambers USA has quoted sources stating that “Susan’s in-house experience coupled with her deep understanding of the regulatory requirements is the perfect balance to navigate legal and commercial matters.”

Susan is a former Public Contract Law Procurement Division Co-Chair, former Co-Chair and current Vice-Chair of the ABA PCL Cybersecurity, Privacy and Emerging Technology Committee.

Susan’s pro-bono work extends to assisting veterans in a variety of matters, as well as providing advice to elderly clients on their wills and other end-of-life planning documents.

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Photo of Sean Berman Sean Berman

Sean Berman is an associate in the firm’s Washington, DC office. He is a member of the Government Contracts and Antitrust/Competition Practice Groups.

Before joining the firm, Sean clerked for Judge Thomas D. Schroeder on the U.S. District Court for the Middle District…

Sean Berman is an associate in the firm’s Washington, DC office. He is a member of the Government Contracts and Antitrust/Competition Practice Groups.

Before joining the firm, Sean clerked for Judge Thomas D. Schroeder on the U.S. District Court for the Middle District of North Carolina.

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