The False Claims Act and Bid-Rigging Schemes in Public Contracting
What is Bid-Rigging?
Bid-rigging refers to agreements among competitors to manipulate bidding for public contracts. The competitors agree in advance who will submit the winning bid. They take turns being the designated winner, or work out a system to share contracts among themselves. This eliminates true competition between bidders.
There are a few common types of bid-rigging schemes1:
- Bid suppression – Competitors agree not to bid or withdraw bids so one bidder can win.
- Complementary bidding – Some bidders submit high bids to guarantee a designated winner.
- Bid rotation – Conspiring bidders take turns being the low bidder.
- Market allocation – Competitors divide contracts among themselves by territory or type of work.
Bid-rigging eliminates competition between companies that should be rivals. This leads to inflated prices and costs for governments and taxpayers. Bid-rigging schemes can involve payoffs or subcontracts for losing bidders. They are a type of collusion and anti-competitive practice.
How Bid-Rigging Violates the False Claims Act
The False Claims Act (FCA) imposes liability on anyone who knowingly submits false claims to the government2. This includes claims for payment under fraudulently obtained contracts. Companies involved in bid-rigging may face False Claims Act lawsuits for submitting claims under rigged contracts.
Courts have found bid-rigging to be a form of fraud that creates false claims. The seminal case was Marcus v. Hess, where electrical contractors rigged bids for public works contracts3. The Supreme Court ruled this violated the False Claims Act, even though the contractors performed the work as required. The problem was falsely representing a fair bidding process.
More recent False Claims Act cases have targeted modern bid-rigging schemes. In one case, Concept Schools paid $4.5 million to settle claims it rigged tech contracts for its charter schools4. The government alleged Concept Schools steered contracts to chosen vendors through fake bidding.
Bid-rigging can create FCA liability under a fraudulent inducement theory. The conspiring contractors falsely represent a fair bidding process to fraudulently induce the government to award contracts and make payments. Even if the agreed-on contractor performs the work, the entire process is corrupted by the bid-rigging scheme. This renders resulting claims for payment false under the FCA.
Recent Bid-Rigging Cases and Settlements
Here are some notable recent False Claims Act cases and settlements targeting bid-rigging:
- A 2022 settlement with Schneider Electric related to rigging maintenance contracts for the New York City Housing Authority. Schneider paid over $5 million to settle claims it conspired with other contractors to inflate prices and allocate contracts5.
- In 2021, Norfolk Southern Railway agreed to pay $9.3 million to resolve allegations it engaged in bid-rigging and fraud conspiracies related to contracts with the Department of Defense6.
- A $400,000 settlement in 2021 between Mississippi State University and an engineering firm, Hiway 21. The state alleged Hiway 21 conspired with another firm to rig bids for drainage improvement contracts7.
- A 2020 settlement for $122 million with USA Micro, Inc. to resolve claims it colluded with competitors to rig bids for Defense Department IT contracts8.
These cases demonstrate the range of contracts susceptible to bid-rigging schemes. They also show the False Claims Act’s power to detect and punish collusion in government contracting. Large settlements reflect the magnitude of damages from inflated prices and denied opportunities for honest competition.
Using the False Claims Act Against Bid-Rigging
The False Claims Act allows both the Department of Justice and private citizens to file whistleblower lawsuits over fraud against the government9. These qui tam suits have been vital for uncovering bid-rigging schemes that may fly under the government’s radar. Whistleblowers can provide inside information, evidence, and assistance in FCA investigations.
To prevail in a False Claims Act case, plaintiffs must prove several elements10:
- A false or fraudulent claim for payment
- The defendant knew the claim was false
- The false claim was material or important to the government’s decision to pay
Bid-rigging satisfies these requirements. The conspiring contractors knowingly misrepresent a fair bidding process. They fraudulently induce the government to award contracts and make payments at inflated prices. Plaintiffs can prove these elements through evidence of collusion such as:
- Records of contacts, meetings, and communications between competitors
- Suspicious patterns in bidding and awards
- Proof of payoffs or subcontracts for losing bidders
- Inside informants and cooperating conspirators
Whistleblowers can provide crucial evidence to demonstrate False Claims Act liability. They are also entitled to receive 15-30% of any recovery. This gives insiders a strong incentive to come forward and report bid-rigging schemes.
In addition to lawsuits, cooperating with a government investigation can mitigate penalties under the DOJ’s Leniency Program11. Companies that self-report bid-rigging and provide evidence may avoid criminal prosecution and treble damages. This encourages firms to expose schemes and their co-conspirators.
References
1. PROCUREMENT FRAUD HANDBOOK – GSA OIG. (n.d.). Retrieved from https://www.gsaig.gov/sites/default/files/misc-reports/ProcurementFraudHandbook_0.pdf ↩
2. False Claims Act Cases: Government Fraud Lawyer. (n.d.). Retrieved from https://www.phillipsandcohen.com/False-Claims-Act/False-Claims-Act-Cases/ ↩
3. Confronting Collusion with Qui Tam: Why the Department of Justice Antitrust Division Should Bolster Its Leniency Program with a Whistleblower Provision – American Bar Association. (n.d.). Retrieved from https://www.americanbar.org/groups/public_contract_law/publications/public_contract_law_jrnl/52-3/confronting-collusion-qui-tam/ ↩
4. Charter School Management Company Pays $4.5 Million to Settle Claims of Sham Bidding Scheme | OPA | Department of Justice. (n.d.). Retrieved from https://www.justice.gov/opa/pr/charter-school-management-company-pays-45-million-settle-claims-sham-bidding-scheme ↩
5. Manhattan U.S. Attorney Announces Settlement Of Civil Fraud Claims Against Schneider Electric For Inflating Prices And Rigging Bids For Maintenance And Repair Contracts With New York City Housing Authority | USAO-SDNY | Department of Justice. (n.d.). Retrieved from https://www.justice.gov/usao-sdny/pr/manhattan-us-attorney-announces-settlement-civil-fraud-claims-against-schneider-electric ↩
6. Norfolk Southern Railway Company Agrees to Pay $9.3 Million to Resolve Allegations of False Claims and Bid Rigging | OPA | Department of Justice. (n.d.). Retrieved from https://www.justice.gov/opa/pr/norfolk-southern-railway-company-agrees-pay-93-million-resolve-allegations-false-claims-and ↩
7. AG Fitch Announces Settlement with Engineering Firm in Public Bid Rigging Case | Mississippi Attorney General’s Office. (n.d.). Retrieved from https://www.ago.state.ms.us/releases/ag-fitch-announces-settlement-with-engineering-firm-in-public-bid-rigging-case/ ↩
8. IT Consulting Firm Agrees to Pay $122 Million to Resolve False Claims Act Allegations That It Rigged Bids for IT Contracts | OPA |