ATTORNEY GENERAL OFFICE ANTITRUST TRAINING FOR PURCHASING PROFESSIONALS
HISTORY OFANTITRUST LAWS Sherman Act Enacted in 1890 in large part in response to big railroad trusts and pools of the post-civil war period. It can be considered the primary charter for competitive business behavior. It condemns every combination or conspiracy in restraint of trade, monopolization and attempts to monopolize.
HISTORY OF ANTITRUST LAWS Clayton Act (1914) Section 2 now stands alone, as Robinson-Patman Act (1936) (which deals with price discrimination). It was an attempt to remedy the uncertainty left by the Sherman Act and carve out particular types of prohibited conduct such as price discrimination and exclusive tie-ins, the effect of which is to substantially lessen competition. Section 7 prohibits mergers and acquisitions where the effect of the proposed transaction may be to substantially lessen competition or create a monopoly.
HISTORY OF ANTITRUST LAWS FTC Act Passed in 1914 and is not technically an “antitrust law,” prohibits deceptive business practices and creates a regulatory commission with the power to define and prohibit deceptive business practices.
HISTORY OF ANTITRUST LAWS State Laws Florida’s original Antitrust Law was passed in 1915. Changes in our society and business world over the years necessitated the passage of new legislation. Florida’s Antitrust Reform Act was enacted in 1980 and closely tracks its Federal counterpart, the act also gives the Attorney General subpoena power to conduct investigations into anticompetitive and collusive conduct.
FACTORS THAT CONTRIBUTE TO POSSIBLE COLLUSIVE BEHAVIOR • Evidence of conduct contrary to self-interest, i.e. turning down profitable business to allow competition to keep or obtain. • Product uniformity or fungibility, i.e. milk. • Presence of strong motive to enter conspiracy, i.e. rapidly escalating costs. • Opportunity to meet and conspire, i.e. trade shows – also pre-bid conferences watch carefully to avoid problems. • Communications among alleged conspirators.
FACTORS THAT CONTRIBUTE TOPOSSIBLE COLLUSIVE BEHAVIOR • At least one conspirator in an alleged conspiracy expressly invites common action. • Exchange of price information or policy statements. • Output restrictions. • Firms refrain from competing for existing accounts of competitors or retaliate against firms that do compete. • Hostile actions, economic coercion or refusals to deal.
BID RIGGING/CUSTOMER ALLOCATION • Bread and butter of antitrust • Forms Identical bids Allocation of contract quantities Allocation of territories Allocation of customers • All are subject to prosecution under state/federal antitrust laws.
BID RIGGING/CUSTOMER ALLOCATION • Successful prosecutions can result in awards of treble damages/attorney fees & costs of litigation. Example from our office: Dairy $33,063,116.36 Million Dredging $4,485 Million CO2 $1.16 Million (our share was around 4 M) CL2 over $800,000 Commercial Tissue almost $3 Million Infant Formula $13,000,000
THE ROLE OF A PURCHASING AGENT IN ANTITRUST ENFORCEMENT • What does this mean to me? Front Line Defense Alert purchasing agents are the front line defense against bid rigging.
THE ROLE OF A PURCHASING AGENT IN ANTITRUST ENFORCEMENT You are the market experts. • Those with long experience in a particular area of purchasing often develop hunches about suspicious patterns of bidding. • In effect, comparing actual bids received to what your experience tells you should be the theoretical norm can enable an astute purchasing agent to conclude that something may be amiss, and the appropriate authorities can be alerted. • Additionally, in talking with company reps, purchasing agents may pick-up invaluable information or tips indicating something may be amiss in the process.
THE ROLE OF A PURCHASING AGENT IN ANTITRUST ENFORCEMENT Attorney General’s Role 1. While you are the market experts, you often don’t have the time, tools, or complete information with which to analyze markets.
THE ROLE OF A PURCHASING AGENT IN ANTITRUST ENFORCEMENT Attorney General’s Role 2. One of the roles of the assistant attorneys general and the economist in our office is to fill that void by devoting our time and attention to market analysis. In this way, we are able to work together in order to detect and halt collusion.
THE ROLE OF A PURCHASING AGENT IN ANTITRUST ENFORCEMENT Attorney General’s Role 3. Many times, the key to analyzing bids is the ability to examine patterns over a period of many bid cycles or years, and often over a large geographic area.
THE ROLE OF A PURCHASING AGENT IN ANTITRUST ENFORCEMENT There are some general points you should keep in mind as you go about your daily duties.
WHAT YOU CAN WATCH FOR Take seriously any idle rumor or comment which would indicate collusion and let our office know.
WHAT YOU CAN WATCH FOR The purchasing agent should know the value of what he is buying.
WHAT YOU CAN WATCH FOR Examine bids in relation to an independent estimate of the project’s cost.
WHAT YOU CAN WATCH FOR More than 95% of collusively bid highway contracts had only one bidder,…try to get as many bidders as possible and examine their bids in relation to each other.
WHAT YOU CAN WATCH FOR Be wary of bidders who wait to the last minute to submit their bids and exhibit interest in whether a non-local or occasional bidder is present.
WHAT YOU CAN WATCH FOR Be wary of bidders who appear to have two proposals for the same project depending on the identity of the bidders.
OTHER THINGS TO LOOK FOR Identical Bids • Could be a sign of competition or collusion • How often/who/how likely • How do you decide – random is best Don’t alternate/split or divide/or go with incumbent Choose winners randomly in tie bid situations • Throwing the Bid • Line items are close among certain of the bidders but one bidder is higher on one crucial item.
OTHER THINGS TO LOOK FOR No Bids • Vendors who bid some years/no bid others • Vendors who bid (or win) elsewhere – close by • Vendors who don’t bid but want results • Withdrawn bids – mistake, don’t let them off the hook • Non-serious bidders – always bid unreasonably high • Refusals by vendors to bid all or none • Vendors pick up documents but don’t bid
OTHER THINGSTO LOOK FOR Same firm always wins • Territorial/geographic market allocation/customer allocation -A particular contractor always winning in a certain geographical area -Contractors who bid frequently and never win -A contractor appears to be unwilling to cross a particular geographical boundary for no apparent reason
OTHER THINGSTO LOOK FOR Equal or static market shares • Bids rotating and all vendors win work in area
OTHER THINGSTO LOOK FOR Geographically close bidders who lose or barely beat far away incumbents • New distant bidders beating or coming close to other incumbents
OTHER THINGSTO LOOK FOR Unusual price drops – cheaters
OTHER THINGSTO LOOK FOR Price drops when new bidders appear • Strong indication of collusive bidding among the customary bidders whose agreements are only disrupted by the pressure of the occasional or non-local bidder
Damages Damage Measures The damages awarded under the antitrust law are usually the difference between the “fix” price and “competitive price” Treble Damage Any damages awarded an Antitrust plaintiff are automatically trebled.
Industry Mythology Industry insiders often try to convince you of certain facts which may have superficial appeal, but in reality only serve the purposes of the vendor. Some of the more popular ones are:
Industry Mythology “Too much competition is ruinous – will drive good people out of business.” Efficient competitors will prevail; competition breeds efficiency and innovation.
Industry Mythology “We know what you want better than you do.” Nobody knows you better than you do.
Industry Mythology “We hardly make any money” Insuring a company high profits isn’t your concern If and when they don’t make enough money, they will exit.
Industry Mythology “Public business isn’t profitable” Business is profit motivated. If the business wasn’t profitable, they wouldn’t want it.
Industry Mythology “The antitrust laws weren’t meant to apply to us.” They apply to all, both big and small.
Industry Mythology “The prices we charge government entities are fair, reasonable, and stable.” Antitrust laws prohibit the fixing of prices. It doesn’t matter if the price is “reasonable” as what’s reasonable today may be unreasonable tomorrow.
What Can You Do toPrevent Bid Rigging • Communicate. • Standardize specifications. Don’t draw them too narrowly. • Aggregate small bids – offer alternative bids, i.e. all or line by line. • Modify bid documents to include assignment clause.
“I certify that this bid is made without prior understanding, agreement, or connection with any corporation, firm or person submitting a bid for the same materials, supplies, or equipment, and is in all respects fair and without collusion or fraud. I agree to abide by all conditions of this bid and certify that I am authorized to sign this bid for the bidder and that the bidder is in compliance with all requirements of the Invitation to Bid, including but not limited to, certification requirements.
In submitting a bid to an agency for the State of Florida, the bidder offers and agrees that if the bid is accepted, the bidder will convey, sell, assign or transfer to the State of Florida all rights, title and interest in and to all causes of action it may now or hereafter acquire under the Antitrust laws of the United States or the State of Florida for price fixing relating to the particular commodities or services purchased or acquired by the State of Florida.”
For More Information Contact: • Scott Palmer Special Counsel for Antitrust Enforcement Office of the Attorney General Antitrust Division 850-414-3300 email: firstname.lastname@example.org Laura Daugherty Research Economist email: email@example.com