DOJ Antitrust Division Secures $8.5 Million in Bid-Rigging Penalties From Engineering Firm on Highway Water Projects

The U.S. Department of Justice’s Procurement Collusion Strike Force has struck again.

Launched in November 2019, PCSF is a multi-agency task force led by DOJ’s Antitrust Division and designed to combat antitrust crimes and related schemes that target projects receiving federal funding.¹ Many of those projects involve large-scale construction. As a result, it was no surprise that in late 2020, the Antitrust Division indicted an engineering firm, Contech Engineered Solutions, and its former executive for alleged bid-rigging and related fraud in connection with the supply of aluminum pipes and plates for water diversion under highways in North Carolina.

On May 11, 2021, Contech entered a guilty plea, and agreed to pay more than $8 million in fines and restitution for its admitted bid-rigging and fraud. The guilty pleas and fines paid by Contech, a Quikrete company, are the latest example of the focus by the Antitrust Division and PCSF on criminal antitrust conduct in the construction industry. That focus could grow exponentially if massive federal investment to rebuild America’s roads, bridges and tunnels becomes a reality.

Case Overview

In October 2020, DOJ announced the indictment of Contech Engineered Solutions and a former executive on charges of bid-rigging, fraud, wire fraud and mail fraud.² The defendants allegedly conspired to rig bids for aluminum structure projects funded by the U.S. Department of Transportation and the North Carolina Department of Transportation (NCDOT) for nearly a decade.³ Aluminum structures in this context are corrugated metal pipes and plates of varying sizes and shapes that are used to drain and divert water under highways.

From early 2008 to March 2019, Contech, an Ohio manufacturer of aluminum structures, communicated with its dealer in North Carolina, Pomona Pipe Products, about bids that Pomona planned to submit for NCDOT highway construction contracts. Contech then also would submit independent bids for aluminum structures on the same highway projects at an intentionally higher price, ensuring it would not undercut Pomona, despite Contech’s certification that its bids were submitted competitively and without collusion. When Pomona won NCDOT contracts, Contech provided the aluminum structures to its dealer and profited off losing the bid to Pomona.

On December 4, 2020, Contech moved the district court to apply rule of reason antitrust analysis to DOJ’s antitrust claim, instead of the per se rule: effectively asking the court to dismiss the criminal antitrust charge because the Antitrust Division does not generally treat antitrust law violations that are analyzed under the rule of reason as criminal offenses.⁴ Contech argued that the indictment charged a conspiracy with a reseller of its aluminum products, and that vertical relationship — between firms at different levels of distribution — does not qualify for per se antitrust treatment (and therefore as a crime).

On March 16, 2021, the district court denied the motion, finding the indictment adequately alleged a claim of per se illegal bid rigging because Contech also acted as a horizontal competitor to its reseller by submitting additional direct bids for the same NCDOT projects, in addition to offering to supply its reseller.⁵

On May 11, 2021, Contech pleaded guilty to bid rigging and a conspiracy to commit mail and wire fraud, agreeing to pay a $7 million fine and $1.5 million in restitution to NCDOT.⁶ Contech agreed to cooperate with the continued prosecution of the case against its former executive. The former Contech executive remains under indictment, and DOJ has filed 12 motions in limine regarding potential trial evidence.

Contech also agreed to cooperate with DOJ’s “current federal investigation of violations of federal antitrust and related criminal laws involving the manufacture or sale of aluminum structure projects to the NCDOT.”⁷

Antitrust Implications for Companies and Executives

The Antitrust Division has a long history of successful and aggressive criminal enforcement in the commercial construction industry.⁸ Recent prosecutions and guilty pleas have involved the commercial flooring and ready-mix concrete businesses.⁹

With the 2019 establishment of PCSF, the Antitrust Division sharpened its focus on detecting and prosecuting criminal conspiracies — whether through rigged bids, fixed prices or allocated markets — which lessen competition for projects funded by American taxpayers. Since PCSF launched, there has been a steady trickle of Antitrust Division prosecutions of companies and executives involved in alleged conspiracies to secure contracts for federally supported projects:

• In February 2020, the Antitrust Division secured a guilty plea from an insulation contractor and its co-owner for bid rigging and fraud related to installing insulation on construction projects at taxpayer-funded hospitals, schools and other businesses in Connecticut.¹⁰
• In December 2020, the Antitrust Division secured the guilty plea of a contractor involved in a bidding scheme using nonpublic pricing and cost information to obtain federal procurement contracts for maintenance services at the Department of Energy’s U.S. Strategic Petroleum Reserve sites.¹¹
• In March 2021, the Antitrust Division prosecuted the former owner of several construction companies for an alleged conspiracy to defraud the U.S. Small Business Administration by obtaining more than $250 million in government construction contracts for which the companies were not eligible.¹²

The Contech plea agreement and penalties continue the Division’s spotlight on collusion in construction projects. As the Antitrust Division explained, the Contech prosecution “emphasizes the Division’s commitment to combatting collusion in government contracting, which raises the prices and diminishes the quality of the goods and services paid for by U.S. taxpayers.”¹³

If the mammoth infrastructure spending of more than $1 trillion being discussed by the Biden administration and federal legislators results in federal appropriations, then it is likely PCSF — which added new partner agencies in late 2020 and is growing in ambition — will become even more aggressive in targeting criminal antitrust conduct in the construction industry in the coming months and years.

For More Information

The antitrust laws are nuanced and complex, and their application to particular business situations is a fact-specific inquiry. Businesses concerned about how recent developments will impact their risk of violating the antitrust laws are strongly advised to consult with legal counsel.