In the current regulatory environment, it is important for contractors to remain vigilant of heightened anti-competitive enforcement in the construction and procurement spheres by the United States Department of Justice (DOJ). Such vigilance should include, among other things, regular review of applicable laws and implementation of related updates to compliance policies, as well as careful evaluation of joint venture (JV), subcontractor, and teaming agreements.
Recent DOJ Activity Opens The Door To Broader Antitrust Exposure For Contractors
Many contractors include exclusivity and non-compete clauses in their vertical agreements, including subcontractor agreements and certain types of JV and teaming agreements. In fact, many widely available “checklists” for drafting these agreements recommend including such provisions; however, under U.S. antitrust law, particularly as enforced by the DOJ in the last 1-2 years, exclusivity and non-compete clauses may be construed as unduly competition-restricting. Although no court has yet held that exclusivity and non-compete clauses in vertical agreements violate antitrust laws, recent aggressive enforcement activity by the DOJ with regard to horizontal no-poach agreements suggests that the investigatory headwinds may be blowing in that direction.
Horizontal no-poach agreements between market competitors – traditional targets of the DOJ’s antitrust enforcement actions – are generally per se illegal. However, a recent criminal case, USA v. DaVita Inc., et al., Case No. 1:21-cr-0229 (D. Colo. 2021), which involved horizontal no-poach agreements, underscores the DOJ’s increased scrutiny of potentially anti-competitive contractual clauses. In DaVita, the DOJ charged DaVita, a dialysis provider, and its former CEO with a violation of Section 1 of the Sherman Act due to alleged anti-competitive conduct arising from no-poach agreements between DaVita and other health care companies that precluded the competitor companies from recruiting and hiring DaVita’s employees. Though DaVita and its former CEO were ultimately acquitted by a federal jury of a criminal conspiracy, this case nonetheless illustrates that the DOJ is escalating its efforts to aggressively investigate and prosecute perceived anti-competitive conduct by private companies, such that contractors who are parties to vertical agreements should take heed.
Indeed, the DaVita case represents a policy shift within the DOJ to pursue criminal liability related to no-poach agreements, which stems from guidance issued jointly by the DOJ and Federal Trade Commission (FTC) in October 2016, in which the government warned that no-poach agreements as well as wage-fixing among horizontal competitors are per se illegal. In this regard, the DaVita case serves as a stark warning to contractors whose JV, subcontractor, and/or teaming agreements include provisions which may be construed as anti-competitive – e.g., non-compete and exclusivity clauses – that the DOJ has adopted a more expansive interpretation of the types of clauses that may run afoul of U.S. antitrust law.
In addition to criminal liability, contractors face broad civil exposure for antitrust violations. Potential consequences include suspension and debarment, revocation of business licenses, and the initiation of False Claims Act investigations carrying the threat of treble damages. Further, even if an accused contractor demonstrates its compliance, handling antitrust investigations is often a costly and time-intensive endeavor, and the mere fact of being under investigation may, unfortunately, inflict reputational damage or impair business relationships. =
With passage of the Infrastructure Investment and Jobs Act in 2021 and the recent passage of the Inflation Reduction Act in 2022, contractors may reasonably expect a substantial slate of procurement opportunities in the near to intermediate future, including large infrastructure projects that are ripe for JV formations. In light of the government’s strident enforcement posture in accordance with its October 2016 DOJ/FTC guidance, however, contractors should ensure that their JVs are formed for the purposes of providing more efficient, cost-effective, and technically superior services than would be possible absent collaboration. More specifically, contractors should consider erring on the side of caution and reasonably limiting the use and scope of exclusivity and non-compete provisions based on legitimate business judgment to fit the particular circumstances presented.
The Rise Of The Procurement Collusion Strike Force
These considerations are particularly salient given the growing influence and emboldened prosecutorial actions of the Procurement Collusion Strike Force (PCSF). Formed in 2019, the PCSF is a department within the DOJ’s Antitrust Division charged with deterring, investigating, and prosecuting antitrust crimes and related schemes involving procurement, grants, and program funding at all levels of government, including federal, state, and local. This broad mandate includes the traditional antitrust crimes such as bid rigging, price fixing, and market allocation, as well as previously lower-prioritized issues, such as set-aside fraud.
The PCSF has taken its robust charge seriously. From 2020-21, the PCSF secured bid rigging and fraud guilty pleas from a Connecticut insulation contracting company and one of its owners, a North Carolina engineering firm, and a Minnesota concrete contractor. Thus far in 2022, the PCSF already announced that it has: (i) obtained guilty pleas from additional defendants in the Connecticut insulation bid rigging scheme, a former California Department of Transportation contract manager, South Korean nationals performing repair and maintenance work at U.S. military bases, and a Texas miliary contractor involving false representations of qualifications for procurement set-aside programs; and (ii) indicted certain Florida military contractors for similar offenses.
Where Do We Go From Here?
From a cost mitigation standpoint, contractors are well-advised to implement comprehensive antitrust compliance policies. Such policies should address the underlying criminal acts set forth in the PCSF’s published indictments and guilty pleas. To avoid the innumerable risks, costs, and business disruptions that flow from governmental investigations, contractors should also exercise oversight into less obvious potential violations, such as the informal sharing of bid information with competitors. Indeed, one common misconception is that antitrust violations arise primarily from formalized, written agreements. This is not necessarily the case; rather, antitrust violations may be established through circumstantial evidence as well as through oral or implied understandings.
Accordingly, contractors should educate their employees on the potential risks of communications – formal or informal – with competitors. Discussion of topics such as present or future prices, pricing policies, bids, costs, capacity, and identity of customers, between a contractor’s employees and competitors may invite enhanced antitrust scrutiny. While not all conversations involving such topics give rise to antitrust violations, they do present opportunities – or, put differently, provide an articulable pretext – for enforcement arms, such as the PCSF, to open wide-ranging investigations.
While governmental review of antitrust compliance is nothing new to the construction and procurement industry landscape, the rise of the PCSF and its recent slew of indictments and plea announcements cannot be ignored. As the DOJ’s anticompetitive focus begins to envelope not only horizontal but also, potentially, vertical agreements, contractors can get out ahead of this enforcement trend by updating their compliance policies to avoid scrutiny of what is increasingly becoming a wider swath of anti-competitive conduct.
Watt Tieder is one of the largest construction boutique law firms in the United States, with a diverse and experienced team of attorneys representing many of the world’s leading corporations, developers and contractors on both domestic and international projects. We represent more than half of the Top 30 Engineering News Record contractors and most of the nation’s top sureties. With offices in six cities in the United States, the firm is a dynamic, mid-size boutique that provides knowledgeable and practical legal representation to the construction, surety, government contracts and bankruptcy industries world-wide.
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