DOJ Announces New Procurement Collusion Strike Force
Updated: Jan 12, 2021
This Action Alert provides a high-level overview of DOJ’s efforts, the importance to technology companies doing business with the US government, and some actionable ideas. It is intended for in-house counsel at technology companies supporting US public sector sales teams from the founders of the new boutique law firm, Tong Tejani PLLC, Zohra Tejani and Joyce Tong Oelrich. Together, Joyce and Zohra have over 30 years of government contracting counseling with over half spent in-house at some of the world’s largest technology companies.
What is DOJ’s New Procurement Collusion Strike Force?
Earlier this month, the US Department of Justice (DOJ) announced the Antitrust Division will lead the Procurement Collusion Strike Force (PCSF) that will focus on “crimes that undermine competition in US government procurement as well as grant and program funding.” In other words, the DOJ is planning to take a closer look at bid rigging, price fixing, and collusion that involves taxpayer dollars.
What do technology companies who sell to the government need to know?
Technology companies can find themselves embroiled in a collusion investigation in several ways. One scenario involves a technology company directly agreeing with a competitor, such as a company with similar technology, to allocate certain customer segments or to ‘take turns’ winning government contracts. Another scenario involves a technology company’s channelwhich enables indirect contracts with end government customers through resellers and distributors.
In this channel partner scenario, how does the DOJ wind up at your door? When the DOJ scrutinizes competition in the procurement system, the DOJ will examine the prime contractors to see if they are rigging bids, fixing prices or using market manipulation to artificially inflate prices.1 Those prime contractors are your channel partners selling your products which will lead the DOJ to your channel sales model – a model that the government must utilize to buy your product and that ends up benefiting you, the manufacturer. From there, the investigation may turn to whether any technology company employees colluded with the channel partners, which could result in individual and corporate liability.2
Also, an investigation into collusion among channel partners may expand into whether there is corruption or other compliance violations for which the technology company should be held responsible. Given the history of DOJ’s scrutiny of technology companies’ partner programs for reselling technology to government customers3, an expansion of a collusion investigation to other areas of corruption or procurement fraud is not unlikely.
Ideas for action
Even if a technology company is exonerated, just being swept into a DOJ investigation of your channel partners can be costly financially. Plus, the potential reputational harm, the distraction of a high-stakes investigation, and the opportunity cost of resources can have a significant negative business impact.
Compliance Checkup
Stakeholders: Ethics and Compliance; Legal; Finance
Review your government contract compliance program against DOJ guidance and document any improvements you made
Update your mandatory disclosure policy and escalation procedures to include allegations of bid rigging
Review and update your hotline processes if necessary
Internal Controls
Stakeholders: Finance; Internal Audit; Risk Management; Legal
Run customer reports highlighting sales by partner – look for alternating orders coming in from different partners
Run customer reports highlighting price – look for unexplained spikes in pricing/discounting
Hire a forensic accountant to assist if you see indicia of or suspect potential bid rigging
Training
Stakeholders: Learning and Development; HR; Contracts; Sales Lead (Public Sector, Channel, and Commercial)
Train on bid rigging bsics and escalation procedures
Consider including bid rigging overview as part of onboarding new employees
Review contracts to include requirements that channel partners train their employees on bid rigging and other antitrust topics
Investigate
Stakeholders: Legal/Investigations; Channel/Partner Sales
Talk to your channel/partner sales leads to assess risk for competition allegations focusing on geographies or market segments at high risk for bid rigging
Review past complaints of competition issues
Do you know who your partners are – review your diligence process for selecting partners
If you need help drafting an internal escalation email or a business case for additional resources to obtain guidance, training, or operationalizing legal recommendations, we can help.
1 The DOJ cares about channel sales because when the government signs a contract and pays a company, the US Treasury is spending taxpayer money. To ensure the best value, the government uses a competitive procurement system which only works if every player operates independently.
2 In July 2019, the DOJ and Microsoft Hungary agreed to settle a bid rigging and bribery allegation regarding channel sales of Microsoft software licenses to Hungarian government agencies. Microsoft Hungary paid a $8.7m criminal penalty. While this settlement stemmed from FCPA violations, the DOJ fined Microsoft due to channel collusion in public sector sales.
3 See, e.g., some of the DOJ settlements by technology companies due to partner programs from 2007-2010: IBM and PWC, https://www.computerworld.com/article/2540445/ibm--pwc-pay-up-to-settle-contracting-kickback-charges.html; HP, https://www.justice.gov/opa/pr/hewlett-packard-agrees-pay-united-states-55-million-settle-allegations-fraud; and Sun,
This article is not legal advice but gives a general summary for educational purposes only and is not intended to be comprehensive. Seek specific legal advice before taking or refraining from taking any action. Please see our full Legal Disclaimer