It’s an unfortunate fact that fraud is going to occur — even in the government sector or, some might say, especially in the government sector — despite measures in place to try to prevent it. Whistleblowers who are willing to come forward and raise a flag about illegal or unethical activity are often the only way we can learn about fraud against the government. One type of fraud that is likely to occur in the government sector is procurement fraud, specifically bid rigging.
In order to bring this fraud to light, the whistleblower, or 'Relator' in legal terminology, is a crucial piece of the puzzle.
What is procurement fraud?
According to the General Services Administration (GSA) Procurement Fraud Handbook, procurement fraud is characterized by acts of deceit, trickery, concealment, or breach of confidence used to gain some unfair or dishonest advantage. Procurement fraud, by its very nature, can be hard to detect, as fraudsters will go to great lengths to conceal their activity. For this reason, most organizational fraud goes undetected. In order to bring this fraud to light, the whistleblower, or "Relator" in legal terminology, is a crucial piece of the puzzle. Through the use of a Qui Tam complaint, provided for in the civil False Claims Act, a private citizen can bring a legal action alleging fraud on the government’s behalf.
There are specific fraud schemes related to federal procurement contracts. One of the more common schemes is bid rigging. In the coming weeks, we’ll explore other types of fraud schemes with an explanation of what a Relator should be on the lookout for.
Bid rigging is fraud that takes the competition out of competitive bidding, which is the mechanism by which most federal contracts are awarded. By its very nature, competitive bidding depends on free and open competition in order to obtain goods and services at the lowest prices for the U.S. taxpayer. The federal government relies on this form of market competition to generate the lowest competitive price on needed goods and services, such as military equipment, food for our soldiers, and federally funded school projects. The process is only effective, however, if competing parties set prices honestly and without collusion. Generally speaking, bid rigging involves competitors agreeing in advance as to who will submit a winning bid. When this type of collusion occurs, prices can be inflated and the taxpayer ends up paying much more for items than necessary. A Relator who has knowledge of such bid rigging is integral to the successful prosecution of a Qui Tam complaint.
Common Types of Bid-Rigging
There are four common bid-rigging schemes that can occur:
Bid Rotation: Competitors take turns submitting the lowest (winning) bid on a series of contracts in a pre-established agreement.
Complementary Bidding: This involves a group of competitors submitting bids that are purposely high or intentionally fail to comply with the Request for Proposal (RFP) in order to make it appear as if competition exists when, in fact, it doesn’t.
Customer or Market Division: Competitors agree to divide customers or locations and agree not to bid or to submit only bids they know they will not win for customers or markets that are not assigned to them.
A Successful Prosecution
If you have witnessed any form of government procurement fraud ... coming forward can provide both peace of mind and potential financial rewards.
An example of a bid rigging case was settled in 2011. The Justice Department joined a False Claims Act whistleblower lawsuit against Science Applications International Corp. (SAIC); Applied Enterprise Solutions (AES); Dale Galloway, Chief Executive Officer of AES; Stephen Adamec, former Director of the Naval Oceanographic Major Shared Resource Center (NAVO MSRC) at the Stennis Space Center in Mississippi; and Robert Knesel, Deputy Director of NAVO MSRC. In April 2004, the GSA awarded a $3.2 billion contract to provide support services to the NAVO MSRC to SAIC, which partnered with subcontractors AES and Lockheed Martin Space Operations. The lawsuit alleged the defendants submitted, caused, or conspired to submit false claims under the contract. It alleged that Adamec and Knesel, who were government employees at the time, conspired with Galloway, SAIC, and AES to ensure that they were awarded the contract and then later tried to cover up their actions by destroying computer hard drives and documents. SAIC agreed to pay the government $20.4 million to settle the lawsuit (plus an additional $4.5 million in fees and costs to the attorneys who represented the whistleblower, David Magee).
As this important case illustrates, whistleblowers are a critical link in ferreting out procurement fraud and bid rigging. If you have witnessed any form of government procurement fraud, including fraud in defense contracting or fraud tied to government healthcare programs, coming forward can provide both peace of mind and potential financial rewards. Partnering with our expert investigative team and attorneys who have specialized knowledge of the False Claims Act (including its whistleblower protections and potential rewards) is a necessity in today’s crowded legal environment. Call us today to discuss in greater detail how we can work together to put a stop to bid rigging.
Next week, we’ll examine procurement fraud and collusion in greater detail.