ATTORNEY GENERAL OFFICE ANTITRUST TRAINING FOR PURCHASING PROFESSIONALS

ATTORNEY GENERAL ATTORNEY GENERAL OFFICEOFFICE

ANTITRUST ANTITRUST TRAINING FOR TRAINING FOR PURCHASING PURCHASING

PROFESSIONALSPROFESSIONALS

HISTORY OFHISTORY OFANTITRUST LAWSANTITRUST LAWS

Sherman ActSherman Act

Enacted in 1890 in large part in response Enacted in 1890 in large part in response to big railroad trusts and pools of the to big railroad trusts and pools of the post-civil war period. It can be post-civil war period. It can be considered the primary charter for considered the primary charter for competitive business behavior. It competitive business behavior. It condemns every combination or condemns every combination or conspiracy in restraint of trade, conspiracy in restraint of trade, monopolization and attempts to monopolization and attempts to monopolize.monopolize.

HISTORY OF HISTORY OF ANTITRUST LAWSANTITRUST LAWS

Clayton Act (1914)Clayton Act (1914) Section 2 now stands alone, as Robinson-Section 2 now stands alone, as Robinson-

Patman Act (1936) (which deals with price Patman Act (1936) (which deals with price discrimination). It was an attempt to remedy discrimination). It was an attempt to remedy the uncertainty left by the Sherman Act and the uncertainty left by the Sherman Act and carve out particular types of prohibited carve out particular types of prohibited conduct such as price discrimination and conduct such as price discrimination and exclusive tie-ins, the effect of which is to exclusive tie-ins, the effect of which is to substantially lessen competition.substantially lessen competition.

Section 7 prohibits mergers and acquisitions Section 7 prohibits mergers and acquisitions where the effect of the proposed transaction where the effect of the proposed transaction may be to substantially lessen competition or may be to substantially lessen competition or create a monopoly.create a monopoly.


FTC ActFTC Act

Passed in 1914 and is not Passed in 1914 and is not technically an “antitrust law,” technically an “antitrust law,” prohibits deceptive business prohibits deceptive business practices and creates a regulatory practices and creates a regulatory commission with the power to commission with the power to define and prohibit deceptive define and prohibit deceptive business practices.business practices.


State LawsState Laws Florida’s original Antitrust Law was passed Florida’s original Antitrust Law was passed

in 1915. Changes in our society and in 1915. Changes in our society and business world over the years necessitated business world over the years necessitated the passage of new legislation. Florida’s the passage of new legislation. Florida’s Antitrust Reform Act was enacted in 1980 Antitrust Reform Act was enacted in 1980 and closely tracks its Federal counterpart, and closely tracks its Federal counterpart, the act also gives the Attorney General the act also gives the Attorney General subpoena power to conduct investigations subpoena power to conduct investigations into anticompetitive and collusive conduct.into anticompetitive and collusive conduct.

FACTORS THAT CONTRIBUTE FACTORS THAT CONTRIBUTE TO POSSIBLE COLLUSIVE TO POSSIBLE COLLUSIVE BEHAVIORBEHAVIOR

1.1. Evidence of conduct contrary to self-interest, Evidence of conduct contrary to self-interest, i.e. turning down profitable business to allow i.e. turning down profitable business to allow competition to keep or obtain.competition to keep or obtain.

2.2. Product uniformity or fungibility, i.e. milk.Product uniformity or fungibility, i.e. milk.

3.3. Presence of strong motive to enter Presence of strong motive to enter conspiracy, i.e. rapidly escalating costs.conspiracy, i.e. rapidly escalating costs.

4.4. Opportunity to meet and conspire, i.e. trade Opportunity to meet and conspire, i.e. trade shows – also pre-bid conferences watch shows – also pre-bid conferences watch carefully to avoid problems.carefully to avoid problems.

5.5. Communications among alleged conspirators.Communications among alleged conspirators.

FACTORS THAT CONTRIBUTE FACTORS THAT CONTRIBUTE TOTOPOSSIBLE COLLUSIVE POSSIBLE COLLUSIVE BEHAVIORBEHAVIOR6.6. At least one conspirator in an alleged conspiracy At least one conspirator in an alleged conspiracy expressly invites common action.expressly invites common action.

7.7. Exchange of price information or policy statements.Exchange of price information or policy statements.

8.8. Output restrictions.Output restrictions.

9.9. Firms refrain from competing for existing accounts Firms refrain from competing for existing accounts of competitors or retaliate against firms that do of competitors or retaliate against firms that do compete.compete.

10.10. Hostile actions, economic coercion or refusals to Hostile actions, economic coercion or refusals to deal.deal.

BID RIGGING/CUSTOMER BID RIGGING/CUSTOMER ALLOCATIONALLOCATION

Bread and butter of antitrustBread and butter of antitrust FormsForms

Identical bidsIdentical bids

Allocation of contract quantitiesAllocation of contract quantities

Allocation of territoriesAllocation of territories

Allocation of customersAllocation of customers All are subject to prosecution under All are subject to prosecution under

state/federal antitrust laws. state/federal antitrust laws.

BID RIGGING/CUSTOMER BID RIGGING/CUSTOMER ALLOCATIONALLOCATION

Successful prosecutions can result in awards Successful prosecutions can result in awards of treble damages/attorney fees & costs of of treble damages/attorney fees & costs of litigation.litigation.

Example from our office:Example from our office: Dairy $33,063,116.36 MillionDairy $33,063,116.36 Million Dredging $4,485 MillionDredging $4,485 Million CO2 $1.16 MillionCO2 $1.16 Million ((our share was around 4 M)our share was around 4 M)

CL2 over $800,000CL2 over $800,000 Commercial Tissue almost $3 MillionCommercial Tissue almost $3 Million Infant FormulaInfant Formula $13,000,000$13,000,000

THE ROLE OF A PURCHASING THE ROLE OF A PURCHASING AGENT IN ANTITRUST AGENT IN ANTITRUST ENFORCEMENTENFORCEMENT

What does this mean to me?What does this mean to me?

Front Line DefenseFront Line Defense

Alert purchasing Alert purchasing agents are the front agents are the front line defense against line defense against

bid rigging.bid rigging.

THE ROLE OF A PURCHASING THE ROLE OF A PURCHASING AGENT IN ANTITRUST AGENT IN ANTITRUST ENFORCEMENTENFORCEMENTYou are the market experts.You are the market experts.

Those with long experience in a particular area of Those with long experience in a particular area of purchasing often develop hunches about suspicious purchasing often develop hunches about suspicious patterns of bidding.patterns of bidding.

In effect, comparing actual bids received to what In effect, comparing actual bids received to what your experience tells you should be the theoretical your experience tells you should be the theoretical norm can enable an astute purchasing agent to norm can enable an astute purchasing agent to conclude that something may be amiss, and the conclude that something may be amiss, and the appropriate authorities can be alerted.appropriate authorities can be alerted.

Additionally, in talking with company reps, Additionally, in talking with company reps, purchasing agents may pick-up invaluable purchasing agents may pick-up invaluable information or tips indicating something may be information or tips indicating something may be amiss in the process.amiss in the process.


Attorney General’s RoleAttorney General’s Role

1. While you are the market experts, 1. While you are the market experts, you often don’t have the time, you often don’t have the time, tools, or complete information with tools, or complete information with which to analyze markets.which to analyze markets.



2. 2. One of the roles of the assistant One of the roles of the assistant attorneys general and the attorneys general and the economist in our office is to fill that economist in our office is to fill that void by devoting our time and void by devoting our time and attention to market analysis. In this attention to market analysis. In this way, we are able to work together way, we are able to work together in order to detect and halt collusion.in order to detect and halt collusion.



3. Many times, the key to 3. Many times, the key to analyzing analyzing

bids is the ability to examine bids is the ability to examine patterns over a period of many patterns over a period of many bid cycles or years, and often bid cycles or years, and often over a large geographic area.over a large geographic area.


There are some There are some

general points yougeneral points you

should keep in mind as should keep in mind as

you go about your you go about your

daily duties.daily duties.

WHAT YOU CANWHAT YOU CAN WATCH FOR WATCH FOR

Take seriously any idle Take seriously any idle

rumor or comment which rumor or comment which

would indicate collusion would indicate collusion

and let our office know.and let our office know.

WHAT YOU CAN WHAT YOU CAN WATCH FORWATCH FOR

The purchasing agent The purchasing agent

should know the value of should know the value of

what he is buying.what he is buying.


Examine bids in Examine bids in

relation to an relation to an

independent estimateindependent estimate

of the project’s cost.of the project’s cost.


More than 95% ofMore than 95% of

collusively bid highwaycollusively bid highway

contracts had only one contracts had only one

bidder,…try to get as bidder,…try to get as

many bidders as possible many bidders as possible

and examine their bids inand examine their bids in

relation to each other.relation to each other.


Be wary of bidders who Be wary of bidders who wait to the last minute wait to the last minute

to submit their bids and to submit their bids and exhibit interest in exhibit interest in

whether a non-local or whether a non-local or occasional bidder isoccasional bidder is

present.present.


Be wary of bidders who Be wary of bidders who appear to have two appear to have two

proposals for the sameproposals for the same project depending on project depending on

the identity of thethe identity of the bidders.bidders.

OTHER THINGS OTHER THINGS TO LOOK FORTO LOOK FOR

Identical BidsIdentical Bids Could be a sign of competition or collusionCould be a sign of competition or collusion How often/who/how likelyHow often/who/how likely How do you decide – random is bestHow do you decide – random is best

Don’t alternate/split or divide/or go withDon’t alternate/split or divide/or go with incumbentincumbent

Choose winners randomly in tie bid Choose winners randomly in tie bid situationssituations Throwing the BidThrowing the Bid

– Line items are close among certain of the Line items are close among certain of the bidders but one bidder is higher on one crucial bidders but one bidder is higher on one crucial item. item.

OTHER THINGS OTHER THINGS TO LOOK FORTO LOOK FOR

No BidsNo Bids

Vendors who bid some years/no bid othersVendors who bid some years/no bid others Vendors who bid (or win) elsewhere – close byVendors who bid (or win) elsewhere – close by Vendors who don’t bid but want resultsVendors who don’t bid but want results Withdrawn bids – mistake, don’t let them off Withdrawn bids – mistake, don’t let them off

the hookthe hook Non-serious bidders – always bid Non-serious bidders – always bid

unreasonably high unreasonably high Refusals by vendors to bid all or noneRefusals by vendors to bid all or none Vendors pick up documents but don’t bidVendors pick up documents but don’t bid

OTHER THINGSOTHER THINGSTO LOOK FORTO LOOK FOR

Same firm always winsSame firm always wins Territorial/geographic market allocation/customer Territorial/geographic market allocation/customer

allocationallocation

-A particular contractor always winning in a-A particular contractor always winning in a certain geographical areacertain geographical area

-Contractors who bid frequently and never win-Contractors who bid frequently and never win-A contractor appears to be unwilling to cross a-A contractor appears to be unwilling to cross a

particular geographical boundary for no apparentparticular geographical boundary for no apparent reasonreason


Equal or static market sharesEqual or static market shares

Bids rotating and all vendors win Bids rotating and all vendors win work in areawork in area


Geographically close bidders who Geographically close bidders who lose or barely beat far away lose or barely beat far away incumbentsincumbents

New distant bidders beating or New distant bidders beating or coming close to other incumbentscoming close to other incumbents


Unusual price drops – cheatersUnusual price drops – cheaters


Price drops when new bidders Price drops when new bidders appearappear

Strong indication of collusive bidding Strong indication of collusive bidding among the customary bidders whose among the customary bidders whose agreements are only disrupted by agreements are only disrupted by the pressure of the occasional or the pressure of the occasional or non-local biddernon-local bidder

DamagesDamages

Damage MeasuresDamage MeasuresThe damages awarded under the The damages awarded under the

antitrust antitrust law are usually the difference law are usually the difference

between the between the ““fix” price and “competitive price”fix” price and “competitive price”

Treble DamageTreble DamageAny damages awarded an Antitrust Any damages awarded an Antitrust plaintiff are automatically trebled.plaintiff are automatically trebled.

Industry MythologyIndustry Mythology

Industry insiders often try to Industry insiders often try to convince you of certain facts convince you of certain facts which may have superficial which may have superficial appeal, but in reality only serve appeal, but in reality only serve the purposes of the vendor. the purposes of the vendor. Some of the more popular ones Some of the more popular ones are:are:


““Too much competition is ruinous – Too much competition is ruinous – will drive good people out of will drive good people out of business.”business.”

Efficient competitors will Efficient competitors will prevail; competition prevail; competition

breeds efficiency and innovation.breeds efficiency and innovation.


““We know what you want better We know what you want better than you do.”than you do.”

Nobody knows you better Nobody knows you better

than you do.than you do.


“ “We hardly make any money”We hardly make any money”

Insuring a company Insuring a company high profits isn’t high profits isn’t

your concernyour concern

If and when they don’t If and when they don’t make enough money, they will exit.make enough money, they will exit.


““Public business isn’t profitable”Public business isn’t profitable”

Business is profit Business is profit motivated. If the motivated. If the business wasn’t business wasn’t profitable, they profitable, they wouldn’t want it.wouldn’t want it.


““The antitrust laws weren’t meant The antitrust laws weren’t meant to apply to us.”to apply to us.”

They apply to all,They apply to all,

both big and small.both big and small.


““The prices we charge government The prices we charge government entities are fair, reasonable, and entities are fair, reasonable, and stable.”stable.”

Antitrust laws prohibit the Antitrust laws prohibit the fixing of prices. It doesn’tfixing of prices. It doesn’t

matter if the price is “reasonable” matter if the price is “reasonable” as what’s reasonable today may beas what’s reasonable today may be

unreasonable tomorrow.unreasonable tomorrow.

What Can You Do toWhat Can You Do toPrevent Bid RiggingPrevent Bid Rigging

Communicate.Communicate. Standardize specifications. Don’t Standardize specifications. Don’t

draw them too narrowly.draw them too narrowly. Aggregate small bids – offer Aggregate small bids – offer

alternative bids, i.e. all or line by alternative bids, i.e. all or line by line.line.

Modify bid documents to include Modify bid documents to include assignment clause.assignment clause.

“ “I certify that this bid is made without I certify that this bid is made without prior understanding, agreement, or prior understanding, agreement, or connection with any corporation, firm connection with any corporation, firm or person submitting a bid for the same or person submitting a bid for the same materials, supplies, or equipment, and materials, supplies, or equipment, and is in all respects fair and without is in all respects fair and without collusion or fraud. I agree to abide by collusion or fraud. I agree to abide by all conditions of this bid and certify that all conditions of this bid and certify that I am authorized to sign this bid for the I am authorized to sign this bid for the bidder and that the bidder is in bidder and that the bidder is in compliance with all requirements of the compliance with all requirements of the Invitation to Bid, including but not Invitation to Bid, including but not limited to, certification requirements.limited to, certification requirements.

In submitting a bid to an agency for the In submitting a bid to an agency for the State of Florida, the bidder offers and State of Florida, the bidder offers and agrees that if the bid is accepted, the agrees that if the bid is accepted, the bidder will convey, sell, assign or transfer bidder will convey, sell, assign or transfer to the State of Florida all rights, title and to the State of Florida all rights, title and interest in and to all causes of action it interest in and to all causes of action it may now or hereafter acquire under the may now or hereafter acquire under the Antitrust laws of the United States or the Antitrust laws of the United States or the State of Florida for price fixing relating to State of Florida for price fixing relating to the particular commodities or services the particular commodities or services purchased or acquired by the State of purchased or acquired by the State of Florida.”Florida.”

For More Information For More Information Contact:Contact:

Scott PalmerScott PalmerSpecial Counsel for Antitrust EnforcementSpecial Counsel for Antitrust EnforcementOffice of the Attorney General Antitrust Office of the Attorney General Antitrust DivisionDivision850-414-3300850-414-3300email: email: [email protected]@myfloridalegal.comLaura DaughertyLaura DaughertyResearch Economist Research Economist email: email: [email protected]@myfloridalegal.com

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ATTORNEY GENERAL OFFICE ANTITRUST TRAINING FOR PURCHASING PROFESSIONALS