Paved with Bad Intentions

Cracking down on bid rigging, the fast lane to profits

Though no one planned it that way, it has become the largest single investigation in U.S. Justice Department history. It has produced 262 cases against 256 corporations and 267 individuals, leading to 400 criminal convictions, some $50 million in penalties and 137 jail sentences, many of them against once respected members of their communities. Their offense: participating in bid-rigging schemes on construction projects.

Over the past four years grand juries in at least 24 states have examined the activities of collusive contractors, and U.S. Justice Department Antitrust Operations Director Joseph Widmar promises that more probes are on the way. "I'm not convinced that bid rigging has ceased," he says. "At this point I can't see any end to our investigation." The practice has grown so pervasive among builders of the nation's highways, airports and utility installations that many cannot remember doing business without it.

The dig-in against rig-ins began in 1979 with the chance remark of an Illinois paving contractor. He told a federal investigator looking into alleged bidding improprieties, "If you think it's bad here, you ought to see it in Tennessee." The Justice Department made haste to do exactly that, eventually prosecuting 44 cases in that state alone. Among those nailed: the brother and uncle of former Governor Ray Blanton. As guilty contractors began plea bargaining for lighter sentences and lower fines, they implicated other firms outside Tennessee, a process that quickly revealed an ever widening web of anticompetitive conspiracy.

Details of most cases, in the words of one Justice official, are as "dull as dishwater," and just as dirty. Typically, a group of contractors interested in winning state or federal jobs meets at a motel shortly before a scheduled bid letting and agrees in advance which of their firms will submit the low bid on each of several projects. The others promise to turn in higher figures in return for like arrangements on "their" jobs. Sometimes payoffs beyond these so-called complimentary bids are involved, as was the case with two former officials of Ashland-Warren, Inc., an Atlanta-based subsidiary of Ashland Oil, Inc., which boasts the dubious distinction of having paid in 1982 the largest antitrust penalties ever assessed a U.S. corporation. The executives were convicted of agreeing to slip $125,000 to a smaller company that had underbid them on a Tennessee highway project. In return, Ashland-Warren was to become a 100% "subcontractor" on the job.

Estimates as to how much the bid rigging costs the public vary widely. Representatives of at least one trade group, the National Asphalt Pavement Association (NAPA), have met with Justice Department officials to voice concern that the scope of the investigation might end up crippling the nation's road-building industry. Says NAPA President John Gray: "We felt this was overkill." But Joseph Welsch, inspector general of the U.S. Transportation Department, says a reliable rule of thumb is that "rigged bids cost taxpayers about 15% more than unrigged bids," a margin of greed that could add up to hundreds of millions of dollars in probable contractor overcharges in the past few years alone.

In addition, many public officials are often put in the position of accepting so-called low bids that come in well above a reasonable estimate. Says Atlanta International Airport Commissioner George Berry, who in 1979 awarded a $37 million contract for paving work at the city's new airport, which was originally estimated at $29 million: "It would have cost us more to stop the project [and reaward the paving contract] than to take the bid."

Firms convicted of prearranging bids are frequently "debarred," or prohibited from participating in public bidding, for a year or more. Many states have tightened up their bidding procedures, frequently subjecting sets of bids to computer analysis in a search for suspicious patterns. No one expects the new vigilance completely to reform the construction industry, but the Transportation Department's Welsch thinks the antirigging campaign is beginning to replant the seeds of competition. Says he: "We've seen more contractors coming into the marketplace, because it's a free market again." - This file is automatically generated by a robot program, so viewer discretion is required.