When a couple of Justice Department lawyers began looking into the bidding activities of a few highway contractors in Tennessee and Virginia in 1979, it was regarded as a fairly routine investigation.
Today, just three years later, it has grown into the largest antitrust case in U.S. history. Nicknamed "Operation Roadrunner," it now has grand juries sitting in 17 states, most of them in the Southeast, which have collected evidence of a pattern of bid rigging that has allowed contractors to collect hundreds of millions of dollars in illegal profits.
So far, indictments have been returned against 186 individuals and 156 corporations on charges including bid rigging, mail fraud and perjury. In those cases 131 executives and 114 corporations have entered guilty pleas, 16 individuals and 10 corporations have been found guilty after trial and four individuals and seven businesses pleaded no contest. Of those charged, nine individuals and six corporations have been acquitted. The balance of the cases are pending.
A number of the executives of companies involved in the bid rigging have been sent to prison, some for terms up to three years. The federal government has collected more than $35 million in fines from the companies. Individual states also are pursuing their own cases.
"It goes back many years. I've had people come in here and say they just followed in their father's footsteps, maybe their grandfather's footsteps. It was just a way of life," said Joseph H. Widmar of the department's antitrust division.
Another government lawyer who has worked on the cases said some contractors have made incredible profits over the years. "You make more money rigging bids than robbing banks, more than you could dealing drugs," he said.
The investigators found that, in Tennessee, some contractors would gather in a Nashville hotel room the night before bids were to be let and, in a night of whiskey drinking and high-stakes poker, they would divide up the contracts and decide how much to bid.
In some states, contractors were more subtle, making their arrangements over dinner or the telephone. In some cases, contractors were paid not to bid. But in others, they simply divided up the work and made sure no one would undercut their bids.
No one knows for sure how much contractors inflated their costs, but as the investigation has unfolded investigators have guessed that a markup could average 10 percent or more. For some large contractors, that could mean millions of dollars on a single project.
The largest fine to date was $7.5 million dollars paid by various divisions of the Atlanta-based Ashland-Warren Inc. after bid rigging violations were charged in North Carolina, Tennessee and Virginia.
Meanwhile, the investigation continues to grow. Although the department will not say which state could be next, investigators said the leads are continuing to come in, and 30 lawyers are working on the cases.
The highway paving industry, perhaps understandably, has been quick to express displeasure with some aspects of the attention from the Justice Department.
John Gray, president of the National Asphalt Pavement Association, which represents about 70 percent of the industry, complained that most of the companies affected by the indictments fall under the government definition of small businesses and that many of the people being hurt are low-level employes who had nothing to do with the crime.
Gray also said that although the Sherman Antitrust Act, which outlaws bid rigging, is 92 years old, many of these businessmen never really understood the change in the law in 1974 providing stiffer penalties for bid rigging. The maximum penalty now is a $1 million fine for a corporation and a $100,000 fine and three years in prison for an individual.
"By and large, these are not the most sophisticated people in the world," he said. "Most have never made a step wrong before. Those serving jail sentences were shocked . . . . They were not aware they were doing something that wrong. It's kind of like violating the 55 mile an hour speed limit. You just don't feel you're doing anything wrong."
"Most of these people are free enterprisers. They've been in business a while and in some places it's been a way of doing business, it's been in effect for a number of years," he said.
What has angered Gray and many in the industry he represents is a move by the federal government and by individual states to "debar" companies convicted of bid rigging. A debarred company is prohibited for a period of time--ranging from six months to three years--from bidding on public contracts.
At the federal level, a company can be debarred at the discretion of the Federal Highway Administration, and the Justice Department plays no role in that proceeding. States, following the federal lead, are enacting their own debarment statutes.
Gray and individual contractors have complained to the Justice Department that so many contractors are being debarred as a result of the investigation that in some states there is no competition left.
Gray said that of 35 highway contractors in Tennessee, all but three or four have been indicted and about nine have been forced out of business.
One convicted contractor has claimed that the Mafia, sensing the sudden lack of competition, is rushing to move into the industry.
Because of all the complaints, the Justice Department released a letter last week from William F. Baxter, assistant attorney general in charge of the antitrust division, to attorney generals in the states where the bid rigging has been investigated.
In the letter, Baxter said that although debarment decisions are up to the states, the strategy could backfire if too many companies are taken out of the market. "It would be ironic if competition were to be impaired because of additional sanctions derivative from our own enforcement efforts," he said.
But highway departments in many of the states involved, including Tennessee, said that not only are they seeing more competition than ever, but also the costs are going down.
Bill Veazy of the North Carolina Highway Construction Unit said, "In fact, last Tuesday we opened bids and we had 18 bids on one project. That's way more than normal."
Veazy said most of the contractors involved in the indictments have come forward and made restitution. In addition, contractors are coming in from out of state to bid.
He notes that in North Carolina, where the Justice Department brought 38 cases against contracting companies, most contractors have been on their best behavior since last September when a new state law went into effect providing five-year prison sentences for persons convicted of bid rigging.
He said the prices on the bidding are down since the investigation, but he's not sure whether to credit the Justice Department. "It could also be that the economy has had something to do with it. They're hungry out there," he said.
Meanwhile, Abbott B. Lipsky Jr., Baxter's deputy in the antitrust division, said that the letter that was sent by Baxter to the state attorney generals does not indicate any softening by the Justice Department on the issue of bid rigging.
"I don't think there's any reason we would stop prosecuting bank robbers just because we've gotten our quota for this month. This crime happens to be non-violent, but that doesn't change its criminal character," Lipsky said. "As long as it happens, we'll continue to prosecute."
In fact, Lipsky said the investigation has been so successful that the antitrust division is branching out into other public works areas. A smaller version of "Operation Roadrunner" is under way in the area of contractors doing water and sewer projects. Grand juries are already sitting in South Carolina, North Carolina and Virginia.