A federal grand jury in Washington is investigating allegations of price-fixing by electrical contractors on millions of dollars of construction projects, ranging from power plants across the country to the Virginia Electric and Power Company headquarters building in Richmond, according to industry and government sources.
Two other federal grand juries, one in Virginia and one in North Carolina, are also investigating bid-rigging in the $4.7 billion electrical contracting industry and in the construction of water and sewage treatment plants, the Justice Department confirmed. Industry officials said they have told government lawyers the alleged bid-rigging substantially inflated construction costs on some government and utility projects.
More than a dozen of the nation's largest electrical contractors have had their records subpoenaed, according to industry sources who asked not to be identified. The wide-ranging inquiry, which has been progressing since last spring, follows a federal investigation that has revealed a pattern of price-fixing conspiracies in the highway-building industry.
"Every time you turn over a rock, there's some other kind of bid-rigging," said H. Al Cole Jr., North Carolina deputy state attorney general, whose office also has branched out from paving contractors.
Federal prosecutors have been told electrical contracting executives met in the Mayflower Hotel in Washington about 10 years ago to discuss a cooperative arrangement to share available work rather than compete for it. In some cases, industry and law enforcement officials said, companies inflated their bids and then used some of the extra profits to pay other firms to submit intentionally high bids that would give an appearance of competition.
Electrical contractors purchase and install wiring and other equipment needed for power, lighting, pollution controls in factories, traffic control systems in tunnels and more. The National Electrical Contractors Association represents more than 6,000 companies, but relatively few are big enough for the kinds of industrial jobs named in federal subpoenas, according to several industry executives who have seen the subpoenas.
The $32 million Vepco headquarters in downtown Richmond is one of the smaller jobs to attract the government's attention. The president of Ocean Electric Co., a Norfolk firm that won a multimillion dollar subcontract on the building, said before he died last year that he paid another firm $150,000 after it submitted a higher, unsuccessful bid for the same subcontract.
Testifying under oath in an unrelated court case in 1980, Robert A. Geary, Ocean Electric's president, said the payment was arranged during a meeting at a Norfolk steak house. The money was then passed to the second company, E.C. Ernst Inc. of Washington, through a separate account related to a state tunnel-building job, Geary said.
Records from Ocean Electric and from Ernst have been subpoenaed in connection with the bid-rigging investigation. "I don't think they're after us," said Brian Geary, who replaced his father as president of Ocean and who said the firm has "nothing to hide." "I think they're after us to get to the big boys."
Ernst officials declined to comment on the inquiry or the Vepco case, but the company said in a recent filing with the Securities and Exchange Commission that its management is not aware of any antitrust violations. An Ernst official denied during the earlier court case that there was a $150,000 payment related to the Vepco job.
The former vice president and chief estimator of Ocean Electric, Ron Menzel, told the grand jury in Washington the Vepco job was rigged, he said in an interview. Menzel said he testified that Ocean charged the general contractor several hundred thousand dollars more than his estimate indicated the job was worth.
Justice Department lawyers in June told Vepco of their interest in the construction of their headquarters, according to Roger R. Brooks, Vepco's executive manager for purchasing and general services. "They made references about an investigation that is national in scope," Brooks said. "We feel we're probably a small part of it."
Brooks said Vepco is not aware of any bid-rigging on the building, and Vepco officials said the 21-story project was built for between $1.5 and $2 million less than the original estimate. "Of course," he said, "we stand ready to cooperate."
The separate highway investigation, often called the largest criminal antitrust investigation in United States history, began more than four years ago--reportedly while federal investigators were looking into alleged bid-rigging at a Chicago airport. "If you think this is bad," one contractor reportedly told the lawyers, "you ought to go to Tennessee."
The government went to Tennessee, and the resulting investigation eventually spread to 18 states -- including Virginia and Maryland. Thus far the inquiry has produced 184 prosecutions, most of which have ended in convictions. About $37 million in fines have been assessed against corporations and executives, and more than 37 years of prison terms have been handed out.
The ongoing investigations revealed that paving company owners for years had been meeting illegally to parcel out state highway jobs. Often they met in hotels in southern state capitals the evening before a bid-letting, drinking and socializing and deciding who would win what. Some state officials have estimated the conspiracies increased highway-building costs by 10 percent or more.
Justice Department officials will not say whether the highway probe led directly to the electrical and water and sewer probes.
"Naturally, any time you have such a tremendous volume [of activities] in an industry there's a tendency to look in industries with similar characteristics," said Mark Sheehan, a department spokesman. "But generally we go where we have information."
State prosecutors in North Carolina say their first case in the water and sewer field, which came after a tip from suspicious county officials, was related to the highway probe.
"We looked down the bid list, and -- lo and behold! -- there were some of our old friends from the highway industry," said Cole, the deputy North Carolina attorney general. "We went back to them and explained that the first one in might get a better deal."
Last year, after an eight-month investigation by Cole's office, nine electrical contracting firms and ten businessmen were charged with rigging bids at the East Carolina University Medical Education Facility in Greenville, Rex Hospital in Raleigh and on other North Carolina contracts. One of the companies agreed to pay $1 million in restitution. Three other firms and five businessmen have pleaded guilty or no contest.
The federal investigation of the electrical industry is broader in scope. Some of the largest companies in the country received subpoenas for records concerning more than a dozen industrial projects, including power plants and factories.
Three of the biggest electrical companies in the nation submitted bids in July 1976 on the Vepco project. Along with Ocean Electric, the bidders were Fischbach & Moore Inc. of Dallas, the nation's largest electrical contractor with $635 million in revenue last year, and Ernst and Howard P. Foley Co., both of Washington. Foley withdrew its bid a day after submitting it, according to officials of George Hyman Construction Co. of Bethesda, the building's general contractor.
Lance Atkins, Fischbach & Moore's district manager, said he is not aware of any bid-rigging on the Vepco job. Glen G. Conley, president of the company; Bob Gants, Foley vice president; and Joseph Griffin, president of Ernst, all declined comment.
Menzel said he told the grand jury he sat in on telephone conversations leading to a plan to let Ernst win the contract and pay Ocean for submitting a bid. He said he testified that the late Robert Geary, then his boss, accepted the arrangement but told him to estimate the job anyway, as if they were going to submit an honest bid.
Menzel said when he did the calculations he discovered that Ernst was likely to make more profit than Geary had realized. "He Geary didn't like that one company would get a million dollar markup on a $2 or $3 million bid," Menzel recalled. "That didn't sit well when he was getting $125,000."
So Geary submitted a lower bid, undercutting the arrangement and angering Ernst, Menzel said. To soothe the relationship, according to Menzel, Geary agreed to pay Ernst $150,000 for submitting its Vepco bid, just as Ernst had promised to pay Ocean.
Instead of simply writing the company a check, however, Geary paid about $300,000 extra into a joint venture account that Ernst and Ocean Electric shared while they helped build the second Hampton Roads Bridge-Tunnel between Norfolk and Hampton, Menzel said. Each company would then withdraw half of the profits from the account, and in that way Ocean would pay Ernst its $150,000.
Menzel's story is supported in part by Geary's testimony on June 21, 1980, in a civil case brought by a minority shareholder seeking a greater return on his investment. In the course of the hearings before a court commissioner, Geary was called upon to explain the payments into the tunnel account.
"We had made an agreement with Ernst on the Vepco office building, that we would include $150,000 for their costs of estimating, plus whatever you want to call it, and they would include $150,000, depending on who got the job. . . ," Geary testified. "Well, the meeting with Ernst officials at a Norfolk restaurant was to find out how I was going to make these payments to Ernst."
Geary said it was decided that paying into the joint venture account would be "the simplest way." He identified two checks, a $150,000 check dated Dec. 7, 1976, and a $158,550 check July 8, 1977, as the Vepco-related payments. The later check, he said, included $8,550 in payments related to the tunnel job.
Ernst's representative in Norfolk, Herman A. (Mike) Albers, had testified earlier that the payments were related to the joint tunnel job.
Geary disagreed. "I didn't say that Mr. Albers was wrong, it's just that Mr. Albers didn't know everything that was transpired in this matter," Geary testified. "All he knew is that we put in, well, a total of $300,000 into the joint venture, perhaps with no reason whatsoever, and that money was subsequently distributed equally to Ernst and Ocean. . . That was just a means of transmitting money to Ernst. You use that as a vehicle."
Albers, now retired from E.C. Ernst, declined to comment.