© 2010 Info Tech, Inc. All rights reserved. This documentation or parts thereof may not be reproduced in any form without written permission of Info Tech,

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<ul><li> Slide 1 </li> <li> 2010 Info Tech, Inc. All rights reserved. This documentation or parts thereof may not be reproduced in any form without written permission of Info Tech, Inc. Produced in the United States of America. Collusion in the DOT Market Space Presented by: James T. McClave, Ph.D. President, Info Tech, Inc. </li> <li> Slide 2 </li> <li> First BAMS Installation AASHTO purchased BAMS BAMS/DSS licensed by 38 Agencies Bid Monitoring Research Project BAMS Presentation to DOTs and Attorneys General Ready Mix Towing Sewer Fuel Oil Garbage Pickup Asbestos Carbon Dioxide Infant Formula Con- tacts Chlorine Florida Highway Investigation Begins Seminar: Computerized Bid Monitoring for Attorneys General Highway Construction Liquid Asphalt Catfish Airport construct Retail Gasoline Ferro alloys Carpet Milk Vitamins Carbon Fiber Re-tread 7678808284868890929496 98000204 06 Portland Cement Info Tech Founded Liner board Sulfuric Acid MSG DRAM 0810 Research and Development Auto paint OSB Poly Urethanes Cable TV Collusion Detection Seminars 2010 Info Tech, Inc. Info Tech, Inc. antitrust timeline </li> <li> Slide 3 </li> <li> 2010 Info Tech, Inc. AASHTO member agencies licensing AASHTO Trnsport BAMS/DSS 39 total </li> <li> Slide 4 </li> <li> 2010 Info Tech, Inc. Why rig bids? STABILIZE PRODUCTION Assure revenue stream and employment levels ALLOCATE TERRITORIES Live and let live REDUCE RISK Avoid losing at all MONEY Increase revenues RATIONAL ECONOMIC BEHAVIOR Profits exceed costs--no one is looking, and cost is minimal when we are caught </li> <li> Slide 5 </li> <li> 2010 Info Tech, Inc. Facilitating factors Concentrated market Demand relatively insensitive to price Difficult entry Many bidding opportunities Standard product/processes Industrys antitrust record Sealed bidding with award based solely on price All of the characteristics listed above apply to highway construction bidding </li> <li> Slide 6 </li> <li> 2010 Info Tech, Inc. Collusion detection: main ingredient Data is the primary ingredient necessary for collusion detection At least a three year bidding history is necessary, and preferably five or more Both state and local market data important Need: winning and losing bids by item, quantities, subcontract info by item, project locations, plant locations, vendor affiliations </li> <li> Slide 7 </li> <li> 2010 Info Tech, Inc. Fingerprints of collusion Stable market shares </li> <li> Slide 8 </li> <li> 2010 Info Tech, Inc. Stable market shares If... the gyrations [in market shares] moderated during the period of the alleged conspiracy, this would be evidence for the plaintiffs. - Judge Richard A. Posner High fructose opinion, June 2002 </li> <li> Slide 9 </li> <li> DYNAMIC MARKET SHARE Market Control 2010 Info Tech, Inc. </li> <li> Slide 10 </li> <li> DYNAMIC MARKET SHARE Market Allocation - Equal Shares 2010 Info Tech, Inc. </li> <li> Slide 11 </li> <li> DYNAMIC MARKET SHARE Market Allocation - Vendors Enter/Leave Market 2010 Info Tech, Inc. </li> <li> Slide 12 </li> <li> Shared officer Sub 1Sub 2 Prime 1 Prime 2 Subsidiary Significant stock ownership Organizational links </li> <li> Slide 13 </li> <li> DYNAMIC MARKET SHARE Market rotation 2010 Info Tech, Inc. </li> <li> Slide 14 </li> <li> 0 10 20 30 40 50 60 70 80 90 100 8788899091929394959697 1 1 1 1 1 1 1 1 1 1 1222 2 2 2 2 2 2 2 2 3333333333 3 4 4 4 4 44 4 4 4 4 4 55555555 5 5 5 66666666 6 6 6 7 7 7 7 7 7 7 7 7 7 7888 8 8 8 88888 9 9 9 9 9 9 9 9 9 9 9 f r % o M a k e t 0 10 20 30 40 50 60 70 80 90 100 8788899091929394959697 1 1 1 1 1 1 1 1 1 1 1 2 2 2 2 2 2 2 2 2 2 2333 3 3 3 3 33 3 3 44 4 4 4 4 4 4 4 4 4 5555555 5 5 5 5 6 6 6 6 6 6 6 6 6 6 6 7 7 7 7 7 77 77 7 7 8 8 8 8 8888888 9 9 9 9 9 9 9 9 9 9 9 $(Mill): 3.13.22.91.44.42.94.168.44.43.3 $(Mill): 3.319.81620.32018.617.824.735.836.626 f r % o M a k e t CompetitiveNon-Competitive DYNAMIC MARKET SHARE Competitive vs. non-competitive #9 - Other 2010 Info Tech, Inc. </li> <li> Slide 15 </li> <li> 1:One2:Two3:Three 4: Four5:Five6:Six 7:Seven9:OTHERS 111 8:Eight 222333 444555666 777888999 DYNAMIC MARKET SHARE Watch for inflection points 2010 Info Tech, Inc. </li> <li> Slide 16 </li> <li> DYNAMIC MARKET SHARE Take subs and suppliers into account Prime + Subs Prime Prime + Subs + Supply PERCENT Prime + Subs +Supply V-1466,290457,165630,500 V-293,95093,85020,850 V-3 68,01028,4104,953 2010 Info Tech, Inc. </li> <li> Slide 17 </li> <li> Fingerprints of collusion Stable market shares Customer allocation </li> <li> Slide 18 </li> <li> Vendor Activity American Paving Wins Loses* Facility 2010 Info Tech, Inc. </li> <li> Slide 19 </li> <li> Vendor Activity Hot Asphalt, Inc. Wins Loses* Facility 2010 Info Tech, Inc. </li> <li> Slide 20 </li> <li> Vendor Activity Mayberry Constr. Wins Loses* Facility 2010 Info Tech, Inc. </li> <li> Slide 21 </li> <li> Wins Loses* Facility Vendor Activity Westside Enter. 2010 Info Tech, Inc. </li> <li> Slide 22 </li> <li> Wins Loses* Facility Vendor Activity Gold &amp; Sons, Inc. 2010 Info Tech, Inc. </li> <li> Slide 23 </li> <li> Market 8 Market 7 Market 11 Market 9 Market 10 Vendor Activity All Vendors 2010 Info Tech, Inc. </li> <li> Slide 24 </li> <li> Plant locations Does the proximity of asphalt plants affect the level of competition? </li> <li> Slide 25 </li> <li> 8 8 16 10 9 16 12 11 10 12 10 17 7 6 8 10 7 5 8 9 11 8 7 8 10 11 8 9 12 4 13 9 8 15 12 7 11 8 7 7 6 10 11 12 6 10 7 12 9 11 8 7 8 8 10 6 8 8 6 11 12 4 9 8 9 16 15 7 10 5 6 7 11 12 9 8 7 8 6 10 8 13 5 8 11 10 Vendors' Closest Asphalt Plants Within 30 Miles Indiana Asphalt Markets 1989-1995 2010 Info Tech, Inc. </li> <li> Slide 26 </li> <li> 8 10 2 2 3 4 3 3 1 5 0 1 0 1 2 2 1 2 0 1 0 1 0 4 2 6 3 5 3 4 1 1 1 2 1 5 0 1 3 8 5 5 0 2 0 1 1 1 1 3 1 3 6 11 1 1 1 2 2 2 1 3 Win/Bid for 35-1917625- Milestone Constr. Contracts from January 1989 thru May 1996 Statewide O/1 2010 Info Tech, Inc. </li> <li> Slide 27 </li> <li> 5 8 0 1 0 3 0 2 1 1 0 1 0 2 1 2 4 7 1 1 11 15 Win/Bid for 35-0734255 - Wabash Val. Asph. Contracts from January 1989 thru May 1996 Statewide 0/5 2010 Info Tech, Inc. </li> <li> Slide 28 </li> <li> Fingerprints of collusion Stable market shares Customer allocation Suspicious bidding patterns Sham or complementary bids </li> <li> Slide 29 </li> <li> 2010 Info Tech, Inc. Suspicious bidding patterns Whenever the plaintiff has succeeded in identifying a suspicious bidding pattern, we are entitled to infer coordinated behavior in the absence of an adequate explanation. I am inclined to believe that interdependent sham bids are unlikely to endure without some facilitating mechanism... A strong inference of coordinated behavior arises when an actor actively seeks to lose a bid. Deliberate sacrifice of a contract implies an unusual confidence that the winning party will return the favor. Moreover, spurious bidding indicates an awareness of wrong-doing coupled with a desire to hide it by simulating normal bidding. - Antitrust Law, Phillip E. Areeda, Volume VI, p. 1420 </li> <li> Slide 30 </li> <li> Line Item Profile % Over Low Bid Winning Bid: $2,586,355 Estimate: $2,223,859 -$77,600 $155,200 Mobil Excav Rem Temp Traf Sig 00 **ESTIMATE**01 WEST02 BROTHERS VENDOR 2010 Info Tech, Inc. </li> <li> Slide 31 </li> <li> Excavation -$243,200 $486,400 Line Item Profile % Over Low Bid Winning Bid: $4,864,378 Estimate: $4,237,157 00 **ESTIMATE**01 BROTHERS02 WEST VENDOR Mobil 2010 Info Tech, Inc. </li> <li> Slide 32 </li> <li> Asph Agg Rem Imp Rem Asp -$566,600 $1,133,200 Line Item Profile % Over Low Bid Winning Bid: $14,165,733 Estimate: $11,310,108 Panel 1 of 2 00 **ESTIMATE**01 BROTHERS02 PAVEMENT VENDOR 2010 Info Tech, Inc. </li> <li> Slide 33 </li> <li> Line Item Profile % Over Low Bid Winning Bid: $3,854,000 Estimate: $5,938,862 Mobil Excav $770,800 $1,541,600 00 **ESTIMATE**01 INTRUDE02 SPENCERS VENDOR 03 WEST04 MCTAVISH05 GRADING 2010 Info Tech, Inc. </li> <li> Slide 34 </li> <li> +5% 14,548 CY EST=80.89 01 ROYAL CASTLE C 02 CONNOR RESOU 03 KIWI WESTER 04 BRIDGESTOWN BROTH 05 GRETSKY CONS VENDOR 00 **ESTIMATE** -4 -3 -2 0 1 2 3 4 5 2 2233444446 0 2 - 0 0 2 a b 0 2 - 0 0 2 a c 0 2 - 0 0 2 a d 0 7 - 0 0 2 0 7 - 0 0 3 0 3 - 0 6 0 0 3 - 0 6 0 a a 1 1 - 1 0 2 1 2 - 0 0 8 1 2 - 0 0 8 a a 2 6 - 0 0 0 REM ASPH PROS LIME TRT SUBGRADE CPVT MOB % O F B I D T O T A L Line Item Profile % Over Low Bid Winning Bid: $2,842,329 Estimate: $2,714,175 2010 Info Tech, Inc. </li> <li> Slide 35 </li> <li> Bid Totals and Subcontract % Estimate: $2,714,175 VendorBid totalSubcontract Royal Castle2,842,329 Connor Resources2,990,75828.90% Kiwi Western3,067,542 Bridgestown Brothers3,067,810 Gretsky3,083,023 2010 Info Tech, Inc. </li> <li> Slide 36 </li> <li> +12% 27,769 CY EST=79.81 -5 -4 -3 -2 0 1 2 3 4 5 6 7 8 2 0 1 - 0 0 0 2 0 2 - 0 0 0 2 0 2 - 0 0 0 a c 2 0 2 - 0 0 4 2 0 3 - 0 0 0 2 0 3 - 0 0 0 a a 2 0 7 - 0 0 2 3 0 4 - 0 6 0 4 0 3 - 1 2 3 4 1 2 - 0 0 6 4 1 2 - 0 0 8 6 1 7 - 0 0 0 a a 6 2 1 - 0 0 4 6 2 5 - 0 0 0 6 2 6 - 0 0 0 6 3 0 - 0 0 0 6 3 0 - 0 0 0 a b 585 K 511 K 365 K 219 K 146 K 292 K C&amp;G EXCAV EMB AGGR BASE CPAV DET. PVT MOB 00 **ESTIMATE**01 ZACKS HEAVY E 02 ROYAL CASTLE C03 LAWTON CONSTR 04 DUCCO05 BLACKTOP 06 SKYE CORP.07 KIWI WESTER VENDOR % O F B I D T O T A L Line Item Profile Winning Bid: $7,306,628 Estimate: $6,545,463 2010 Info Tech, Inc. </li> <li> Slide 37 </li> <li> VendorBid totalSubcontract Zacks Heavy Equip.7,306,628 Royal Castle7,963,15219.20% Lawton8,091,306 Ducco8,127,607 Blacktop Products8,179,637 Skye8,843,954 Kiwi Western9,278,368 Bid Totals and Subcontract % Estimate: $6,545,463 2010 Info Tech, Inc. </li> <li> Slide 38 </li> <li> ??? CY EST=??? VENDOR00 **ESTIMATE**01 BATTERY HI 02 ROYAL CASTLE C 0 1 2 3 4 631-001 % O F B I D T O T A L $26,870,000 $25,919,173 $26,600,000 Line Item Profile - Design/Build Winning Bid: $25,919,173 Estimate: $26,600,000 2010 Info Tech, Inc. </li> <li> Slide 39 </li> <li> Fingerprints of collusion Stable market shares Customer allocation Suspicious bidding patterns Sham or complementary bids Non-competitive prices </li> <li> Slide 40 </li> <li> Price/Time Relationship Asphalt Bituminous Concrete &amp; Paving Cements 2010 Info Tech, Inc. </li> <li> Slide 41 </li> <li> Price/Time Relationship Asphalt Bituminous Concrete &amp; Paving Cements 2010 Info Tech, Inc. </li> <li> Slide 42 </li> <li> Price/Time Relationship Asphalt Bituminous Concrete &amp; Paving Cements 2010 Info Tech, Inc. </li> <li> Slide 43 </li> <li> P r i c e ( $ / C Y ) 60 65 70 75 80 85 90 Year 19901991199219931994199519961997 P r i c e ( $ / C Y ) 60 65 70 75 80 85 90 Indexed Price based on Concrete PPI Quantity-Adjusted Concrete Price Price/Time Relationship Concrete 2010 Info Tech, Inc. </li> <li> Slide 44 </li> <li> Year 14 16 18 20 22 19901991199219931994199519961997 14 16 18 20 22 National Concrete Price Index (Western Region) Quantity-Adjusted Unit Price Normalized to Cubic Yards 762,000 Cubic Yards Price Price/Time Relationship Concrete - Increased Purchase Potential 2010 Info Tech, Inc. </li> <li> Slide 45 </li> <li> 26 28 30 32 34 19901991199219931994199519961997 26 28 30 32 34 Quantity-Adjusted Unit Price Normalized to 25,000 Tons National Average Price Index 3,106,000 Tons Price Year Price/Time Relationship Asphalt - Increased Purchase Potential 2010 Info Tech, Inc. </li> <li> Slide 46 </li> <li> Price/Estimate Relationship Over Time Fiscal Year Price v. Estimate (%) (10%) ( 5%) 0% 5% 10% 19921993199419951996 Price v. Estimate (%) (10%) ( 5%) 0% 5% 10% $36.2MM$51.5MM$79.9MM$55.5MM$91.3MM 2010 Info Tech, Inc. </li> <li> Slide 47 </li> <li> ( 5%) 0% 5% 10% Fiscal Year 19921993199419951996 (10%) ( 5%) 0% 5% 10% $36.2MM$51.5MM$79.9MM$55.5MM$91.3MM $2.1MM$7.6MM$7.5MM$5.9MM Annual Amount Over Benchmark Benchmark $23 Million Overcharge Price v. Estimate (%) Weighted Average:Awarded Bidsvs.Benchmark Benchmark : Percent Difference in 1996 Price/Estimate Relationship Over Time 2010 Info Tech, Inc. </li> <li> Slide 48 </li> <li> Lower Prices When AA Bids Lower Prices When GG Bids March 1998 14,000 Tons B1 bid: $28.13 B2, GG Losers Mile 12 Mile Haul June 1998 2,000 Tons B1 bid: $24.93 GG Loser Mile 5 Mile Haul June 1998 40,000 Tons B1 bid: $39.05 B2 Loser Mile 1 Mile Haul July 1998 17,500 Tons B1 bid: $32.39 B2 Loser Mile 8 Mile Haul GG Plant 2010 Info Tech, Inc. </li> <li> Slide 49 </li> <li> Effingham 2 March 2000 12,000 Tons B1 bid: $31.90 GG Loser Mile 4 Mile Haul June 1999 12,000 Tons B2 bid: $32.48 GG, B1 Loser Mile 18 Mile Haul Dec. 1999 60,000 Tons B1 bid: $38.45 B2 Loser Mile 6 Mile Haul July 1999 17,000 Tons B2 bid: $39.81 B2 Loser Mile 9 Mile Haul Dec. 1999 46,000 Tons G2 bid: $32.36 B1, B2 Loser2 Mile 18 Mile Haul 2010 Info Tech, Inc. </li> <li> Slide 50 </li> <li> Price analysis by quantity Do bid prices make sense when quantity is considered? </li> <li> Slide 51 </li> <li> Price/Quantity by Market Bituminous Concrete Pavement Estimated Quantity in Tons 2010 Info Tech, Inc. </li> <li> Slide 52 </li> <li> INDOT'S BAMS/DSS Statistical Analysis Models Asphalt Contracts Let after January 1989 Item = 403-03570 Hot Bit Pavement (Grading C) 2010 Info Tech, Inc. </li> <li> Slide 53 </li> <li> Ultimate price analysis Are prices at a non-competitive level? </li> <li> Slide 54 </li> <li> 2010 Info Tech, Inc. Competitive price analysis Find a competitive benchmark time period and/or market Transfer prices from benchmark to collusive markets Identify cost factors that legitimately differentiate prices between markets Adjust for cost differences using statistical methods like regression analysis Compare actual and competitive prices to estimate the economic injury caused by the conspiracy </li> <li> Slide 55 </li> <li> 2010 Info Tech, Inc. Legitimate factors potentially affecting price of key line items Time Quantity Number of bidders Terrain Market Quarter Project size Project type Inflationary effects Economies of scale Competition Project difficulty Market differences Seasonality Product characteristic </li> <li> Slide 56 </li> <li> 200 250 300 350 400 450 500 0 1,0001,5002,0002,5003,000 Quantity (CY) Unit Price Actual Model 70% C.I Unit Price vs. Bid Quantity Item: Concrete Class A-4 2010 Info Tech, Inc. </li> <li> Slide 57 </li> <li> Job: Berthoud Pass Date Let 05Aug76 Item Group: G033 - Hot Bit Pav (Gr - E ) Unit Price vs. Bid Quantity 60000 $5.00 $6.00 $7.00 $8.00 $9.00 $10.00 $11.00 $12.00 $13.00 $14.00 $15.00 $16.00 060001200018000240003000036000420004800054000 Quantity (Ton) Data Modeled Comp Price Winning Bid Comp Model Damage 2010 Info Tech, Inc. </li> <li> Slide 58 </li> <li> Low Bidder $480,937 Competitive $309,508 Line Item Profile Job: Berthoud Pass Date Let: 05Aug76 2010 Info Tech, Inc. </li> <li> Slide 59 </li> <li> 0 1 2 3 4 5 6 7 1471013161922252831343740434649525558616467 Line Number % Over CMP Low Bidder $1,777,842 Competitive $1,372,778 Line Item Profile Job: Plateau Creek Date Let: 05Aug71 2010 Info Tech, Inc. </li> <li> Slide 60 </li> <li> Fingerprints of collusion Stable market shares Customer allocation Suspicious biddin...</li></ul>

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