Download - © 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,

© 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.

First BAMS Installation First BAMS Installation

AASHTO purchased BAMS AASHTO purchased BAMS

BAMS/DSS® licensed by 38 Agencies

BAMS/DSS® licensed by 38 Agencies

Bid Monitoring Research ProjectBid Monitoring

Research Project

BAMS Presentation to

DOTs and Attorneys General

BAMS Presentation to

DOTs and Attorneys General

Ready Mix

Towing

Sewer

Fuel Oil

Garbage Pickup

Asbestos

Carbon Dioxide

Infant Formula

Con-tacts

ChlorineFlorida Highway

Investigation BeginsFlorida Highway

Investigation Begins

Seminar: Computerized Bid

Monitoring for Attorneys General

Seminar: Computerized Bid

Monitoring for Attorneys General

Highway Construction

Liquid Asphalt Catfish

Airport construct

Retail Gasoline

Ferroalloys

Carpet

Milk Milk

Vitamins

Carbon Fiber

Re-tread

76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06

Portland Cement

Info Tech Founded

Info Tech Founded

Linerboard

Sulfuric Acid

MSG

DRAM

08 10

Research and Development

Autopaint

OSB

Poly Urethanes

Cable TV

Collusion Detection Seminars

© 2010 Info Tech, Inc.

Info Tech, Inc. antitrust timeline


AASHTO member agencies licensing AASHTO Trns•port® BAMS/DSS®

39 total


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


Facilitating factors

• Concentrated market• Demand relatively insensitive to price• Difficult entry• Many bidding opportunities• Standard product/processes• Industry’s antitrust record• Sealed bidding with award based solely on price

All of the characteristics listed above apply to highway construction bidding


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


Fingerprints of collusion

• Stable market shares


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

0

10

20

30

40

50

60

70

80

90

100

JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC

Per

cen

t D

olla

rs

VENDOR 1 VENDOR 2

DYNAMIC MARKET SHAREMarket Control


DYNAMIC MARKET SHARE

Market Allocation - Equal Shares

0

10

20

30

40

50

60

70

80

90

100


Per

cen

t D

olla

rs

VENDOR 1 VENDOR 2



Market Allocation - Vendors Enter/Leave Market

0

10

20

30

40

50

60

70

80

90

100


Per

cen

t D

oll

ars

VENDOR 1 VENDOR 2 VENDOR 3



Shared officer

Sub 1 Sub 2

Prime 1 Prime 2

Subsidiary

Significant

stock

ownership

Organizational links


Market rotation

0

10

20

30

40

50

60

70

80

90

100


Per

cen

t Do

llars

VENDOR 1 VENDOR 2


0

10

20

30

40

50

60

70

80

90

100

87 88 89 90 91 92 93 94 95 96 97

11

1

11

11 1

1

1

12 2 2 2

2

2

2

22

2

2

3 3 3 3 3 3 3 3 3 3

3

44 4

4

4 4 44

4 44

5 5 5 5 5 5 5 55

5

5

6 6 6 6 6 6 6 66

6

6

7 7 7 77

7 77

7 778 8 8

8

8

8

8 8 8 8 8

9

9

99

9

9

99

9

9

9

fr

%o

Ma

ke

t

0

10

20

30

40

50

60

70

80

90

100

87 88 89 90 91 92 93 94 95 96 97

1

1

1

1

1 1 1 11

1

1

2

2

22

2 22 2

2

223 3 3 3 3 3 3 3 3 3

3

4 4 4 4 4 4 4 4 4 44

5 5 5 5 5 5 55

5 556 6

66 6

6 6 6 6 667 7 7 7 7 7 7 7 7

77

8

8

8

8

8 8 8 8 8 8 8

9

99 9

99

9

99

99

$(Mill):3.1 3.2 2.9 1.4 4.4 2.9 4.1 6 8.4 4.4 3.3 $(Mill):3.3 19.8 16 20.3 20 18.6 17.8 24.7 35.8 36.6 26

fr

%o

Ma

ke

t

Competitive Non-Competitive

DYNAMIC MARKET SHARECompetitive vs. non-competitive

#9 - Other


1:One 2:Two 3:Three4: Four 5:Five 6:Six7:Seven 9:OTHERS

1 1 1

8:Eight

2 2 2 3 3 34 4 4 5 5 5 6 6 67 7 7 8 8 8 9 9 9

0

10

20

30

40

50

60

70

80

90

100

Year

1987 1988 1989 1990 1991 1992 1993 1994 1995 1996

1 1 1

1

1

1

1

1

1

1

2

2

2 2 2 2

2 22

2

3

3

3

3

3

33 3 3 3

4

4

4

4 4

4

4 44 4

5

5 5

55 5 5 5 5 56

6

6

6 6 6 6 6 6 67 7 7

7

77

7 7 7

7

8 8 8 8

8

8

8

8 8 8

9

9

9 9 99

99 9

9

Tons(Mill): .08 .31 .28 .22 .2 .19 .16 .22 .2 .15

% o

f Mar

ket

DYNAMIC MARKET SHAREWatch for inflection points


DYNAMIC MARKET SHARETake subs and suppliers into account

Prime + SubsPrime

Prime + Subs + Supply

042 2 2 2 2 324 4 4 4 44

0

20

40

60

80

100

1991 1992 1993 1994 1995 1996 19970 0 0 0 0 0

1 1

1

1

1 1

1

2

3 3 3

3

3 32456 256 3 23 42456

35645

456 60

20

40

60

80

100

1991 1992 1993 1994 1995 1996 19970 0

00

0

00

1

11

1

1

1

2 2

2

3 3 3

4

4

56

13

.

0

20

40

60

80

100

0 02 22 23 3 3 32 34 4 4 4 445 5 5 5 5 56 6 6 6 66

61991 1992 1993 1994 1995 1996 1997

0 0 0 0 0

1

11

1

11

1

2

245

3

3 3

PE

RC

EN

T

PE

RC

EN

TP

ER

CE

NT

Prime + Subs +Supply

V-1 466,290 457,165630,500

V-2 93,950 93,85020,850

V-3 68,010 28,4104,953





• Customer allocation

Vendor Activity American Paving

• Wins ° Loses * Facility


Vendor Activity Hot Asphalt, Inc.



Vendor Activity Mayberry Constr.




Vendor Activity Westside Enter.



Vendor Activity Gold & Sons, Inc.


Market 8

Market 7

Market 11

Market 9

Market 10

Vendor Activity All Vendors



Plant locations

• Does the proximity of asphalt plants affect the level of competition?

8

8

16

109

16

12

11

10

12

10

17

7

6

810

7

5

8

10

9

11

11

8

11

7

8

10

11

8

9

124

13

9

13

13

8

15

15

12

7

11

8

77

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

1112

9

8

7

8

6

10

8

13

5

811

10

Vendors' Closest Asphalt Plants Within 30 MilesIndiana Asphalt Markets 1989-1995


810

22

34

33

15

01

01

22

12

01

01

04

26

35

34

11

12

15

01

38

55

02

01

11

131

3

611

11

1 2

22

13

Win/Bid for 35-1917625- Milestone Constr.Contracts from January 1989 thru May 1996Statewide O/1


58

01

03

0211

01

02 1

2

47

11

11 15

Win/Bid for 35-0734255 - Wabash Val. Asph.Contracts from January 1989 thru May 1996Statewide 0/5






• Suspicious bidding patterns

• Sham or complementary bids


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

Line Item Profile – % Over Low BidWinning Bid: $2,586,355 Estimate: $2,223,859

St. Louis New ConstructionCONTRACT=920731-04 BID=$2,586,355 EST=$2,233,859 PANEL=1 OF 1

VENDOR 00 **ESTIMATE** 01 WEBER INC., F 02 9910109/BANGE

% OF BIDTOTAL

-7

-6

-5

-4

-3

-2

-1

0

1

2

3

4

5

6

7

8

Generated Item Number

20220102031000203600030120003040343502121061320006161005616102061810009029400

-$77,600

$155,200

MobilExcavRem

TempTrafSig

00 **ESTIMATE** 01 WEST 02 BROTHERSVENDOR



VENDOR 00 **ESTIMATE** 01 9910109/BANGE 02 WEBER INC., F

% OF BIDTOTAL

-5

-4

-3

-2

-1

0

1

2

3

4

5

6

7

8

9

10

11


202201020310002032000203600020630003012000502110950212106091060618100070320108061016

Excavation-$243,200

$486,400


00 **ESTIMATE** 01 BROTHERS 02 WESTVENDOR

Mobil



VENDOR 00 **ESTIMATE** 01 9910109/BANGE 02 9910236/MISSO

% OF BIDTOTAL

-4

-3

-2

-1

0

1

2

3

4

5

6

7

8

9


2021052 2022010 2024010 2031000 2061000 4031026 4037110 4037200 4038992 4038993

Asph AggRem Imp Rem Asp

-$566,600

$1,133,200


Panel 1 of 2

00 **ESTIMATE** 01 BROTHERS 02 PAVEMENTVENDOR



VENDOR 00 **ESTIMATE** 01 BERRA CONSTRU 02 KOLB GRADING03 WEBER INC., F 04 FREESEN INC. 05 VERNACI CONST

% OF BIDTOTAL

-10

0

10

20

30

40


2035000 2036000 2063000 6181000 7261442 7261472 7261484 9999999

Line Item Profile – % Over Low Bid Winning Bid: $3,854,000 Estimate: $5,938,862

MobilExcav

$770,800

$1,541,600

00 **ESTIMATE** 01 INTRUDE 02 SPENCERSVENDOR

03 WEST 04 MCTAVISH 05 GRADING


+5%14,548 CYEST=80.89

01 ROYAL CASTLE C02 CONNOR RESOU 03 KIWI WESTER04 BRIDGESTOWN BROTH 05 GRETSKY CONS

VENDOR 00 **ESTIMATE**

-4

-3

-2

-1

0

1

2

3

4

5

2 2 2 3 3 4 4 4 4 4 602-002ab

02-002ac

02-002ad

07-002

07-003

03-060

03-060aa

11-102

12-008

12-008aa

26-000

REMASPH

PROSLIMETRT

SUBGRADE CPVT CPVT MOB

% OF BIDTOTAL

Line Item Profile – % Over Low Bid Winning Bid: $2,842,329 Estimate: $2,714,175


Bid Totals and Subcontract % Estimate: $2,714,175

Vendor Bid total Subcontract

Royal Castle 2,842,329

Connor Resources 2,990,758 28.90%

Kiwi Western 3,067,542

Bridgestown Brothers 3,067,810

Gretsky 3,083,023


+12%27,769 CYEST=79.81

-5-4-3-2-1012345678

201-000

202-000

202-000ac

202-004

203-000

203-000aa

207-002

304-060

403-123

412-006

412-008

617-000aa

621-004

625-000

626-000

630-000

630-000ab

585 K511 K

365 K

219 K

146 K

292 KC&G EXCAV EMB

AGGRBASE CPAV

DET.PVT MOB

00 **ESTIMATE** 01 ZACKS HEAVY E02 ROYAL CASTLE C 03 LAWTON CONSTR04 DUCCO 05 BLACKTOP06 SKYE CORP. 07 KIWI WESTER

VENDOR

% OF BIDTOTAL

Line Item ProfileWinning Bid: $7,306,628 Estimate: $6,545,463


Vendor Bid total Subcontract

Zack’s Heavy Equip. 7,306,628

Royal Castle 7,963,152 19.20%

Lawton 8,091,306

Ducco 8,127,607

Blacktop Products 8,179,637

Skye 8,843,954

Kiwi Western 9,278,368

Bid Totals and Subcontract % Estimate: $6,545,463


??? CYEST=???

VENDOR 00 **ESTIMATE** 01 BATTERY HI 02 ROYAL CASTLE C

0

1

2

3

4

631-001

% OF BIDTOTAL

$26,870,000

$25,919,173

$26,600,000

Line Item Profile - Design/BuildWinning Bid: $25,919,173 Estimate: $26,600,000








• Non-competitive prices

Average Price 13 Year Average

Unit Price

$20

$25

$30

$35

YEAR83 84 85 86 87 88 89 90 91 92 93 94 95 96

Price/Time RelationshipAsphalt Bituminous Concrete & Paving Cements


Asphalt price based on index using 1986 average price

Index Adjusted Average Price 13 Year Average

Unit Price

$20

$25

$30

$35

YEAR83 84 85 86 87 88 89 90 91 92 93 94 95 96



Unit Price

$20

$25

$30

$35

YEAR83 84 85 86 87 88 89 90 91 92 93 94 95 96

Index Adjusted Average Price 13 Year Average

$25 Million = 22% Overcharge

Asphalt price based on index using 1986 average price



Pri

ce($

/CY

)

60

65

70

75

80

85

90

Year1990 1991 1992 1993 1994 1995 1996 1997

Pri ce( $

/ CY)

60

65

70

75

80

85

90

Indexed Price basedon Concrete PPI

Quantity-Adjusted Concrete Price

Price/Time RelationshipConcrete


Year

14

16

18

20

22

1990 1991 1992 1993 1994 1995 1996 199714

16

18

20

22

National Concrete Price Index(Western Region)

Quantity-Adjusted Unit PriceNormalized to Cubic Yards

762,000 Cubic YardsPrice

Price/Time RelationshipConcrete - Increased Purchase Potential


26

28

30

32

34

1990 1991 1992 1993 1994 1995 1996 199726

28

30

32

34

Quantity-Adjusted Unit PriceNormalized to 25,000 Tons

National Average Price Index

3,106,000 Tons

Price

Year

Price/Time RelationshipAsphalt - Increased Purchase Potential


Price/Estimate Relationship Over Time

Fiscal Year

Pri

ce

v.

Es

tim

ate

(%

)

(10%)

( 5%)

0%

5%

10%

1992 1993 1994 1995 1996

Pric

e v

. Es

tima

te (%

)

(10%)

( 5%)

0%

5%

10%$36.2MM $51.5MM $79.9MM $55.5MM $91.3MM


( 5%)

0%

5%

10%

Fiscal Year

1992 1993 1994 1995 1996

(10%)

( 5%)

0%

5%

10%$36.2MM $51.5MM $79.9MM $55.5MM $91.3MM

$2.1MM $7.6MM $7.5MM $5.9MMAnnual Amount

Over Benchmark Benchmark

$23 Million Overcharge

Pric

e v

. Es

tima

te (%

)P

ric

e v

. E

sti

ma

te (

%)

Weighted Average: Awarded Bids vs. BenchmarkBenchmark: Percent Difference in 1996

Price/Estimate Relationship Over Time


Lower Prices When AA BidsLower PricesWhen

GG Bids

March 199814,000 TonsB1 bid: $28.13B2, GG Losers12 MileMile Haul

June 19982,000 TonsB1 bid: $24.93GG Loser5 MileMile Haul

June 199840,000 TonsB1 bid: $39.05B2 Loser1 MileMile Haul

July 199817,500 TonsB1 bid: $32.39B2 Loser8 MileMile Haul

GG Plant


Effingham 2

Effingham 2March 200012,000 TonsB1 bid: $31.90GG Loser4 MileMile Haul

June 199912,000 TonsB2 bid: $32.48GG, B1 Loser18 MileMile Haul

Dec. 199960,000 TonsB1 bid: $38.45B2 Loser6 MileMile Haul

July 199917,000 TonsB2 bid: $39.81B2 Loser9 MileMile Haul

Dec. 199946,000 TonsG2 bid: $32.36B1, B2 Loser218 MileMile Haul



Price analysis by quantity

• Do bid prices make sense when quantity is considered?

REGION A Market B Market C Market D Market

$32.00

$33.00

$34.00

$35.00

$36.00

$37.00

$38.00

$39.00

$40.00

$41.00

0 10,000 20,000 30,000

Price/Quantity by MarketBituminous Concrete Pavement

Estimated Quantity in Tons


REGION 1 2 4 56 7 8 VARIOUS

PRICE

$26.00

$27.00

$28.00

$29.00

$30.00

$31.00

$32.00

$33.00

$34.00

$35.00

$36.00

$37.00

$38.00

$39.00

ESTIMATED QUANTITY

0 2,000 4,000 6,000 8,000 10,000 12,000 14,000

INDOT'S BAMS/DSS Statistical Analysis ModelsAsphalt Contracts Let after January 1989Item = 403-03570 Hot Bit Pavement (Grading C)



Ultimate price analysis

• Are prices at a non-competitive level?


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


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• Product characteristic

200

250

300

350

400

450

500

0 500 1,000 1,500 2,000 2,500 3,000Quantity (CY)

Un

it P

rice

Actual

Model

70% C.I

Unit Price vs. Bid QuantityItem: Concrete Class A-4


Job: Berthoud Pass Date Let 05Aug76Item 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

0 6000 12000 18000 24000 30000 36000 42000 48000 54000Quantity (Ton)

Data Modeled

Comp Price

Winning Bid

Comp Model

Damage


-5

5

15

25

35

45

55

1 2 3 4 5 6 7 8 9 10

Line Number

% O

ver

CM

P

Low Bidder $480,937

Competitive $309,508

Line Item ProfileJob: Berthoud Pass Date Let: 05Aug76


-1

0

1

2

3

4

5

6

7

1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52 55 58 61 64 67

Line Number

% O

ver

CM

P

Low Bidder $1,777,842

Competitive $1,372,778

Line Item ProfileJob: Plateau Creek Date Let: 05Aug71








• Non-competitive prices


Suggested best practices

• Never publish the engineer’s estimate

• Don’t publish the list of planholders

• Promote electronic bidding

• Support an independent unit to maintain and analyze historical and current data

• Conduct thorough bid reviews and reject bids not meeting standards

• Minimize design build


Questions?

Download - © 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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