The Tokyo High Public Prosecutor’s Office is conducting a sweeping investigation of a number of public engineering companies on charges of violating the Antimonopoly Law over the years by restricting fair business transactions. Public prosecutors have launched the massive investigation in response to a criminal complaint filed by the Fair Trade Commission against repeated bid-rigging in steel bridge-related construction projects ordered by the Ministry of Land, Infrastructure and Transport’s regional development bureaus in Kanto, Tohoku and Hokuriku.
The steel-bridge construction market is said to amount to 350 billion yen a year, so this could turn out to be the largest bid-rigging scandal ever. The FTC’s action was the the first in almost two years — since it filed a similar complaint over bid-rigging in connection with water-meter contracts ordered by the Tokyo Metropolitan Government in 2003.
The bid-rigging is believed to have occurred through two organizations formed by companies specifically for such illegal activities. They are suspected of having engaged in bid-rigging for about four decades under certain rules, including one that decided the allotment of construction work according to past performance in receiving orders.
The investigation is focused on eight major contractors that, in fiscal 2003 and 2004, served as the managing firms for two bid-rigging organizations — one is the K-kai, comprising 17 big corporations, and the other is the A-kai, consisting of 30 small and medium-size companies and latecomers in the business.
At meetings of the directors of the eight managing companies, the two organizations confirmed the bid-rigging rules for the year, appointed managing firms, and allegedly decided which companies would receive individual project contracts ordered by the regional development bureaus.
People in charge of business affairs at Yokogawa Bridge, one of the managing firms, reportedly compiled the K-kai rules. They state clearly, for example, that members should “respect independent adjustment rules in accordance with a spirit of conciliation” and “prevent a drop in contract prices”; any member who broke these rules would be punished by having its membership canceled.
As a result of this adjustment, the ratio of the contract price to the scheduled price for members was an abnormally high — more than 95 percent. If there had been no adjustment and nonmembers of these organizations had also participated, the contract price ratio could have been as low as 70 percent. So it can only be said that this was an egregious case of bid-rigging.
A climate of open and fair competition leads to a reasonable contract price. The bidding mechanism must reward the serious efforts of companies aimed at reducing cost, improving product quality, and so on.
Bid-rigging is a dishonest practice that obstructs open competition, ensuring that profits are shared among specified participating companies. Not only does it unreasonably betray the expectations of nonparticipating companies, but it also impedes the proper performance of the administration.
As a result of the added expenditure of public funds through dishonest means, the practice damages the nation economically. The companies implicated in the scandal must rigorously reflect on the fact that they have committed a serious crime by lining their own pockets at public expense.
It should also be noted that bid-rigging is not limited to the cases under investigation; the present investigation is only looking at projects ordered in fiscal 2003 and 2004 by three of the eight regional development bureaus nationwide. Moreover, the two organizations are suspected of having rigged bids on public works projects ordered by the Tokyo Metropolitan Government and the Japan Highway Public Corporation.
Since bid-rigging in these cases was not carried out according to uniform rules, the FTC did not include them in its complaint. But we must not ignore the fact that the roots of bid-rigging spread deeply across the whole country.
Of the 47 companies affiliated with the K-kai and A-kai organizations, nine firms have allegedly been involved in bid-rigging in other fields, including the construction of sewage pumps and waste-incineration plants since 1999, and have received exclusionary recommendations from the FTC. Further perpetration of bid-rigging should not be tolerated. The business world as a whole must take steps to eradicate the mentality of preying on public works.
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