The bid-rigging scandal involving major bridge builders has again brought into public view the structural collusive relationship between private enterprise and the public sector. The scope of the criminal investigation — which originally targeted projects ordered by local bureaus of the Land, Infrastructure and Transport Ministry — has broadened to become the nation’s biggest public-works bid-rigging scandal, with the recent arrest of a former board member of Japan Highway Public Corp.
In October 2004, the Fair Trade Commission raided about 70 bridge builders and found out that two contractor associations, K-kai and A-kai, were involved in rigging bids over the past four decades. K-kai consists of 17 major bridge builders while A-kai groups 30 smaller bridge builders.
Since May 23, the commission has filed accusations against bridge builders and company officials in connection with the projects ordered by the ministry, triggering criminal investigation by the Tokyo High Public Prosecutor’s Office. On June 15, prosecutors indicted 26 firms belonging to K-kai and A-kai and eight company officials.
On June 28, the FTC and public prosecutors consulted and decided to expand their investigations to cover projects ordered by Japan Highway Public Corp. The commission filed an accusation June 29 that led to the arrest of the former board member of Japan Highway who had landed a job at Yokogawa Bridge Corp. as an adviser, plus four officials of major bridge builders.
Specifically, the five are suspected of having conspired to rig bids for bridge construction projects worth 136.1 billion yen and financed by Japan Highway in fiscal 2003 and 2004. If they are convicted, it will affirm that a large amount of money from the nation’s taxpayers was improperly used or wasted.
It is symbolic that the arrests came at a time when Japan Highway is about to be privatized. The laws to privatize the nation’s four public highway corporations passed the Diet in 2004 and will go into effect in October. Under the laws, Japan Highway will be divided into three private companies. Given the ultimate goal of having the public corporations’ 44 trillion yen in incurred debts repaid over the coming 45 years, Japan Highway’s and the three other public highway corporations’ offshoot companies will carry a heavy responsibility of ridding themselves of shady relationships with contractors and making their operations cost-effective and transparent.
The background and alleged activities of the arrested former board member of Japan Highway sheds light on bid-rigging arrangements that appear to be structurally built into relations between the public corporation and contractors.
According to sources close to him, the 70-year-old man served as head of Japan Highway’s planning section, which had enormous influence on the corporation’s personnel affairs and was responsible for finding employment posts among selected companies for Japan Highway retirees (a practice called amakudari or “descent from heaven”). He, too, had joined Yokogawa Bridge the same way. He is suspected of allocating Japan Highway construction project orders among companies for nearly 10 years after taking over the task from a former Japan Highway vice president who had “descended” to Mitsubishi Heavy Industries Ltd. but later become ill.
Specifically, K-kai and A-kai are suspected of entrusting the task of rigging bids for fiscal 2003-2004 Japan Highway bridge construction projects to the arrested former Japan Highway official and the four arrested bridge-builder officials. The former Japan Highway official is alleged to have decided which company would win which bid by taking into account past bidding records.
To give the appearance of credibility to the bidding results, some companies went through the motions of submitting bids. Of the total 136.1 billion yen in projects, companies from K-kai and A-kai won contracts worth 126.8 billion yen.
It is also known that Kazura kai, an association of former Japan Highway officials who landed jobs at bridge builders, approached officials of Japan Highway branches and obtained information about future construction projects.
The investigations will focus next on whether Japan Highway officials were aware of the bid rigging and did nothing. If that’s the case, their lack of commitment to the correct use of tax money and to fair competition will be exposed, disclosing a deep collusion between private firms and the public sector.
A law that went into effect in January 2003 empowers the FTC to demand improved bidding practices for public works. This scandal points to the need to give teeth to the law so that the commission can punish those parties that fail to improve the bidding system when ordering a public-works project.
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