4th Issue: Bid Collusion – Not Wanting to Hurt Those Who Do Good (Part 2)

4^th Issue:  Bid Collusion – Not Wanting to Hurt Those Who Do Good (Part 2)

I sent the DOJ attorney copies of emails between Jenny and Downtown Streets’ President that laid out their collusion.  Eventually she wrote that she saw no federal antitrust violations in the incidents.  She declined to describe her line of thought.

I considered her possible arguments beyond than the obvious, “there is no problem.”  In contrast to for-profit collusion, the economic impact of nonprofit bid collusion is difficult to pin down.  Although the amount City paid out would not be affected by collusion, if a contractor spent money on costs that were not socially valuable, paid higher staff salaries, or applied higher administrative cost allocation rates, then the cost of the benefits it provided would unnecessarily high. But in a world of ill-defined standards, measuring the cost effectiveness of a company’s services and the loss to the City is impossible.

The U.S. Sentencing Guidelines for antitrust convictions provide for fines based on the volume of commerce involved.  The fine associated with the Downtown Streets collusion would not be much, especially if they claimed penury.  A practical prosecutor would have to weigh the possible fine against the cost of bringing the case to conclusion, the social benefit of a conviction, and the social cost of a conviction if the perpetrator actually did good in the community.

Then there was the “doing good” mitigation factor.  In the U.S. v. Brown University case, an appeals court concluded that although limiting competition cannot be justified solely on the basis of social welfare, the economic and social welfare justifications argued by the defense must be considered.  Doing good seemed to offer a defense if it is clearly identified and its value is demonstrated.

After five months of silence from the City, I filed a public records request for copies of documents related to the alleged collusion.  The City replied that my complaint was the only document available.  All other documents were protected by attorney-client privilege, which was unsurprising since all whistleblower complaints were investigated by the office of the City attorney. 

In Downtown Streets’ grant proposal, I found that the company had certified that it “did not, in any way, collude, conspire or agree, directly or indirectly, with any person, firm, corporation” in connection with its proposal.  That seemed inaccurate, and the City’s Assistant Housing Director said she would investigate.

After following up on the investigation without getting a response, in October 2014 I filed another complaint on the City’s whistleblower site.  This time I focused on the Housing Department’s recommendation that the City Council approve the Downtown Streets’ proposal despite the false certification.  Finally in February 2015, after a year and fourteen complaints, requests, and follow-up emails, the Assistant Director replied that the discussions between Jenny and Downtown Streets were not a problem and reflected the “partnerships that leverage our funding.” 

The DOJ attorney concluded that there was no federal law violation, but there was another angle.  The Sherman Act that governs most federal antitrust actions limits its scope to actions that involve interstate commerce, but this collusion involved local funding and two companies that operated in Santa Clara County.  I sent emails to professors who taught antitrust law at fourteen leading law schools, asking whether the facts of the case indicated a violation of antitrust law.  Only two responded, but a professor at Duke University said, “It sounds like there’s an antitrust violation.”  Perhaps California antitrust law would apply even if federal law did not.

In July 2014, I emailed a letter to the State Attorney General’s Antitrust Office, which never replied.  In February 2015, I sent a follow-up email to the State, but again received no reply.  Then I mailed a letter with corroborating evidence to the State office and finally received a confirming call from the Supervising Deputy Attorney General.  She seemed to be a pleasant lady, as had the attorney from DOJ.   She said she had received the information but she would never be able to tell me what might result from their investigation or even whether they had investigated at all.  They receive thousands of requests each year, and their resources were limited, she said.  I heard nothing further.

Presenting a whistleblower complaint is like dancing with ghosts.  You think you have a partner in a fellow employee, a whistleblower site, an attorney, or someone who seems helpfully responsive.  Then that partner disappears, and you are left standing alone.  You call, but if they reply at all, the voice is faint and fails quickly. 

Even though it did not lead to any legal action, my complaint to the DOJ proved significant in other ways.  After I later admitted having made the complaint, Board members decided that I had been insubordinate and I should be fired because I did not let Jenny take care of the matter.  The DOJ’s negative response confirmed Jenny’s and the Board’s belief that my complaints about compliance violations were not justified, an attitude that may be easy to assume given the technical nature of white-collar crimes.  Finally, I would move from collecting Jenny’s emails about bid collusion to gathering evidence about other actions, including Jenny’s and the Board’s plan to fire me.

 The exercise taught some new lessons about whistleblowing and the dilemmas faced by the whistleblower:

1.       Whistleblowing is not a one-event contest.  After the receipt of new information, an initial violation may convert into a different violation that requires new disclosures.

2.       Although several potential violations may be identified, enforcement agencies are unlikely to help focus on the most consequential problem.

3.       Power to determine whether a law is broken vests in the enforcement agency, which decides for its own undisclosed reasons whether to prosecute an alleged crime.

4.       The adjudicator’s perception that the organization is valuable to the community or to the adjudicator itself can shift the balance against the whistleblower.

5.       In the absence of a guilty finding, even if due to government’s failure to investigate, the alleged perpetrator will contend that it was innocent and the whistleblower’s complaint was not justified.