Bid-Riggers in Japan Receive Light Penalties : Critics Deny Tokyo’s Claim That Manipulation of U.S. Navy Contracts Was an Isolated Case

Japanese authorities have rebuked and imposed light penalties on a cartel of construction companies that was found to have rigged bids on nearly $16 million worth of U.S. Navy contracts in Japan, characterizing the violation of the anti-monopoly law as an isolated occurrence.

But critics say the scheme to manipulate the contracts, put to bid by U.S. officials at the Navy’s base in Yokosuka, was a classic example of the kind of widespread collusion that drives up construction costs and puts a chokehold on the Japanese public works market.

“If they’re smart, they’ll go over and look at the Army bases now,” a U.S. construction industry executive said Tuesday.

“It’s a systemic problem” evident throughout the local industry, said the Tokyo-based executive, who spoke on the condition of anonymity. “It has not disappeared, and I do not think it will disappear.”

At issue is a cartel of 140 Japanese construction companies that banded together in the “U.S. Military Construction Safety and Technology Study Group” and decided among themselves which company would win bids for supposedly competitive Navy contracts between 1984 and 1987.

Administrative Sanctions

The cartel disbanded in October, 1987, soon after the U.S. Naval Investigative Service tipped off the Japanese Fair Trade Commission, which began its own investigation. The FTC admonished the 140 companies and fined 70 of them a total of $2.4 million when it concluded its probe last Thursday. Included in the list of violators were Kajima Corp. and Penta-Ocean Construction Co., both major firms active in international markets.

The Construction Ministry subsequently added administrative sanctions, suspending the rights of 104 of the violators to bid on public works contracts for one to two months. The FTC reportedly sought suspensions ranging from six to nine months.

The penalties came a little more than two weeks after the U.S. trade representative’s office announced that it had begun an investigation of Japanese industry practices that might block access by American companies to the public works market here.

Hiro Kosaka, director of the Construction Ministry’s foreign relations division, said the ministry hopes that the trade representative’s office will conduct a pro forma investigation that does not undermine the construction accord, which was aimed at helping foreign firms participate in 14 public works projects valued at $17 billion.

Last month, Chicago-based Schall Associates became the first U.S. company to benefit from the accord when a Japanese-led consortium it belongs to won a $149-million contract to build a hotel-convention center complex in Yokohama.

Associations Reprimanded

Kosaka denied that collusion is as pervasive in the industry as its critics contend, although the rigging of U.S. Navy contracts was a “regrettable betrayal of the people’s trust.”

“I don’t believe it happens elsewhere,” Kosaka said. “If it did, it would be prosecuted.”

But in an editorial Tuesday, the Asahi newspaper blasted the relatively light penalties in the U.S. Navy case, saying that the government displayed “an indulgent posture that will not pass in international society.”

The newspaper called for further investigation of dango , or “consultation”--a popular euphemism for contract-rigging by Japanese firms--outside the U.S. military procurement market. It also urged authorities to revamp a vague set of guidelines, drafted by the Japanese Fair Trade Commission in 1984 after a major public works scandal, that can now “be mistaken as condoning dango.”

On Monday, the Construction Ministry reprimanded the seven major construction industry associations for failing to stop the bid-rigging on U.S. Navy contracts, even after they were advised to do so by the ministry.