U.S. Issues Ultimatum in Japanese Bid-Rigging Case : Trade: The Justice Department is seeking $35 million in damages to settle a dispute over Navy pacts. The move signals a more aggressive posture on collusion in Japan’s construction industry.

In an extraordinary action, the U.S. Justice Department is negotiating to collect $35 million in damages from a cartel of Japanese construction companies that rigged bids on U.S. Navy contracts in Japan, U.S. officials confirmed Wednesday.

David Schlitz, a department lawyer sent from Washington, has demanded that members of the consortium of 140 companies pay a cash settlement or face legal action in U.S. and Japanese courts, the officials said.

Schlitz, who was not available for comment, has given the companies until Friday to yield to his ultimatum, according to industry sources and Japanese press reports.

The Justice Department’s role in the case, which concerns contracts put to bid at the U.S. naval base in Yokosuka between 1984 and 1987, signaled a more aggressive posture by the American government in an escalating dispute over bid-rigging and collusive behavior in Japan’s closed construction market.

Japan’s Fair Trade Commission, in an administrative sanction last December prompted by a U.S. Naval Investigative Service probe, admonished the 140 contractors in the cartel and levied a collective fine of 289 million yen (about $2 million at current exchange rates) on 70 companies in the cartel. The Construction Ministry also imposed sanctions, suspending the rights of 104 of the companies to bid on public works contracts for one to two months.

At the time, critics in the U.S. construction industry, which remains effectively barred from doing business in Japan by a collusive bidding practice known here as dango , dismissed the relatively light penalties as insufficient. That view was shared by the Asahi newspaper, which has for many years waged a campaign advocating a crackdown on dango in public works.

U.S. complaints about collusive bidding practices in the Japanese construction industry are among the issues under discussion in a round of bilateral talks known as the Structural Impediments Initiative, which aim to identify barriers to free trade. Lax enforcement of Japan’s anti-monopoly law by the Fair Trade Commission is another target of U.S. criticism.

A U.S. official, who spoke on the condition of anonymity, said the Justice Department’s action in the Yokosuka dango case was not necessarily linked to the broader principles on the table in the structural talks.

“It’s pretty simple. This would happen in the States too,” the official said. “If there’s bid-rigging that involves American taxpayer money, the Justice Department goes after the offenders.”

Japanese industry sources, however, said the move is unprecedented and speculated that it comes as a result of political pressure in Washington.

The $35-million figure, equivalent to about 5 billion yen, is a “low-end” estimate of what the U.S. Navy lost as a result of bids being rigged at Yokosuka, the U.S. official said. The federal government is barred from seeking treble damages under U.S. antitrust statutes, but if the case is pursued in U.S. courts, the government could request treble damages under the False Claims Act, he said.

Many of the companies in the cartel are active in international markets, and unconfirmed Japanese press reports suggest that the Justice Department has threatened to attach their assets in the United States.

An official at a major construction firm in the cartel, who asked that neither he nor his company be identified by name, said all of the consortium’s 140 companies received letters from a local law firm representing the Defense Department in September, demanding the $35-million settlement.

The Justice Department in October sent a second letter to 15 of the companies with subsidiaries or operations in the United States, warning of legal action in U.S. courts that would seek treble damages, the industry source said. That list has since been expanded to 26 companies, he said.

Major firms such as Taisei Corp., Shimizu Corp., Sumitomo Construction Co., Ohbayashi Corp., Aoki Corp. and Fujita Corp. were among the companies that banded together in the mid-1980s as the “U.S. Military Construction Safety and Technology Assn.” in Yokosuka.

Kajima Corp., also a leading international construction firm with substantial activities in the United States, was not a formal member of the association but cooperated in its consultations, the Fair Trade Commission found.

The association, which nicknamed itself the “Friends of the Stars”--a reference to the American flag--became a forum for fixing prices and assigning contracts under the guise of competitive bidding, according to the Fair Trade Commission.

Earlier this year, the Pentagon took steps to bar 14 Japanese construction firms and 24 individuals from contracts with the U.S. government because of alleged involvement in the Yokosuka dango case, Kyodo News Service reported.