U.S Probes 2nd Bid-Rigging Case at a Base in Japan

U.S. authorities are investigating a second bid-rigging case at a military base in Japan on the heels of a major victory that has increased pressure to open the Japanese construction market to U.S. firms.

Stuart M. Gerson, assistant attorney general in charge of the civil division, confirmed that the second inquiry involves contracts at another U.S. base in Japan, but he declined to disclose any details.

“There is at least one other case,” Gerson said in an interview. “We are still looking into it. If there is something there, we will pursue it vigorously.”

Other U.S. officials confirmed that the second investigation involves accusations that costs were inflated by millions of dollars on communications contracts over several years at the U.S. Air Force base at Yokota, near Tokyo. The officials said the inquiry is focusing on affiliates of NEC, the giant Japanese electronics firm.

In a written statement to The Times, NEC said it is unaware of any investigation and does not believe that its affiliates engaged in bid-rigging at the base. The company said that, since much of the communications equipment at U.S. bases in Japan is manufactured by NEC, it would be normal for its affiliates to win bids for maintaining the systems.

The Justice Department announced last month that 100 Japanese construction firms, including many of the nation’s biggest, agreed to pay $33 million to the United States for rigging bids to inflate prices on construction projects at the big U.S. Navy base in Yokosuka, southwest of Tokyo near Yokohama.

A Navy spokesman said 140 Japanese companies, including some that got no contracts in the Yokosuka project but were involved in the scheme, were notified that they face a ban on future business with the U.S. government. The spokesman said no final decision has been made on which firms, if any, will be barred.

The case has also spurred the Defense and Justice departments to expand investigations of bidding on contracts at U.S. military bases around the world, said Gerson and Defense Department officials.

“We are going to look at what our practices are in other countries, in Korea, the Philippines and elsewhere where we have a substantial American military presence,” Gerson said. “If we are going to maintain free trade, we cannot be gypped.”

An Army colonel assigned to Gerson’s office is working with military investigators to examine contracting procedures. The Yokosuka case, which was investigated by the Navy, demonstrated to officials that the agencies can work together effectively.

Combatting fraud and anti-competitive practices at U.S. bases around the world has gained new prominence because of cost-cutting efforts at the Defense Department, Gerson said. “It certainly becomes even more important to guard against waste and fraud when there is less money to spend and less resources to allocate,” he said.

The settlement marked the first time that the United States had successfully attacked the Japanese construction industry’s collusive bidding practice, which is known in Japan as dango. The U.S. construction industry has long complained that collusion has blocked American firms from doing business in Japan.

U.S. trade officials said the details uncovered in the bid-rigging investigation have provided American negotiators with new ammunition for the bilateral talks in which the United States is trying to persuade Japan to crack down on collusive practices allowed in the construction industry and Japanese business generally.

“I believe it has caused them (the Japanese) to listen more carefully” to claims that the Japanese construction market is closed, said U.S. Trade Representative Carla A. Hills. She said the case may ultimately prompt Japanese officials to consider a more serious response to U.S. demands for open markets.

The case has been interpreted in Japan as indicating a new U.S. aggressiveness on breaking down the barriers against foreign construction firms.

“It was certainly viewed in Japan as part of the construction market negotiations,” said a U.S. trade official who recently returned from Japan. “They realize that if they don’t open up the markets, this sort of thing could happen more often. It was really brought, in part, out of frustration with the inability of U.S. firms to get contracts in Japan.”

Mark G. Chalpin, a spokesman for the International Engineering and Construction Industries Council, a coalition of U.S. firms, said the case puts the Japanese on the defensive.

“All they used to say was that Americans didn’t try hard enough to get contracts in Japan,” Chalpin said. “Now you have proof that they have a protectionist wall against foreign firms working in Japan.”

According to U.S. officials, the Naval Investigative Service received a tip in 1987 about bidding practices at the Yokosuka base. The investigators discovered that a bid-rigging scheme by 140 Japanese construction companies had inflated construction costs at least 25% on about 250 contracts, the officials said.

The firms had formed a cartel known as the “Friends of the Stars,” a reference to the American flag. Officials said the cartel was created on March 27, 1984, and disbanded on Oct. 8, 1987, after its members learned that they were under investigation by the Navy.

The Navy findings were turned over to Japan’s Fair Trade Commission, which enforces the country’s antitrust laws. The commission, often criticized as being too soft on Japan’s monopolistic practices, levied fines of $2.2 million against 69 members of the cartel that had been awarded U.S. contracts plus the Kajima Corp., a firm that had not been a member of the group but had cooperated with the others.

Another 70 cartel members, who had participated in the scheme but not received contracts, were warned by the commission against continuing collusion.

The Justice Department also hired a Japanese law firm to pursue recovering the excess contract costs. Last May, the department notified the 140 firms that it was considering a lawsuit against them. The Justice Department has never brought a suit in Japanese courts.

The Justice Department also told 26 of the companies that do business in the United States that a lawsuit was being considered to seek triple damages in U.S. courts.

The settlement was reached between 100 of the firms and the Justice Department’s civil and antitrust divisions. Negotiations are still going on with the remaining 40 companies, most of which claim that they owe nothing because they did not receive any contracts.

Companies that have settled include such major Japanese construction firms as Taisei Corp., Shimizu Corp. Sumitomo Construction, Mitsui Construction, Aoki Corp. and Kajima, all of which do substantial business in the United States.

Lt. Mark Walker, a Navy spokesman, said letters were sent last month to all 140 companies notifying them that the Navy had started “debarment” proceedings that could result in a ban on future contracts with the U.S. government.

Walker said the companies were given 30 days to respond with reasons that they should not be barred from U.S. government work. Some companies have responded and others have not, he said, and a final decision on whether to debar the firms is expected in a matter of weeks.

Some Japanese industry officials have complained that the case resulted from political pressure and anti-Japanese feelings in the United States. Gerson, who said the decision to proceed was supported by Atty. Gen. Dick Thornburgh and other top government officials, appeared keenly sensitive to such criticism.

“It has been suggested that my zeal in pursuing the case was somehow indicative of Japan-bashing and, believe me, that is far from the truth,” said Gerson, who as a private lawyer represented Japanese businesses on several occasions.

Gerson said he pushed the case after becoming civil division chief last October because it involved U.S. tax dollars, just as a similar case would be pursued against U.S. companies.

“It just seemed to me that American interests were being wronged by a commercially and legally unacceptable practice,” Gerson said. “When we go into the international market to buy things for the United States at our bases overseas, we are entitled to a fair price, not a fixed one.”

Staff Writer Art Pine contributed to this story.