Commercial Flooring Bid Rigging: The Discount That Picked the Winner

Commercial flooring bid rigging ran through the manufacturer’s pricing decisions: in a March 2020 criminal plea agreement, an account executive admitted giving the intended winner the lowest material price and directing the other installers to submit losing bids. The customer saw competing offers. The person selling the flooring had already helped decide who would get the job.

The Justice Department’s charging announcement described the customer as a state-funded community college in the Chicago suburbs. The plea covers conduct beginning at least as early as 2013 and continuing through at least late 2017. It explains how the account executive arranged the bids, took personal payments for low manufacturer prices, and concealed the money through a company presented as a family member’s consulting business. The college lost genuine competition. The manufacturer lost revenue to its own employee’s deal.

The Flooring Job Started at the Manufacturer

The manufacturer supplied carpet, tile, hardwood, laminate and vinyl. The installers supplied the finished job: removing existing flooring, preparing the surface and installing the new product. Those roles, described in the criminal plea, put the account executive in a position to influence a contractor’s material costs before the contractor priced the work for the customer.

The executive’s job was to promote and sell the manufacturer’s commercial flooring products. He normally offered prices within a range established and authorized by the manufacturer in a pricing matrix. There was a company framework for the prices he could offer, and there were the prices he actually gave particular installers.

For an estimator, the manufacturer’s quote is part of the cost of delivering the job. In this scheme, the person supplying that quote also directed which installer should win. The material price and the competing installation bids belonged to the same arrangement.

The 2018 construction-bidding review explains why the supplier side deserves attention. It identifies high contract values and markets dominated by a few suppliers as conditions that make construction vulnerable to collusion, and says the conduct can reach both construction tenders and building-material production. Here, the plea supplies a specific example of that connection: the manufacturer employee’s pricing decisions reached directly into the installers’ bids.

What Is the Process of Bid Rigging?

The manufacturer’s preferential prices supported cover bids and put the apparent competition under the account executive’s control. In his criminal plea, he admitted recruiting three installation companies to divide the college’s flooring work by rotating the winning bidder.

For a given project, he offered the chosen installer the lowest manufacturer price. He offered higher prices to the other two and directed them to submit complementary bids, also called cover bids. Those offers were meant to lose while making the selected installer’s bid the lowest. On subsequent projects, he rotated who received the lowest price and won the work.

The plea describes more than 15 projects with a total contract value of at least $600,000. The mechanism depended on keeping the other installers involved: they submitted losing offers on one job with the understanding that the winning position would rotate.

Cover bidding and bid rotation did different jobs within the same scheme. The cover bids made a particular award look competitive. Rotation divided the business over successive awards. A purchasing employee looking at a single project would see offers from separate contractors. The account executive’s directions connected those offers to an agreement about future work.

The Consulting Company With No Consulting

The criminal plea also describes how the account executive concealed the personal payments he received in exchange for low manufacturer prices. A co-conspirator suggested creating a shell company to hide the kickbacks from the manufacturer and law enforcement.

The executive then set up MGAB13 Consulting, Inc. in a family member’s name. Bank accounts were opened in the family member’s name, and the family member was falsely presented as a consultant. The agreement states:

The consulting business existed to receive money for a service performed inside the manufacturer’s sales operation: giving favored contractors low prices.

The plea connects a particular payment to the rotated bids. A check deposited in January 2014 included a $1,854 kickback for a contract obtained through the rotation and $108 for another project. It identifies the paying contractor and the receiving account.

For someone inside a flooring business, the manufacturer’s quote and a payment to a consulting company may sit in different parts of the accounts. This plea puts them together. The low price bought the installer an advantage, and the concealed payment rewarded the employee who supplied it.

The College and the Manufacturer Lost Different Things

The college lost the benefit of installers competing independently for its work. The manufacturer lost revenue because the account executive secretly exchanged low selling prices for personal kickbacks. The criminal plea describes both parts of the arrangement.

The executive admitted that he deceived his employer by failing to disclose that contractors were paying him personally for those prices. The agreement also says the contractors charged end users unlawfully fixed prices set by the executive. A low price from the manufacturer could therefore coexist with a rigged price to the customer. The manufacturer gave up revenue while the account executive collected money for himself.

A contractor-side parallel appears in a separate criminal plea agreement by Mr. David’s Flooring International. The company admitted complementary commercial-flooring bids and fixed prices, along with transactions concealing kickback payments. That case shows how a contractor used cover bids and concealed kickbacks. The manufacturer employee’s plea shows how preferential prices supported bid rotation.

A procurement employee may recognize the rotation. A manufacturer employee may recognize a price decision that diverted revenue. An accounting employee may recognize payments to a consulting business. Each view reaches a different part of the same conduct.

How Is Bid Rigging Detected?

In this flooring case, detection means connecting the college’s bid files with the manufacturer’s pricing history and the contractors’ payments. The plea supplies the relationships that make those records meaningful: the invitation to rotate work, the different prices given to the installers, the directions to submit losing bids and the payment linked to a rotated contract.

An award history can show who won. The manufacturer-side account explains how the favored bidder got its price. The payment record explains what the employee received in return. Reading those pieces together makes visible an arrangement that a list of winning contractors would only partly describe.

The person who understands how a material quote became an installation bid may be able to explain the connection between records held by different businesses.

What Is the Role of Whistleblowers in Bid Rigging Cases?

Whistleblowers can connect the bids a purchaser sees with the pricing instructions, communications and payments behind them. This flooring case shows the value of that inside view, from the account executive’s control over material prices to the purpose of the consulting payments.

Where public money paid for the work, our whistleblower experts examine how the purchasing and payment records fit a potential False Claims Act case. A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers. We work through it with you, including what the pricing decisions and payments show about who knew the bids were arranged.

You Know How the Winning Bid Got Its Price

If a manufacturer’s discount selected the flooring winner, our whistleblower experts can connect that price with the installers’ bids and concealed payments.