Hyundai Oilbank: When Winning the Fuel Contract Was a Mistake

In the Hyundai Oilbank bid rigging case, the company agreed to a $39,100,000 civil antitrust settlement over allegations that suppliers divided U.S. military fuel contracts in South Korea and inflated their bids. The government’s complaint describes an arrangement so specific that Hyundai allegedly won a contract item by mistake, then helped put the fuel business back with the supplier the group had chosen. For someone inside bidding or fuel delivery, that distinction between the announced winner and the actual supplier is the story.

The Justice Department announced the resolution on March 20, 2019. Its civil investigation grew out of a whistleblower’s False Claims Act case. The alleged conduct stretched from at least March 2005 through October 2016 and concerned fuel bought for American military installations, with taxpayers paying the inflated bill.

How the U.S. Military Bought Fuel in South Korea

The military bought fuel through two procurement channels with different ways of choosing a winner. That difference gave the alleged arrangement two ways to work: divide individual delivery locations or leave an entire contract to a chosen supplier.

Hyundai Oilbank refines gasoline, diesel, kerosene and other petroleum products. According to the government complaint, it partnered with a logistics firm that served as the prime contractor for the military contracts. Hyundai supplied the fuel. The company holding the government contract and the refinery providing the product occupied different places in the same transaction.

The Defense Logistics Agency bought fuel for military vehicles and for heating military buildings through Posts, Camps, and Stations contracts. Its solicitations separated delivery locations into line items. Bidders could choose which items to bid on, and the agency awarded each to the lowest bidder. The contracts ran for three or four years. Allocating a line item therefore meant allocating an ongoing stream of fuel deliveries.

The Army and Air Force Exchange Service bought fuel for its retail exchanges, where military personnel and their families purchased gasoline for personal vehicles. In its 2008 solicitation, the exchange service awarded the entire contract to the bidder offering the lowest price across all listed locations. A supplier staying out of that competition could help another company win the whole award.

Both arrangements depended on independent offers. The complaint alleged that suppliers instead used meetings, telephone calls and emails to settle the competition among themselves before the government chose a winner.

How Does Bid Rigging Work and Why Is It Illegal?

Bid rigging replaces independent bids with an agreement among competitors over who will win. In Hyundai’s case, the government alleged that suppliers divided delivery locations, inflated prices and arranged for rivals to submit losing bids or stay out. The civil complaint alleged that this violated the Sherman Act by restraining competition and making the United States pay more for fuel.

A High Bid Could Be Doing Its Job

For the 2006 fuel contracts, the complaint alleged that GS Caltex, SK Energy, Hyundai Oilbank and other participants allocated the line items among themselves. A company assigned an item could count on the others either withholding a bid or bidding high enough to lose. The government alleged that the suppliers raised their bids to increase profit margins and that the awards followed their agreed allocations.

A losing offer still served the arrangement. It gave the purchaser a price to compare with the chosen supplier’s bid while preserving the winner the suppliers had already selected.

That agreement also reached the 2008 exchange-service contract. The complaint alleged that GS Caltex bid well above SK Energy, while Hyundai and its logistics partner declined to bid even after the exchange service specifically asked them to participate. SK Energy won as the group intended. The buyer tried to bring another bidder into the contest, and the alleged agreement kept that bidder out.

What Is an Example of Bid Rigging?

The accidental award in the 2009 fuel contracts shows how an agreement could survive a bidding mistake. According to the complaint, S-Oil and Hanjin Transportation joined the arrangement for that round, with S-Oil supplying fuel and Hanjin handling transportation and logistics. The participants again divided line items and agreed to bid high on items assigned to others.

Almost all the awards followed the plan. The exception produced this allegation:

Company A was Hyundai’s logistics partner. Winning the business should have been good news for the fuel supplier. The alleged agreement made it a mistake to be corrected. The correction happened in the supply arrangement after the award, where someone responsible for purchasing or delivering the fuel could see it.

The Lowest Bid Could Still Carry an Inflated Price

Hyundai’s complaint also alleged that Hanjin and S-Oil undercut the other suppliers without offering competitive prices, the later episode described in S-Oil’s case.

The complaint also described a later supply agreement under which GS Caltex provided Hanjin with fuel for some of those items. Hanjin allegedly paid less than it had agreed to pay S-Oil, while still paying more than a competitive fuel price. Both the bid and the later supply purchase mattered to understanding who benefited.

The Criminal Charges and the Civil Claims

The superseding indictment charged Hyundai and S-Oil with an agreement to suppress competition in military fuel bidding and a conspiracy to interfere with the government’s procurement process. The Justice Department announced that both companies agreed to plead guilty to the antitrust charge.

The GS Caltex complaint account compares the suppliers’ higher margins on U.S. military sales with their other fuel customers, explaining the alleged payoff behind Hyundai’s procurement conduct. The civil claims pursued the inflated government payments, and the whistleblower’s case brought the False Claims Act into that recovery effort.

Hyundai’s Civil Settlement

Hyundai’s False Claims Act agreement called for a $28,818,814 payment to the United States. The proposed civil antitrust judgment credited that payment toward the antitrust settlement. The Justice Department said the False Claims Act settlement addressed allegations that Hyundai made false statements to the government in connection with its agreement not to compete.

How Is Bid Rigging Detected?

In this case, the useful connection runs from a delivery-location line item, through the bids, to the company that actually supplied the fuel. The alleged correction of Hyundai’s accidental award makes the post-award records especially revealing.

A table of awards could show the winning contractor. A person handling refinery supply or logistics could explain why that contractor bought fuel from a different supplier, and who arranged the change.

For a bidding employee, the revealing record may be a discussion assigning delivery locations before offers go in. For a procurement employee, it may be a request to bid that the supplier declined. For someone buying fuel after the award, it may be the instruction that sends the order to the supplier the group intended to win. These are different views of the same alleged arrangement. We connect those views to the government contracts and payments.

How Much of a Settlement Does a Whistleblower Get?

A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers. Hyundai’s agreement left the whistleblower’s share for separate resolution between the whistleblower and the United States.

How We Assess a Fuel Bid Rigging Case Today

A whistleblower brought the qui tam case over these government fuel contracts, and the government’s civil investigation followed. We assess whether the False Claims Act or the Antitrust Whistleblower Rewards Program fits the contracts, payments and information you hold.

You Know Who Was Supposed to Supply the Fuel

Our whistleblower experts can examine the fuel supplier change with you, including why a contract win was treated as an allocation mistake.