United States v. Alliant Techsystems Inc. and Aerojet-General Corporation; Proposed Final Judgment and Competitive Impact Statement
Federal RegisterFeb 11, 1994
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DEPARTMENT OF JUSTICE
Antitrust Division
United States v. Alliant Techsystems Inc. and Aerojet-General
Corporation; Proposed Final Judgment and Competitive Impact Statement
Notice is hereby given pursuant to the Antitrust Procedures and
Penalties Act, 15 U.S.C. Secs. 16(b)-(h), that a proposed Final
Judgment and Competitive Impact Statement have been filed with the
United States District Court for the Central District of Illinois in
United States v. Alliant Techsystems Inc. and Aerojet-General
Corporation.
The Complaint of the United States in this case alleges that
Alliant Techsystems Inc. (``Alliant'') and Aerojet-General Corporation
(``Aerojet'') have engaged in a continuing agreement, combination and
conspiracy to suppress and eliminate competition in the production and
sale of combined effects munition (``CEM'') systems to the United
States, in violation of Section 1 of the Sherman Act. A CEM system is a
type of ``cluster bomb'' that has anti-personnel, anti-armor, and
incendiary capabilities. CEM systems are purchased by the United States
Army Armament, Munitions, and Chemical Command on behalf of the United
States Air Force.
The proposed Final Judgment would require Alliant and Aerojet each
to make payments of $2,047,500 plus interest to the United States as
monetary relief for the alleged violation. The proposed Final Judgment
would also enjoin Alliant and Aerojet from entering into any agreement
that has the purpose or effect of eliminating or suppressing
competition between them in response to solicitations by the United
States of independent or competitive offers, quotations, bids or
proposals for the supply of CEM systems.
Public comment on the proposed Final Judgment is invited within the
statutory 60-day comment period. Such comments, and responses thereto,
will be published in the Federal Register and filed with the Court.
Comments should be directed to Gary R. Spartling, Chief, Antitrust
Division, U.S. Department of Justice, 450 Golden Gate Avenue, Box
36046, San Francisco, CA 94102 (telephone: 415-556-6300).
Joseph H. Widmar,
Director of Operations, Antitrust Division.
In the United States District Court, Central District of Illinois,
Rock Island Division
United States of America, Plaintiff, v. Alliant Techsystems Inc.
and Aerojet-General Corporation, Defendants. Filed: January 19,
1994, Civ. No. 94-1026, Final Judgment, Judge McDade.
Plaintiff, United States of America, filed its Complaint on January
19, 1994. Plaintiff and defendants, by their respective attorneys, have
consented to the entry of this Final Judgment without trial or
adjudication of any issue of fact or law. This Final Judgment shall not
be evidence against or an admission by any party with respect to any
issue of fact or law. Therefore, before any testimony is taken, and
without trial or adjudication of any issue of fact or law, and upon
consent of the parties, it is hereby Ordered, Adjudged and Decreed, as
follows:
I
Jurisdiction
This Court has jurisdiction of the subject matter of this action
and of each of the parties consenting to this Final Judgment. The
Complaint states a claim upon which relief may be granted against each
defendant under section 1 of the Sherman Act, 15 U.S.C. Sec. 1.
II
Definitions
As used in this Final Judgment:
(A) Alliant means defendant Alliant Techsystems Inc., each
subsidiary and division thereof, and each officer, director, employee,
agent, and other person acting for or on behalf of any of them.
(B) Aerojet means defendant Aerojet-General Corporation, each
subsidiary and division thereof, including but not limited to Aerojet
Ordnance Division, and each officer, director, employee, agent, and
other person acting for or on behalf of any of them.
(C) Combined Effects Munition (``CEM'') system means any unguided,
air-delivered cluster bomb of the 1000-pound class designated by the
United States Department of Defense as CBU-87, including but not
limited to CBU-87/B, CBU-87(D-2)/B, CBU-87(T-1)/B, CBU-87(T-2)/B, CBU-
87(T-3)/B, CBU-87A/B, CBU-87B/B, and CBU-87C/B. Each CEM system
consists of a cluster of 202 anti-armor, anti-personnel and incendiary
bomblets that disperse over a discrete area and explode upon impact; a
tactical munitions dispenser; a proximity sensor; and a shipping and
storage container.
(D) Teaming arrangement means an arrangement, as provided in
Subpart 9.6 of the Federal Acquisition Regulations, in which: (a) Two
or more companies form a partnership or joint venture to act as a
potential prime contractor; or (b) a potential prime contractor agrees
with one or more other companies to have them act as its subcontractors
under a specified Government contract or acquisition program.
III
Applicability
(A) The provisions of this Final Judgment shall apply to
defendants, to each of their successors and assigns, and to all other
persons in active concert or participation with any of them who shall
have received actual notice of this Final Judgment by personal service
or otherwise.
(B) No portion of this Final Judgment is or has been created for
the benefit of any third party and nothing herein shall be construed to
provide any rights to any third party.
(C) Defendants shall each require, as a condition of the sale or
other disposition of all or substantially all of their assets used in
the production of CEM systems, whether by the sale of stock or
otherwise, that the acquiring party or parties agree to be bound by the
provisions of this Final Judgment.
IV
Prohibited Conduct
Absent prior approval of the Department of Justice or this Court,
Alliant and Aerojet are enjoined and restrained from adhering to,
carrying out, enforcing, or entering into any agreement, contract,
combination, or conspiracy, including but not agreement, contract,
combination, or conspiracy, including but not limited to any teaming
arrangement, the purpose or effect of which is to eliminate or suppress
competition between the defendants in response to a request or
invitation by the United States, or any agency thereof, for independent
offers, quotations, bids or proposals for the supply of CEM systems
issued after the date of entry of this Final Judgment. Nothing in this
Final Judgment shall prohibit subcontracting between Alliant and
Aerojet so long as the purpose or effect is not to eliminate or
suppress the aforesaid competition.
V
Payments
(A) Defendant Alliant shall pay to the United States on or before
April 6, 1994 the amount of two million forty seven thousand five
hundred dollars ($2,047,500), plus interest accruing from the date of
entry of this Final Judgment at the rate described in Section 1961,
Title 28, United States Code. Payment shall be made by cashier's check
payable to the United States Department of Justice, and delivered to
Chief, San Francisco Field Office, Antitrust Division, Room 10-0101,
Box 36046, 450 Golden Gate Avenue, San Francisco, California 94102, or
as otherwise directed by the Department of Justice Antitrust Division.
(B) Defendant Aerojet shall pay to the United States on or before
April 6, 1994 the amount of two million forty seven thousand five
hundred dollars ($2,047,500), plus interest accruing from the date of
entry of this Final Judgment at the rate described in Section 1961,
Title 28, United States Code. Payments shall be made by cashier's check
payable to the United States Department of Justice, and delivered to
Chief, San Francisco Field Office, Antitrust Division, Room 10-0101,
Box 36046, 450 Golden Gate Avenue, San Francisco, California 94102, or
as otherwise directed by the Department of Justice Antitrust Division.
VI
Compliance Program
(A) Each defendant is ordered to maintain an antitrust compliance
program that shall include:
(1) Distributing, within sixty (60) days from the entry of this
Final Judgment, a copy of this Final Judgment to all officers and to
the employees who:
(a) Have responsibility for certifying the independence of price
determinations for, or
(b) Have principal responsibility for recommending, approving, or
disapproving, any offer, quotation, bid or proposal to the United
States, or any agency thereof, for the supply of CEM systems;
(2) Distributing in a timely manner a copy of this Final Judgment
to any officer or employee who succeeds to a position described in
Section VI(A)(1);
(3) Briefing annually those persons designated in Section VI(A)(1)
on the meaning and requirements of this Final Judgment and the
antitrust laws and advising them that the defendant's legal advisors
are available to confer with them regarding compliance with the Final
Judgment and the antitrust laws;
(4) Obtaining from each officer or employee designated in Section
VI(A)(1) an annual written certification that he or she:
(a) Has read, understands, and agrees to abide by the terms of this
Final Judgment; and
(b) Has been advised and understands that his or her failure to
comply with this Final Judgment may result in conviction for criminal
contempt of court; and
(5) Maintaining a record of recipients to whom the Final Judgment
has been distributed and from whom the certification in Section
VI(A)(4) has been obtained.
(B) For ten (10) years after the entry of this Final Judgment, on
or before its anniversary date, each defendant shall file with the
plaintiff a statement as to the fact and manner of its compliance with
the provisions of Section VI(A).
VII
Plaintiff Access
(A) To determine or secure compliance with this Final Judgment and
for no other purpose, duly authorized representatives of the plaintiff
shall, upon written request of the Assistant Attorney General in charge
of the Antitrust Division, and on reasonable notice to any defendant,
be permitted, subject to any legally recognized privilege:
(1) Access during that defendant's office hours to inspect and copy
all records and documents in its possession or under its control
relating to any matters contained in this Final Judgment; and
(2) To interview that defendant's officers, employees, trustees, or
agents, who may have counsel present, regarding such matters. The
interviews shall be subject to the defendant's reasonable convenience
and without restraint or interference from any defendant.
(B) Upon the written request of the Assistant Attorney General in
charge of the Antitrust Division, any defendant shall submit such
written reports, under oath if requested, relating to any of the
matters contained in this Final Judgment as may be reasonably
requested, subject to any legally recognized privilege.
(C) No information or documents obtained by the means provided in
Section VII shall be divulged by the plaintiff to any person other than
a duly authorized representative of the Executive Branch of the United
States, except in the course of legal proceedings to which the United
States is a party, or for the purpose of securing compliance with this
Final Judgment, or as otherwise required by law.
VIII
Further Elements of Final Judgment
(A) This Final Judgment shall expire ten (10) years from the date
of its entry.
(B) Jurisdiction is retained by this Court for the purpose of
enabling any of the parties to this Final Judgment to apply to this
Court at any time for further orders and directions as may be necessary
or appropriate to carry out or construed this Final Judgment, to modify
or terminate any of its provisions, to enforce compliance, and to
punish violations of its provisions.
(C) Entry of this Final Judgment is in the public interest.
Stipulation Re Entry of Final Judgment
It is stipulated by and between the undersigned parties, by their
respective attorneys, that:
1. The Court has jurisdiction over the subject matter of this
action and over each of the parties thereto, and venue of this action
is proper in the Central District of Illinois;
2. The parties consent that a Final Judgment in the form hereto
attached may be filed and entered by the Court, upon the motion of any
party or upon the Court's own motion, at any time after compliance with
the requirements of the Antitrust Procedures and Penalties Act (15
U.S.C. Sec. 16), and without further notice to any party or other
proceedings, provided that Plaintiff has not withdrawn its consent,
which it may do at any time before the entry of the proposed Final
Judgment by serving notice thereof on Defendants and by filing that
notice with the Court;
3. The parties shall abide by and comply with the provisions of the
Final Judgment pending its entry, and shall, from the date of the
filing of this Stipulation, comply with all terms and provisions
thereof as though the same were in full force and effect as an order of
the Court;
4. In the event Plaintiff withdraws its consent or if the proposed
Final Judgment is not entered pursuant to this Stipulation, this
Stipulation shall be of no effect whatever, and the making of this
Stipulation shall be without prejudice to any party in this or any
other proceeding.
Dated: January 19, 1994.
For Plaintiff United States of America:
Anne K. Bingaman,
Assistant Attorney General.
Robert E. Litan,
Mark C. Schechter,
Gary R. Spratling,
Attorneys, U.S. Department of Justice, Antitrust Division.
Gerard Brost,
Asst. U.S. Attorney.
Howard J. Parker,
Steven C. Holtzman,
James E. Figenshaw,
Attorneys, U.S. Department of Justice, Antitrust Division, 450
Golden Gate Avenue, Box 36046, Room 10-0101, San Francisco,
California 94102, (415) 446-6300.
For Defendant Alliant Techsystems Inc.
Howrey & Simon,
By Raymond A. Jacobsen, Jr.,
A Member of the Firm, 1299 Pennsylvania Ave., NW., Washington, D.C.
20004-2402.
For Defendant Aerojet-General Corporation
Jones, Day, Reavis & Pogue,
By---------------------------------------------------------------------
A Member of the Firm, Metropolitan Square, 1450 G Street, N.W.,
Washington, D.C. 20005-2088.
For Defendant Alliant Techsystems Inc.
Howrey & Simon,
By---------------------------------------------------------------------
A Member of the Firm, 1299 Pennsylvania Ave., NW., Washington, DC
20004-2402.
For Defendant Aerojet-General Corporation
Jones, Day, Reavis & Pogue,
By Joe Sims,
A Member of the Firm, Metropolitan Square, 1450 G Street, NW.,
Washington, D.C. 20005-2088.
Plaintiff, United States of America, filed its Complaint on January
19, 1994. Plaintiff and defendants, by their respective attorneys, have
consented to the entry of this Final Judgment without trial or
adjudication of any issue of fact or law. This Final Judgment shall not
be evidence against or an admission by any party with respect to any
issue of fact or law. Therefore, before any testimony is taken, and
without trial or adjudication of any issue of fact or law, and upon
consent of the parties, it is hereby Ordered, adjudged and decreed, as
follows:
I
Jurisdiction
This Court has jurisdiction of the subject matter of this action
and of each of the parties consenting to this Final Judgment. The
Complaint states a claim upon which relief may be granted against each
defendant under Section 1 of the Sherman Act, 15 U.S.C. Sec. 1.
II
Definitions
As used in this Final Judgment:
(A) ``Alliant'' means defendant Alliant Techsystems Inc., each
subsidiary and division thereof, and each officer, director, employee,
agent, and other person acting for or on behalf of any of them.
(B) ``Aerojet'' means defendant Aerojet-General Corporation, each
subsidiary and division thereof, including but not limited to Aerojet
Ordnance Division, and each officer, director, employee, agent, and
other person acting for or on behalf of any of them.
(C) ``Combined Effects Munition (``CEM'') system'' means any
unguided, air-delivered cluster bomb of the 1000-pound class designated
by the United States Department of Defense as CBU-87, including but not
limited to CBU-87/B, CBU-87(D-2)/B, CBU-87(T-1)/B, CBU-87(T-2)/B, CBU-
87(T-3)/B, CBU-87A/B, CBU-87B/B, and CBU-87C/B. Each CEM system
consists of a cluster of 202 anti-armor, anti-personnel and incendiary
bomblets that disperse over a discrete area and explode upon impact; a
tactical munitions dispenser; a proximity senor; and a shipping and
storage container.
(D) ``Teaming arrangement'' means an arrangement, as provided in
Subpart 9.6 of the Federal Acquisition Regulations, in which: (a) Two
or more companies form a partnership or joint venture to act as a
potential prime contractor; or (b) a potential prime contractor agrees
with one or more other companies to have them act as its subcontractors
under a specified Government contract or acquisition program.
III
Applicability
(A) The provisions of this Final Judgment shall apply to
defendants, to each of their successors and assigns, and to all other
persons in active concert or participation with any of them who shall
have received actual notice of this Final Judgment by personal service
or otherwise.
(B) No portion of this Final Judgment is or has been created for
the benefit of any third party and nothing herein shall be construed to
provide any rights to any third party.
(C) Defendants shall each require, as a condition of the sale or
other disposition of all or substantially all of their assets used in
the production of CEM systems, whether by the sale of stock or
otherwise, that the acquiring party or parties agree to be bound by the
provisions of this Final Judgment.
IV
Prohibited Conduct
Absent prior approval of the Department of Justice or this Court,
Alliant and Aerojet are enjoined and restrained from adhering to,
carrying out, enforcing, or entering into any agreement, contract,
combination, or conspiracy, including but not limited to any teaming
arrangement, the purpose or effect of which is to eliminate or suppress
competition between the defendants in response to a request or
invitation by the United States, or any agency thereof, for independent
offers, quotations, bids or proposals for the supply of CEM systems
issued after the date of entry of this Final Judgment. Nothing in this
Final Judgment shall prohibit subcontracting between Alliant and
Aerojet so long as the purpose or effect is not to eliminated or
suppress the aforesaid competition.
V
Payments
(A) Defendant Alliant shall pay to the United States on or before
April 6, 1994 the amount of Two Million Forty Seven Thousand Five
Hundred Dollars ($2,047,500), plus interest accruing from the date of
entry of this Final Judgment at the rate described in Section 1961,
Title 28, United States Code. Payment shall be made by cashier's check
payable to the United States Department of Justice, and delivered to
Chief, San Francisco Field Office, Antitrust Division, Room 10-0101,
Box 36046, 450 Golden Gate Avenue, San Francisco, California 94102, or
as otherwise directed by the Department of Justice Antitrust Division.
(B) Defendant Aerojet shall pay to the United States on or before
April 6, 1994 the amount of Two Million Forty Seven Thousand Five
Hundred Dollars ($2,047,500), plus interest accruing from the date of
entry of this Final Judgment at the rate described in Section 1961,
Title 28, United States Code. Payment shall be made by cashier's check
payable to the United States Department of Justice, and delivered to
Chief, San Francisco Field Office, Antitrust Division, Room 10-0101,
Box 36046, 450 Golden Gate Avenue, San Francisco, California 94102, or
as otherwise directed by the Department of Justice Antitrust Division.
VI
Compliance Program
(A) Each defendant is ordered to maintain an antitrust compliance
program that shall include:
(1) Distributing, within sixty (60) days from the entry of this
Final Judgment, a copy of this Final Judgment to all officers and to
the employees who:
(a) Have responsibility for certifying the independence of price
determinations for, or
(b) Have principal responsibility for recommending, approving, or
disapproving, any offer, quotation, bid or proposal to the United
States, or any agency thereof, for the supply of CEM systems;
(2) Distributing in a timely manner a copy of this Final Judgment
to any officer or employee who succeeds to a position described in
Section VI(A)(1);
(3) Briefing annually those persons designated in Section VI(A)(1)
on the meaning and requirements of this Final Judgment and the
antitrust laws and advising them that the defendant's legal advisers
are available to confer with them regarding compliance with the Final
Judgment and the antitrust laws;
(4) Obtaining from each officer or employee designated in Section
VI(A)(1) an annual written certification that he or she:
(a) Has read, understands, and agrees to abide by the terms of this
Final Judgment; and
(b) has been advised and understands that his or her failure to
comply with this Final Judgment may result in conviction for criminal
contempt of court; and
(5) Maintaining a record of recipients to whom the Final Judgment
has been distributed and from whom the certification in Section
VI(A)(4) has been obtained.
(B) For ten (10) years after the entry of this Final Judgment, on
or before its anniversary date, each defendant shall file with the
plaintiff a statement as to the fact and manner of its compliance with
the provisions of Section VI(A).
VII
Plaintiff Access
(A) To determine or secure compliance with this Final Judgment and
for no other purpose, duly authorized representatives of the plaintiff
shall, upon written request of the Assistant Attorney General in charge
of the Antitrust Division, and on reasonable notice to any defendant,
be permitted, subject to any legally recognized privilege:
(1) Access during that defendant's office hours to inspect and copy
all records and documents in its possession or under its control
relating to any matters contained in this Final Judgment; and
(2) To interview that defendant's officers, employees, trustees, or
agents, who may have counsel present, regarding such matters. The
interviews shall be subject to the defendant's reasonable convenience
and without restraint or interference from any defendant.
(B) Upon the written request of the Assistant Attorney General in
charge of the Antitrust Division, any defendant shall submit such
written reports, under oath if requested, relating to any of the
matters contained in this Final Judgment as may be reasonably
requested, subject to any legally recognized privilege.
(C) No information or documents obtained by the means provided in
Section VII shall be divulged by the plaintiff to any person other than
a duly authorized representative of the Executive Branch of the United
States, except in the course of legal proceedings to which the United
States is a party, or for the purpose of securing compliance with this
Final Judgment, or as otherwise required by law.
VIII
Further Elements of Final Judgment
(A) This Final Judgment shall expire ten (10) years from the ate of
its entry.
(B) Jurisdiction is retained by this Court for the purpose of
enabling any of the parties to this Final Judgment to apply to this
Court at any time for further orders and directions as may be necessary
or appropriate to carry out or construe this Final Judgment, to modify
or terminate any of its provisions, to enforce compliance, and to
punish violations of its provisions.
(C) Entry of this Final Judgment is in the public interest.
Competitive Impact Statement
Pursuant to Section 2(b) of the Antitrust Procedures and Penalties
Act, 15 U.S.C. Sec. 16(b)-(h), the United States submits this
Competitive Impact Statement relating to the proposed Final Judgment
that is being simultaneously lodged with the consent of Alliant
Techsystems Inc. (``Alliant'') and Aerojet-General Corporation
(``Aerojet'') in this civil antitrust proceeding.
I
Nature and Purpose of the Proceeding
On January 19, 1994, the United States filed a civil antitrust
complaint alleging that Alliant and Aerojet entered into a teaming
arrangement suppressing and eliminating competition between them in
violation of Section 1 of the Sherman Act, 15 U.S.C. Sec. 1. The
Complaint seeks both monetary and equitable relief.
The Complaint alleges that beginning in or about August 1992, the
defendants have engaged in a continuing agreement, combination and
conspiracy to suppress and eliminate competition in the production and
sale to the United States of Combined Effects Munition (``CEM'')
systems, which are a type of cluster bomb. In response to a formal
Government solicitation for competitive proposals in 1992 for the
supply of such CEM systems, the defendants, instead of submitting
independent competitive proposals as requested, entered into a teaming
arrangement, the purpose and effect of which was (a) to eliminate
competitive bidding between them, and (b) to divide between them, as
equally as possible, the production, revenue, and profit from the
anticipated procurement.
Under the arrangement, Alliant was to act as prime contractor, and
Aerojet, in consideration of its not submitting a competitive bid,
would receive from Alliant a subcontract for certain designated
components of CEM systems. The effect of the arrangement was to reduce
the number of bidders from two to one on the 1992 procurement and to
substantially raise the price of the single offer that defendants
submitted. By its terms, the arrangement was also to apply to future
procurements beyond the 1992 solicitation of CEM systems.
The Complaint seeks a payment of money as relief in connection with
the 1992 procurement and an injunction prohibiting the continuation of
this or any similar arrangement on future competitive procurements of
CEM systems by the United States.
On January 19, 1994, the United States, Alliant and Aerojet filed a
Stipulation in which they consented to the entry of the proposed Final
Judgment requiring them to make payments to the United States and
prohibiting certain conduct. The defendants will also be required to
institute a compliance program to ensure that they do not continue or
renew the teaming arrangement or engage in any other agreement,
contract, combination, or conspiracy having a similar purpose of effect
in response to requests or invitations by the United States or any
United States agency for competitive offers, quotations, bids or
proposals. Additionally, the proposed Final Judgment requires that
Alliant and Aerojet file annual reports with the Government certifying
that each has complied with Section VI of the Final Judgment. The
proposed Final Judgment will provide the relief the United States seeks
in the Complaint.
The United States and the defendants have stipulated that the Court
may enter the proposed Final Judgment after compliance with the
Antitrust Procedures and Penalties Act, 15 U.S.C. Sec. 16, provided the
United States has not withdrawn its consent. The proposed Final
Judgment provides that its entry does not constitute any evidence
against or admission by any party with respect to any issue of fact or
law.
Entry of the proposed Final Judgment will terminate the action
against Alliant and Aerojet, except that the Court will retain
jurisdiction over the matter for further proceedings that may be
required to interpret, enforce, or modify the Final Judgment, or to
punish violations of any of its provisions.
II
Description of the Practices Involved in the Alleged Violations
A. Industry Background
The relevant product is a CEM system. A CEM system is a type of
``cluster bomb.'' The CEM system is technologically the most modern
cluster bomb in current production for the United States military.
However, it is not a ``smart'' bomb. The main bomb body contains a
cluster of approximately 200 bomblets that spread out in mid-air after
the bomb is dropped from aircraft. The bomblets, which have anti-
personnel, anti-armor, and incendiary capabilities, explode on impact.
The United States Air Force used the CEM system extensively in
Operation Desert Storm.
Aerojet initially developed the CEM system for the Air Force under
contracts awarded in 1974 and 1979. The Air Force awarded the first
production contract to Aerojet in 1983.
In the mid-1980's, the Air Force adopted a CEM procurement strategy
that called for having a second source for CEM production, in addition
to Aerojet. The dual source approach was designed to secure the
benefits of competition for future procurement and to expand the CEM
industrial base. The Air Force awarded a second-source contract to
Honeywell, Inc. The division of Honeywell responsible for production of
CEM systems was later spun off as Alliant.
In operation, the procurement strategy contemplated an award of
some quantity of CEM systems to each of the two competitors each year.
The low bidder received the larger production award. The relative
quantities awarded were determined by a formula that took into account
the magnitude of the difference in the prices of the two bids. The
strategy permitted a winner-take-all award, sometimes called a
``competitive downselect,'' to the low bidder in the final year of the
program. Such a competitive downselect would maximize cost savings to
the Government when two producers were no longer necessary.
Since 1987, all the requirements of the United States military for
CEM systems have been procured by the United States Army Armament,
Munitions and Chemical Command (``AMCCOM'') in Rock Island, Illinois.
This procurement has been pursuant to AMCCOM's mission as the
Department of Defense (``DOD'') Single Manager for Conventional
Ammunition. AMCCOM has continued the dual-source procurement strategy
initiated by the Air Force.
B. Illegal Teaming Arrangement To Eliminate Competition, Raise Price,
and Divide Production
After separate negotiated awards to Aerojet and Alliant's
predecessor (Honeywell) in 1985, the Air Force and then AMCCOM annually
solicited independent and competitive proposals from the two sources,
Alliant (including its predecessor) and Aerojet. Through 1991, Alliant
and Aerojet each annually submitted and certified the independence of
competitive offers. From 1985 through 1991, the Department of Defense
acquired approximately $1.75 billion in CEM systems from the two
defense contractors.
During the period of competitive procurement, the price the
Government paid for CEM systems declined significantly. From 1986 to
1989, the price declined an average of 20% each year. A competitive
downselect in 1990 resulted in the lowest price ever. In 1991,
following renewal of the program to replenish inventories depleted by
Operation desert Storm, AMCCOM returned to the dual-source award
strategy. The 1991 prices were somewhat higher than in 1990.
In the summer of 1992, there was a second competitive solicitation
to replenish inventories depleted by Operation Desert Storm. In
response, instead of submitting separate offers, as they had in each of
the previous six years, Alliant and Aerojet entered into a teaming
arrangement to submit only a single offer. Under the written teaming
arrangement, Alliant was to act as the prime contractor and Aerojet as
a subcontractor. The production of CEM systems was to be divided
equally between the two companies, with each supplying certain
designated components of the system. Under the arrangement, Aerojet was
not to submit a bid as a prime contractor. Accordingly, there would be
no competition between the only two companies qualified to provide CEM
systems to the United States. The teaming arrangement was to apply to
all U.S. procurement of CEM systems, for 1992 and beyond. Although
there was no 1993 procurement of CEM systems, at this point it appears
that there will be a 1994 procurement.
The Government did not approve or accept the teaming arrangement.
Upon receipt of the single offer, at a price significantly higher than
in the past, AMCCOM did not make an award at a firm, fixed price, as
originally contemplated. Rather, AMCCOM awarded production as an
``undefinitized contract action.'' This form of award accepted the bid
price as a ceiling only, with AMCCOM retaining the right to negotiate
the price downward, and, if necessary, make a unilateral price
determination. Under the Federal Acquisition Regulations, any
unilateral price determination is subject to contractor recourse to a
claims process intended to ensure establishment of a ``fair and
reasonable'' price. The award as an undefinitized contract action was
justified by an urgent, documented national security need for
uninterrupted CEM production. Continuous production was urgently needed
to keep the CEM industrial base ``warm'' and to avoid significant costs
of start-up that would be required in the event of a production
interruption.
By two other steps, AMCCOM formally made clear that it did not
approve or accept the teaming arrangement. First, in the notice of
contract award to Alliant, AMCCOM expressly stated that the award did
not constitute acceptance or approval of the teaming arrangement.
Second, AMCCOM, through the Army's Office of General Counsel, referred
the matter to the Department of Justice for investigation of the
teaming arrangement as a possible antitrust violation.
Although Alliant and Aerojet disclosed their intention to enter
into a teaming arrangement in advance to AMCCOM, this disclosure did
not create, and could not have created, antitrust immunity for the
teaming arrangement. Department of Defense personnel are not
authorized, and it is not their role under the Federal Acquisition
Regulations or applicable case law, to give antitrust clearance to
teaming arrangements.
The teaming arrangement had the effect of raising the price of the
single offer for 1992 CEM production that the team presented to AMCCOM.
The teaming arrangement also had the effect of increasing, above
historical levels, the costs and profits that the prime contractor
claimed as fair and reasonable under the undefinitized contract action.
III
Explanation of the Proposed Final Judgment
The proposed Final Judgment is part of a broader settlement that
has two aspects. One aspect is a net savings of about $12 million from
the price the Alliant/Aerojet team originally offered in response to
AMCCOM's solicitation of competitive proposals for the 1992 CEM
procurement. The $12 million in savings will be realized as follows:
First, the defendants will make payments of about $4 million to the
United States under the proposed Final Judgment. Second, as settlement
of the undefinitized contract action for the 1992 CEM procurement,
AMCCOM will pay Alliant, the prime contractor, about $8 million less
than the team's bid price.
The second aspect of the broader settlement is the prohibited
conduct in the proposed Final Judgment. This injunctive language is
intended to ensure that Alliant and Aerojet not continue or renew their
teaming arrangement for future procurements of CEM systems in which the
United States solicits competition.
The Department of Justice believes that the proposed Final Judgment
combined with the negotiated reduction of the contract price contains
provisions sufficient to remedy the effects of the teaming arrangement
on the 1992 CEM procurement and to prevent further violations by
Alliant and Aerojet of the type alleged in the Compliant.
A. Financial Terms
Section V of the proposed Final Judgment would require Alliant and
Aerojet to make payments to the United States, delivered to the
Antitrust Division of the Department of Justice, which will, in turn,
forward these receipts to the appropriate military account for CEM
system procurement. Each defendant is to pay $2.0475 million plus
interest from the date of entry of the Final Judgment; the combined
total payments will be $4.095 million, plus interest. These payments by
Alliant and Aerojet are intended to be refunds to the appropriations of
the United States for CEM procurement.
The broader settlement also includes agreement on a contract price
of $125.775 million for the 1992 CEM procurement. This price
constitutes about an $8 million reduction from the team's original bid
price of approximately $133.7 million in September 1992. This $8
million price reduction is not part of the proposed Final Judgment, but
is to be formalized in a separate contract modification agreement
between AMCCOM and Alliant. Upon execution of the formal contract
modification, which is planned contemporaneously with the parties'
agreement to the proposed Final Judgment, the relevant portions of the
modification will be lodged with the Court to be available for public
inspection.
The net price paid by the Government for the 1992 CEM procurement
under the settlement will be $121.68 million--the $125.775 million
negotiated contract price minus the $4.095 million refund paid directly
to the United States.
The actual amount that the low bidder would have proposed to AMCCOM
for the 1992 CEM procurement in the absence of the teaming arrangement
is not readily provable. The net price of $121.68 million that the
Government is to pay under this settlement is the best approximation
that can be made of what competition would have produced. The $12
million price decrease represents about 10% of the final price of
$121.68 million. For comparison, the Sentencing Guidelines for criminal
violations of Section 1 of the Sherman Act estimate that the average
gain from price fixing is 10% of the selling price. United States
Sentencing Commission, Guidelines Manual, Sec. 2R1.1, comment, n. 3
(Nov. 1992).
B. Prohibited Conduct
Section IV of the proposed Final Judgment would enjoin future
teaming between Alliant and Aerojet to supply CEM systems to the United
States, unless the Justice Department or the Court approves the teaming
in advance. This explicit prior approval requirement is intended as a
remedial measure to assure that neither Alliant nor Aerojet misuse
teaming arrangements to suppress competition.
The prior approval requirement in the proposed Final Judgment will
emphasize to the defense community generally that the Federal
Acquisition Regulations do not confer antitrust immunity. Subpart 9.602
of the Federal Acquisition Regulations states the general policy that
the Government recognizes the integrity and validity of teaming
arrangements, if disclosed in advance; however, Subpart 9.604
explicitly provides that the general policy does not confer antitrust
immunity on teaming arrangements. It is the responsibility of the
Justice Department, and not other components of the Executive Branch,
to make statements of federal enforcement intention with regard to
possible violations of Section 1 of the Sherman Act. The Antitrust
Division of the Department of Justice has a Business Review procedure
in place that is available, when the requirements of the procedure are
met, to provide statements of enforcement intention with regard to
proposed business conduct.
The proposed Final Judgment would not limit the flexibility of the
Department of Defense in procuring CEM systems. The Defense Department
retains all the CEM acquisition options provided by the Federal
Acquisition Regulations. The prohibition in the Final Judgment on
teaming relates only to those CEM acquisitions for which the
procurement office has determined that it is appropriate to solicit
competition.
By prohibiting further CEM teaming, the proposed Final Judgment
would enable the competitive procurement process to resume. Where
procurement through competition is an available and practical option,
it allows the Government to avoid the administrative expense of
negotiating prices and to efficiently obtain price and quality
benefits. In the absence of competition, AMCCOM must attempt to
negotiate a fair and reasonable price. These negotiations can be time-
consuming and costly to the Government, costing hundreds of thousands
of dollars each year.
The proposed Final Judgment also would permit subcontracting
between Alliant and Aerojet, so long as the purpose or effect of the
subcontracting is not to eliminate or suppress competition in the
supply of CEM systems to the United States. In some instances such
subcontracting may be the most efficient way of supplying particular
CEM system components to the Government. Accordingly, permitting such
subcontracting could reduce the United States' CEM procurement costs.
C. Compliance Program and Certification
In addition to the prohibitions contained in Section IV of the
Proposed Final Judgment, Alliant and Aerojet each would be required to
implement an antitrust compliance program. As part of the program, each
defendant would distribute copies of the Final Judgment to all officers
of that defendant, to the employees who are responsible for executing
Certificates of Independent Price Determination for CEM system
procurement, and to those employees who are principally involved in
determining the company's bid for such procurements. These persons
would be required to annually certify that they understand and agree to
abide by the terms of the Final Judgment.
D. Applicability to Successors and Assigns
Section III of the proposed Final Judgment makes the Final Judgment
applicable to the successor and assigns of each defendant. Each
defendant must require, as a condition of the sale of its assets used
in the production of CEM systems, that the buyer agree to be bound by
the provisions of the Final Judgment. At the time of lodging of the
proposed Final Judgment with the Court, the United States was aware
that a sale to Olin Corporation by Aerojet of its CEM production assets
in Downey and Chico, California had been discussed. The Stipulation Re
Entry of Final Judgment, which the parties have lodged with the Court,
provides that Alliant and Aerojet, from the time of filing of the
Stipulation, shall comply with the terms of the proposed Final Judgment
as if these terms had been ordered by the Court. Section III of the
proposed Final Judgment, which addresses successors and assigns and the
sale of CEM assets, in combination with this provision of the
Stipulation, is intended to ensure that before Aerojet consummates any
sale of its CEM business, it requires the purchaser to agree to be
bound by the provisions of the proposed Final Judgment.
E. Effect of the Proposed Final Judgment on Competition
The relief in the proposed Final Judgment is designed to prevent
Alliant and Aerojet from continuing or renewing their teaming conduct
that has suppressed and restrained competition in the supply of CEM
systems. It is also intended to remedy the price impact of the teaming
arrangement on the 1992 CEM procurement. The Department of Justice
believes that the proposed Final Judgment contains sufficient
provisions to prevent further violations by Alliant and Aerojet and, in
combination with the negotiated reduction in the contract price for the
1992 CEM procurement, to remedy the price impact of the teaming on the
1992 procurement.
IV
Remedies Available to Potential Private Litigants
Section 4 of the Clayton Act, 15 U.S.C. Sec. 15, provides that any
person who has been injured as a result of conduct prohibited by the
antitrust laws may bring suit in federal court to recover three times
the damages suffered, as well as costs and reasonable attorney's fees.
Entry of the proposed Final Judgment will neither impair nor assist the
bringing of such actions. Under the provisions of Section 5(a) of the
Clayton Act, 15 U.S.C. Sec. 16(a), the Final Judgment has no prima
facie effect in any subsequent lawsuits that may be brought against any
defendant in this matter.
V.
Procedures Available for Modification of the Proposed Final Judgment
As provided by the Antitrust Procedures and Penalties Act, any
person believing that the proposed Final Judgment should be modified
may submit written comments to Gary R. Spratling, Chief, Antitrust
Division, U.S. Department of Justice, 450 Golden Gate Avenue, Box
36046, San Francisco, CA 94102, within the 60-day period provided by
the Act. These comments, and the Department's responses, will be filed
with the Court and published in the Federal Register. All comments will
be given due consideration by the Department of Justice, which remains
free to withdraw its consent to the proposed Final Judgment at any time
prior to entry. In addition, the proposed Final Judgment provides that
the Court retains jurisdiction over this action, and the parties may
apply to the Court for any order necessary or appropriate for the
modification, interpretation or enforcement of the Final Judgment.
VI
Alternatives to the Proposed Final Judgment
As an alternative to the proposed Final Judgment, the Department of
Justice could have recommended that AMCCOM attempt to negotiate a lower
contract price for the 1992 CEM procurement pursuant to the
undefinitized contract action. Such a form of settlement, avoiding
payments explicitly as relief for an antitrust violation, could have
minimized publicity adverse to Alliant and Aerojet about the price
impact of their illegal conduct. In the view of the Department of
Justice, such a form of relief, in the absence of very significant
public financial benefits, is unwarranted and contrary to the public
interest in general deterrence that is served by the form of settlement
used.
Another alternative to the proposed Final Judgment would be a full
trial of the case against Alliant and Aerojet. In the view of the
Department of Justice, such a trial would involve substantial cost to
the United States and is not warranted because the proposed Final
Judgment provides relief that will remedy the violations of the Sherman
Act alleged in the United States' Complaint.
VII
Determinative Materials and Documents
A copy of the relevant portions of the contract modification that
embodies the negotiated price reduction for the 1992 CEM procurement
shall be lodged with the Court to be made available to the public.
No other materials and documents of the type described in Section
2(b) of the Antitrust Procedures and Penalties Act, 15 U.S.C.
Sec. 16(b), were used in formulating the proposed Final Judgment.
Dated: January 19, 1994.
Respectfully submitted,
Howard J. Parker,
Steven C. Holtzman,
James E. Figenshaw,
Antitrust Division, U.S. Department of Justice, 450 Golden Gate
Avenue, Box 36046, San Francisco, CA 94102.
Certificate of Service
I, Howard J. Parker, certify: That I am a citizen of the United
States and am employed by the U.S. Department of Justice, Antitrust
Division, at 450 Golden Gate Avenue, San Francisco, CA 94102; I am over
the age of eighteen years, and am not a party to the above-entitled
action; and I am one of the government attorneys in the above-entitled
action.
That on January 19, 1994, I sent via United States first class mail
copies of the Competitive Impact Statement to:
Aerojet-General Corporation, c/o C T Corporation System, 818 West
Seventh St., Los Angeles, CA 90017.
Alliant Techsystems Inc., c/o C T Corporation System, 405 2nd Ave.,
South, Minneapolis, MN 55401.
This Certificate is executed on January 19, 1994, in the United
States. I certify under penalty of perjury that the foregoing is true
and correct.
Howard J. Parker.
[FR Doc. 94-3157 Filed 2-10-94; 8:45 am]
BILLING CODE 4410-01-M
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.