Japan's general contractors were supposed to have left bidding collusion on public project tenders behind a long time ago. And yet, following the Dec. 8 search of major contractor Obayashi Corp.'s offices over suspected illicit bidding practices on tenders related to the Tokyo-Nagoya maglev train line, it looks increasingly likely that four industry mainstays will be accused of collusion connected to the 9-trillion-yen (about $80 billion) project.
Was this enormously expensive enterprise the trigger for collusion to make a comeback? Depending on how the inquiry by the special investigation unit of the Tokyo District Public Prosecutors Office goes, we could see a significant impact not just on the maglev train line, but on other major public works projects including preparations for the Tokyo 2020 Olympics and Paralympics.
"The Japan Railway (JR) companies, which were once all part of the Japanese National Railways, have a special responsibility to provide long-distance transportation across this country. Though they may now be private, they ought to keep their operating expenses low and pay out disbursements appropriately," said one senior prosecutor, underlining the significance of the investigation. "If the contractors pushed up the project prices by colluding on their bids, then that could end up being passed on through the maglev bullet train ticket prices. In other words, it is the people of Japan who would end up having to eat the extra cost," the prosecutor added.
According to the senior prosecutor and other sources, sometime before spring this year, the Japan Fair Trade Commission (JFTC) had obtained an internal Obayashi document with the initials of four major contractors written next to projects on four sections of the maglev train line, suggesting that the companies had decided which firm would win each tender before bidding. The JFTC then consulted with the Tokyo prosecutors' office's special investigations team on whether the document was grounds for a criminal probe, but was told that the "evidence is weak." The JFTC thus forwent searching Obayashi, which would have been the first step in forming a criminal case.
In autumn this year, personnel transfers altered the makeup of the Tokyo prosecutors' office, and the special investigations unit re-evaluated the evidence for bidding collusion on the maglev train project. The unit decided to execute searches after noting that the project tenders were awarded almost exactly as they had been divided up among the four firms listed in the Obayashi document. The first firm to be raided was Obayashi on Dec. 8 on suspicion of fraudulent obstruction of business.
The charge of fraudulent obstruction of business is most often applied to cases such as placing fake delivery orders with restaurants or relentlessly phoning a business. However, the statute can be interpreted to apply to illicit practices by private firms during the project bidding process.
After the search, Obayashi executives told investigators that the document including the four firms' initials "shows large-scale coordination on project bids." Obayashi has furthermore confessed to collusion among the four contractors, telling the JFTC that the company is looking to take advantage of a provision in Japan's antitrust law that sets lower fines for the first company to come forward in an antitrust case.
This admission put the investigation into high gear, and on Dec. 18 and 19 the special investigations unit raided the offices of general contractors Taisei Corp., Kajima Corp., and Shimizu Corp., and conducted another search of Obayashi. So far, the four companies are suspected of bid rigging on 15 project tenders related to the maglev train line.
However, assembling proof of rigging on all 15 tenders is no easy task. Investigators must establish if the divvying up of the projects was decided by only the people in the room at the time, or if the orders came from the companies' leaders. Furthermore, the JFTC likely must ascertain if Obayashi managers -- busily pursuing a reduced fine by flipping on the other three contractors -- are being entirely truthful about how events unfolded.
In 2005, the four companies concerned issued a declaration promising to end bid collusion after being publicly lambasted for the practice. However, construction costs for each section of the maglev train line are estimated in the tens of billions of yen. Did this enormous budget tempt the firms to return to their collusive ways? It appears the investigation to answer this question will stretch into the New Year.