TOKYO -- Four Japanese contractors suspected of rigging bids for work on a high-speed-rail project apparently resurrected an industry practice they had once disavowed. The prospects of a lucrative megaproject may have proved too great a temptation to resist.
Special investigators from the Tokyo District Public Prosecutors Office are set to ramp up their probe of Obayashi, Taisei, Shimizu and Kajima after New Year's. The contractors are facing charges that they had colluded to manipulate bids on construction contracts for Central Japan Railway, or JR Tokai, related to the Linear Chuo Shinkansen magnetic-levitation train line.
Fixed from the start
The four contractors won 15 out of 24 contracts awarded since 2015, with the projects split evenly among them. They are suspected of having decided bid winners in advance in violation of antitrust law.
Those handling the project at the four contractors began to meet regularly in 2014, soon after the government approved construction plans for the maglev train, according to sources familiar with the investigation.
JR Tokai asked each company to keep construction costs as low as possible, spurring concerns that price competition would hurt profitability. This allegedly resulted in an arrangement of bid coordination, with a former Taisei executive acting as a liaison to receive information.
Trail of evidence
Japan's construction industry has a history of such behavior. In the past, coordinating such collusion was done by specialists in charge of marketing. The industry abandoned the practice in 2005.
This time, bid manipulation was not led by marketing staff but by engineering experts, many of whom regularly saw one another at academic conferences. Some were even classmates in college.
"The sales managers were more careful; they would never have left behind notes about coordination," a person close to the contractors said. This time, prosecutors confiscated a list outlining how the orders were divvied up among the contractors.
"Given that the coordination was among private-sector companies, they might not have realized that what they were doing was illegal," an industry insider said.
Obayashi voluntarily reported collusion with its fellow contractors to Japan's Fair Trade Commission. The remaining three acknowledge exchanging information and bartering for some projects, but their interpretations differ on whether their acts violated antitrust law.
"Precedent suggests that the contractors will be found to have impeded fair competition if about half of all work was awarded to and shared among the four companies," said Masahiro Murakami, a visiting professor at Seikei University Law School who is familiar with Japanese antitrust law.
If found in violation, companies themselves will face fines, and shareholders could bring lawsuits against management.
The investigation is not expected to impact construction for projects with completed contracts, but there are many projects that have yet to be officially assigned. It is hard to determine how the probe will impact JR Tokai's schedule going forward.