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G.A.O. Says U.S. May Have Aided Milk Bid-Rigging Schemes

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WASHINGTON--The federal government may have unwittingly fostered several recently uncovered bid-rigging schemes undertaken by dairies selling milk to schools, a new General Accounting Office report contends.

The report says milk bid-rigging schemes under investigation in 19 states may have been aided by federal agricultural programs and a lack of cooperation between federal agencies.

Moreover, the report asserts, companies found guilty of rigging bids were able to continue to receive federal child-nutrition funds because the Agriculture Department took no steps to debar them from its programs.

The G.A.O. report, issued last month, was conducted in response to a probe of milk bid-rigging schemes by the Justice Department. That probe, undertaken in the late 1980's, has resulted in indictments or criminal charges against 16 dairies and 35 individuals, with 13 dairies and 28 individuals being convicted.

The Justice Department undertook its probes after Florida's attorney general discovered a pattern of bid rigging in that state.

The investigators accused the dairies of violating federal antitrust laws by colluding to keep prices high when they bid for contracts to supply milk to schools or military installations.

An Environment for Collusion

At the request of Rep. Tom Coleman, R-Mo., the G.A.O. examined federal agriculture laws and policies to determine if they were flawed in ways that allowed bid rigging to occur.

The G.A.O. examination found that the Sherman Antitrust Act of 1890, which prohibits practices that tend to monopolize or restrain trade, should have discouraged bid rigging and provided the government with adequate grounds for prosecuting offenders.

The fact that dairies nevertheless engaged in illegal business practices, the G.A.O. report says, may have been due in part to federal marketing and price-support programs that allow dairies to know their local competitors' minimum prices. The programs created "an environment that can foster improper collusion'' in contract bidding, the report suggests.

Both Justice and Agriculture were responsible for overseeing dairy cooperatives to insure they did not illegally rig bids, the report notes. But violators may have slipped by the two agencies because they shared their findings only on an informal, ad hoc basis.

When bid rigging was discovered, the U.S.D.A. had the authority to exclude those found guilty of abuses from receiving certain federal funds, such as those disbursed under its school-lunch program. As of last March, however, the department had failed to debar any of the dairies or individuals indicted for or convicted of bid rigging, the report says.

The report recommends that the Agriculture Department exclude bid-rigging dairies from federal programs and work with Justice to develop a systematic process for sharing information on suspect suppliers.

In response to the G.A.O. investigation, the U.S.D.A. also has expanded its efforts to provide and promote bid-rigging awareness training for state and local officials to enable them to spot the schemes.

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