Electrical Bid Registration Service of Memphis, Inc

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IN THE MATTER OF THE ELECTRICAL BID REGISTRATION SERVICE OF MEMPHIS, INC., ET AL.

FINAL ORDER, ETC. , IN REGARD TO ALLEGED VIOLATION OF SEC. 5 OF THE FEDERAL TRADE COMMISSION ACT Docket 9183. Complaint, Aug. 1984-Final Order, Feb. , 1986 This final order requires a Memphis, Tenn. bid depository set up by electrical subcontractors, among other things, to cease taking disciplinary action against firms that negotiate prices after bidding is closed or that accept a contract at a price other than that fied with the registry. Additionally, respondents may not require firms using the registry to deal only with other registry participants and cannot restrict in any way negotiations between electrical subcontractors and general contractors. Further, respondents are required to reinstate any firm it suspended for violation of the illegal rules and remove the ilegal provisions from its by-laws Or other rules. Appearances For the Commission: Truett M. Honeycutt, Douglas B. Brown and Harold E. Kirtz.

For the respondents: Carl H. Langschmidt, Jr., Boone, Wellford Clark, Langschmidt Apperton Memphis, Tenn., for respondents The Electrical Bid Registration Service of Memphis, Inc. , C.H. Dennis Jr., James L. Overton, Wayne A. Allen and Jack Gross. lames W. Watson and G. Patrick Arnoult, Watson, Arnoult Quinn Memphis Tenn. for respondent The National Electrical Contractors Association, Memphis Chapter.

COMPLAINT Pursuant to the provisions of the Federal Trade Commission Act as amended, and by virtue of the authority vested in it by said Act the Federal Trade Commission, having reason to believe that the Electrical Bid Registration Service of Memphis, Inc., a corporation and C. H. Dennis, J r., individually and as an offcer and director of said corporation, and James L. Overton, Wayne A. Allen, and Jack Gross, individually and as directors of said corporation, and The National Electrical Contractors Association, Memphis Chapter, a corporation, hereinafter sometimes referred to as respondents, have violated the provisions of said Act, and it appearing to the Commission that a proceeding by it in respect thereof would be in the public 240 Complaint interest, hereby issues its complaint stating its charges in that respect as follows:

Definitions (1) For the purposes of this complaint, the following definitions shall apply:

(a) The greater Memphis area consists of Memphis, Tennessee and some or all of the following twenty-three counties in Tennessee, Arkansas, and Mississippi: Shelby, Fayette, Lauderdale, and Tipton counties, Tennessee; Crittenden, Phillps (2) St. Francis, Lee, Cross and Mississippi counties, Arkansas; and DeSoto, Marshall, Benton Tunica, Tate, Loachoma, Quitman, Panola, Lafayette, Tallahatchie Yalobusha, Calhoun, and Granada counties, Mississippi; and (b) The term substantial as applied to building construction contracts or projects means those contracts or projects for which the electrical subcontract is expected to be in excess of $5 000. Parties (2) Respondent the National Electrical Contractors Association Memphis Chapter (hereinafter referred to as the Memphis Chapter) is a nonprofit corporation organized and existing under the laws of the State of Tennessee, with its principal offce and place of business located at 2600 Poplar Avenue, Suite 101, Memphis, Tennessee. The Memphis Chapter was organized and is operated in substantial part for the pecuniary benefit of its members, who are electrical subcontractors.

(3) Respondent the Electrical Bid Registration Service of Memphis Inc, (hereinafter referred to as the Registry) is a nonprofit corporation organized and existing under the laws of the State of Tennessee, with its principal offce and place of business located at 2600 Poplar A venue, Suite 101, Memphis, Tennessee. As set forth below, the Registry was founded by the Memphis Chapter and its members, who (a) established the Registry as a corporation with a self:perpetuating board of directors, (b) appointed all ofthe members ofthe Registry s first board of directors, and (c) selected electrical subcontractors who were Memphis Chapter members to fill a majority of the seats on the Registry board. A majority of the Registry s board has always consisted of electrical subcontractors who are Memphis Chapter members. The Registry was organized and is operated in substantial part for the benefit of the Memphis Chapter s members, who are de facto members of the Registry.

(4) Respondent C. H. Dennis, Jr. is an offcer and director of the Registry, and respondents James L. Overton, Wayne A. Allen, and Complaint 107 F.

Jack Gross are directors of the Registry. These individuals are sometimes referred to collectively as the individual respondents. They formulate, direct, and control the acts and practices of the Registry, including the acts and practices hereinafter set forth. Their address is the same as that of the Registry. Each individual respondent represents an electrical subcontractor that is a member of the Memphis Chapter.

Commerce (5) Respondents maintain, and have maintained, substantial courses of business, including the acts and practices as (3) hereinafter set forth, which are in or affect commerce, as " commerce" is defined in the Federal Trade Commission Act, as amended. Factual Allegations (6) Firms and government entities often engage independent contractors to perform building construction work, and they often use competitive bidding to select a general contractor for construction of a project and enter into a prime contract with the general contractor for such work. When competitive bidding is used, the firm or government entity (commonly referred to as the awarding authority) frequently requests prime bids from general contractors based on plans and specifications depicting the work to be done and the materials to be furnished. The awarding authority also sets a date for submissions and opening of the prime bids made by the general contractors. (7) In preparing a prime bid on a building construction project, a general contractor usually calculates the approximate cost of the work to be done by examining the specifications and estimating labor materials, overhead, and profit. General contractors often do not perform specialty work, such as electrical work, and in order to prepare their prime bids general contractors generally obtain sub-bids from subcontractors relating to their particular specialties. (8) Absent a bid depository or other mechanism that restricts the submission of bids by subcontractors to general contractors, the process of competitive bidding for building construction contracts can operate in the following manner. Each general contractor can obtain sub-bids from a variety of competing subcontractors in order to obtain what he considers the best proposal in terms of price and quality. Similarly, each subcontractor can submit sub-bids to a variety of competing general contractors. Until the deadline for the submission of prime bids to the awarding authority, general contractors and electrical subcontractors can engage in negotiations during which the subcontractors have an opportunity to revise their sub-bids. (Such negotiations are commonly referred to as pre-award bid shopping and 240 Complaint bid peddling.) After a general contractor has been awarded the prime contract, the winning general contractor and all interested subcontractors can engage in further negotiations, during which the general contractor may seek the most favorable price for the type and quality of the specialty work to be done, and subcontractors may attempt to win a subcontract by submitting lower acceptable bids. (Such further negotiations are commonly referred to as post-award bid shopping and bid peddling.

(9) In the greater Memphis area, the process of competitive bidding for building construction contracts generally operates in the manner described in Paragraph Eight, except with respect to the submission of sub-bids by electrical subcontractors to general (4) contractors for substantial building construction contracts. The process by which electrical subcontractors submit bids and otherwise compete to be selected to work on substantia) building construction projects in the greater Memphis area operates in a different manner because it is and has been governed by the rules of bid depositories established and maintained by electrical subcontractors, as set forth in Paragraphs Ten-Thirteen.

(10) Since approximately 1956, electrical subcontractors in the greater Memphis area have been engaged in a combination or conspiracy to restrict the manner in which they compete to be selected to work on substantial building construction contracts. The combination or conspiracy has been carried out by eliminating the open competitive process described in Paragraph Eight, which the electrical subcontractors believe puts unfair pressure on them to lower their bid prices, and instead establishing and operating bid depositories whose rules, policies, and practices place unreasonable restrictions on competition among electrical subcontractors. The Memphis Chapter and the Registry have participated in this combination or conspiracy, both as combinations of electrical subcontractors and as co-conspirators. Each ofthe individual respondents has participated in this conspiracy as a co-conspirator in his actions as an offcer and/or director of the Registry.

(11) In furtherance of this combination or conspiracy, the Memphis Chapter has engaged in the following acts or practices, among others: (a) In approximately 1956 the Memphis Chapter formed an in-house bid depository, and the Memphis Chapter operated this bid depository until 1976. The Memphis Chapter s depository established a deadline for electrical subcontractors' fiing of bids and prohibited electrical subcontractors from offering a lower price or otherwise amending their bids after the deadline. In addition, Memphis Chapter members 244 FICDERAL TRADE COMMISSION DECISIONS Complaint 107 F.TC.

were required to use the depository on all jobs handled by the depository;

(b) In 1976, the Memphis Chapter discontinued its in-house bid depository and formed a new bid depository, the Registry, which would be a separate corporation; and (c) Since 1976, the Memphis Chapter and its members have supported and/or controlled the Registry.

(12) In furtherance of this combination or conspiracy, the Registry and the individual respondents have engaged in the following acts or practices, among others:

(a) The Registry has operated in accordance with the following rules, policies, and practices:

(i) The Registry has a deadline for electrical subcontractors' registering of bids and prohibits electrical (5) subcontractors from offering a lower price after the deadline. This prohibition on negotiations over price applies both before and after the award of the prime contract; (ii) The Registry requires general contractors who accept the delivery of registered bids to agree that they will not award an electrical subcontract to any firm that did not have a bid registered with the Registry, and that all such awards must be at the price contained in the registered bid. This prohibition on negotiations over price applies both before and after the award of the prime contract; (iii) An electrical subcontractor who uses the Registry on any particular job may not submit any bids for that job to any general contractor who is not using the Registry for that job; and (iv) A general contractor who uses the Registry on any particular job may not accept a bid for that job from any electrical subcontractor who did not use the Registry on that same job unless the general contractor registers the non-participating electrical subcontractor bid with the Registry before the Registry s deadline for registering bids.

(h) The Registry has implemented and enforced these rules, policies and practices in the following manner:

(i) The Registry has imposed or threatened to impose sanctions including suspension from the Registry and imposition of fines or liquidated damages; and (ii) The Registry has notified all general and electrical contractors who regularly use the Registry of the identity of parties that have been sanctioned by the Registry.

(13) Most electrical subcontractors in the greater Memphis area are members of the Memphis Chapter. The Registry staff, which is also the staff of the Memphis Chapter, chooses what jobs wil be on the 240 Complaint Registry, and most competitively bid substantial building construction jobs in the greater Memphis area are selected to be on the Registry. When a job is on the Registry, electrical subcontractors generally use the Registry ifthey desire to bid on the job. Because the Registry rules prohibit electrical subcontractors using the Registry from dealing with general contractors who are not using the Registry, general contractors in the greater Memphis area are as a practical matter required to use the Registry, whether or not they would prefer to use the Registry or believe the Registry provides any benefits, if they want to receive bids from the electrical subcontractors who desire to bid on the job. (6) Purposes and Effects (14) The actual or probable purposes or effects of the combination or conspiracy alleged in Paragraph Ten and the acts and practices alleged in Paragraphs Eleven-Thirteen are or have been to restrict competition for electrical subcontracting for substantial building construction contracts in the greater Memphis area in the following ways) among others:

(a) General contractors have been restrained from seeking, negotiating for, and obtaining bids lower than those submitted by electrical subcontractors through the Registry;

(b) Electrical subcontractors have been restrained from offering lower prices or otherwise amending the bids that they have submitted through the Registry;

(c) Price negotiations and contractual relationships between willing general contractors and electrical subcontractors have been prevented by rules against dealing with firms not using the Registry; (d) There is pressure on general contractors to use the Registry whether or not they would prefer to use the Registry or believe that the Registry provides any benefits;

(e) Firms that have been suspended from the Registry for engaging in price competition prohibited by the Registry s rules have been prevented from submitting bids to or obtaining bids from other firms using the Registry on particular jobs;

(I) There is an increased likelihood that electrical subcontractors may engage in bid rigging or otherwise agree not to compete on the basis of price; and (g) The cost of electrical subcontracting services has been increased. Violations (15) Respondents' combination or conspiracy, and the acts or practices in furtherance thereof, have had or are having the purpose or Initial Decision 107 F. effect of restraining competition for electrical subcontracting for substantial building construction contracts in the greater Memphis area. These restraints on competition are unreasonable, because their anticompetitive effects are not outweighed by any procompetitive effects. Thus, respondents have violated Section 5 ofthe Federal Trade Commission Act by engaging in unfair methods of competition. Re spondents' combination or conspiracy, or the effects thereof, are continuing and wil continue in the absence ofthe relief herein requested. (7) Commissioners Miller and Calvani voted in the negative. INITIAL DECISION BY MORTON NEEDELMAN, ADMINISTRATIVE LAW JUDGE NOVEMBER 21, 1985 STATEMENT OF THE CASE The complaint in this proceeding was issued on August 6, 1984. It charges that in violation of Section 5 of the Federal Trade Commission Act, 15 V. C. 45, the electrical subcontractors in the Memphis Tennessee area have conspired or combined to restrain competition by means of a bid depository operated from 1956 until 1976 by the Memphis Chapter of the National Electrical Contractors Association Memphis Chapter ), and thereafter by the Electrical Bid Registration Service ("Registry ), which allegedly was organized by the Memphis Chapter for the purpose of continuing and refining the Memphis Chapter s earlier bid depository activities. According to the complaint, the Registry s rules relating to the bidding process between general contractors and electrical subcontractors has restrained price competition by:

Holding electrical subcontractors to their submitted bids, which means that they cannot be changed by negotiation either before or after the Registry s deadline for submitting electrical bids;

Requiring general contractors to agree that if they use the Registry on a particular job they must use one of the registered bids;

Preventing electrical subcontractors who use the Registry on any particular job from submitting bids for that job to general contractors who are not using the Registry. (2J The complaint alleges that these rules are enforced by imposing fines 240 Initial Decision and other sanctions, mainly suspension from the Registry s bidding system. The actual or probable effect of the alleged restraints is said to be that prices for electrical subcontractor services are raised without any countervailing effciency justifications. The complaint further charges that the operation of the Registry is conducive to bid rigging or other forms of agreements not to compete on the basis of price.

While the Registry s answer denies most of the substantive allegations of the complaint, it admits that the Registry (1) establishes a deadline for submitting electrical subcontracting bids, (2) requires general contractors who accept registered bids to agree that they wil not award a subcontract to an)' firm that did not have a bid fied with the registry, (3) prohibits an electrical subcontractor using the registry from submitting bids to any general contractor not using the registry, and (4) limits the discretion of a general contractor in using nonparticipating electrical subcontractors. The answer fied by the Memphis Chapter puts into issue the same points raised by the Registry, and also denies the complaint allegations respecting the role of the Memphis Chapter in forming or controlling the Registry. In the prehearing stage both sides were allowed discovery including depositions or interviews with all prospective witnesses. Proposed exhibits were exchanged, and prior to the formal hearings, the parties were given an opportunity to fie objections to all exhibits that were to be offered without supporting testimony. Complaint counsel's casein-chief was heard betw en June 4 and June 18, 1985. The defense case was presented during the week of July 15. Rebuttal testimony was offered by complaint counsel on August 14, and the record was closed for the receipt of evidence on August 23. During the hearings counsel for both sides were given full opportunity to be heard and to cross-examine the witnesses. The parties fied their main briefs and proposed findings on September 23. Reply briefs were fied on October 7. (3) After reviewing all the evidence, as well as the proposed findings and briefs submitted by the parties, and based on the entire record including my observation of the demeanor of witnesses, I make the following findings offact:1 (4) I Proposed findings not adopted in the form or substance proposed are rejected, as either not supported by the entire record or as involving immaterial or irrelevant matters. The following abbreviations arc used throughout in citing to the record: ex (Complaint counsel's exhibits) RX - (Respondents' exhibits) Joint Exhibit lA-Z is the Tennessee Contractors Licensing Act. Testimony is cited hy the name of the witness, followed by transcript page, as in Birrell 1196 Complaint counsel' s Exhibit 1 and respondents' Exhibit 4 are the indices required by 3.46(b) of the Commission s Rules. The appearances of the witnesses were as follows: (footnote cont' , , 248 FEDERAL TRADE COM!\ISSION DECISIONS Initial Decision 107 F. FINDINGS OF FACT A. Introduction: Construction Job Bidding 1. Private firms and governmental units, commonly referred to in the construction industry as awarding authorities, may use com- Name Called By T!'. Pages William K Arnold Complaint counsel 53-202 (General Contractor) ce. Frank Inman 205-272 (General Contractor) Cheryl Lynn Mann e.e. 272-317 (Electrical Subcontractor) Roger James Peters 327-415 (Genera; Counsel ofa Ger.eriJl Contractor) Fred Ta:mot:1 Bakel C.C 4\9-641 (Elec ricl!l SUDcontractOJ:' Robert E :\1oniscn 553-666 :General Contractor I Cecil Raymond Boucher 671-717 (General Contracto,- Joe Rayburn Hales C.C 720-748 (Senjor Eicctrica: InspcC Shelby CO' Irvin l\lcGroo:n 759-805 (Gcr,eral Contrac:orl Jessc:\Zellr,er 809-882 IGene' al Contractor) R005eve t "C,Jr " .\Ior 885-95, IGenera; Contractori Russe:; H. Cla;-k C.C 958- 1048 (Electrical Subcontractor) Waylor.H.),' taylor 1051- 109. IGene al Cor.tractor- Frederjc:1 Ellsworth Waul' lIOO-1l67 (General Contmctor! George S- Birrell 1168- 1300 IAssociate PYOfei,Sor of Civil Engir.eering. Case Western Reserve Cni\'e sity. Expert) John Frederick Stewart 1307- 1504, IAssociate Professor of Economics. 2042-2099 n;versity of ""ortr. Caroiina Expert:

Thomas Cooper Barnett Responde!1lS 1571- 1622 (Genera: CO:Jtractcr and esp. es:cien' of the Regis:ry) David Bror.sor. :\Iartin resp 1626- 1702 (General Contractor:

Johnr.yC:'ester esp 170. 1747 (E:ectric,,: Engincer, :rerr.bcr of t"e board of djrec ors 0: t:.e Reg-stryi Gene StJ'ng resp. 1751- 1845 IAnhitect. merr.berofthe::JOa"cof directors o:the Registry) Charles Dennis, J, resp 1845- 1936 (Electr caJ S'.lbcor. tractor, Vice President and IT'e"lbey of the boarci of directors off:e Registr!! Earl SCUdOC:1 resp 1949-2028 :ScCletary-""bnagerlJfthe:\lewphis Ci1apter a!1d .\1af'ilgeY Oflhr. Rr.gi~tr.",1 15) . .

L.H...

240 Initial Decision petitive bidding to select a general or prime contractor for an institutional or industrial project. When competitive bidding is being used the awarding authority requests that general contractors submit what is known as a "prime bid" for the overall project. Since these general contractors normally do not perform specialty functions such as electrical work (installation of conduits, wiring, fixtures), they must obtain sub-bids from electrical and other subcontractors in order to prepare their prime bids. At issue here are the efforts of the Memphis Chapter and the Registry to establish a bid depository designed to control the electrical sub-bidding process, especially the elimination of "bid peddling ' the practice whereby the general contractor discloses one electrical subcontractor s bid to another electrical subcontractor for the purpose of obtaining a lower bid. B. Identity of Respondents 2. The National Electrical Contractors Association, Memphis Chapter ("Memphis Chapter ), is a nonprofit corporation organized and existing under the laws of(6) Tennessee, with its principal office and place of business located at 2600 Poplar Avenue, Suite 101, Memphis Tennessee.5 The Memphis Chapter is engaged in various activities for the financial benefit of its 21 electrical subcontractor members, including counseling on price and profits, and the negotiation of a Memphis area labor contract.

3. The Electrical Bid Registration Service of Memphis, Inc. ("Registry ) is a nonprofit corporation organized and existing under the laws of Tennessee with its principal office and place of business located at 2600 Poplar Avenue, Suite 101, Memphis, Tennessee.7 The Registry opcrates a bid depository designed to serve the economic well-being of Memphis area electrical contractors by eliminating bid peddling8 4. The individuals named as respondents, C. H. Dennis, Jr., James L. Overton, Wayne A. Allen, and Jack Gross, are either officers or owners of electrical subcontracting firms. All currently serve on the board of directors of the Registry; in addition, respondent Dennis is 2 ex 2C, ex 3K, ex 4H; BirreJJ 1196.

IWatle 1119, Birrell 1196 , During the coune of the hearings, the w;tnes generally drew no dislinction between "hid peddling-" and "bid hopping But see Strong 1764 for distinction based on whetherthe lieneral contrilclor simply makes a survey ofeJectricalpricesILe. shops )or!JcluaJlyusl'sli. e.. peddles ) the specific bid of one electrical subcontractor to drive down the price of another. For recognition by respondents of interchangeable use of the lermssee ex 2D ex 3K-L Accordingly, throughout this initial decision I have used the terms interchangeably to refer to the negotiation for prices that ;Ire lower than those oribrinBlly quoted in sub-bids submitted to.1 general contractor A distinction is dnlwn, however, in several JindingR between pre-ilwanJ and post-award bid pedd!ingbased on when thp. negoliations took place.

Memphis ehapte)' Answer i (2) "Ylf'mph;s Chapter' Answer, (21: Rakf'r 500 , Dennis 1895, Scurlock 1951- 'Registry Answer, f" (2- "Bamelt 1579- 1599; .\e.' ulM' Fjnding 1: \) Initial Decision 107 FTC. vice president of the Registry.

5. The record contains no evidence relating to the direct responsibility of the named individual respondents for the practices challenged in the complaint'!o But as complaint counsel would have it, an inference of control by them over the Registry s practices should be drawn from the fact that these four individuals, who are all identified (7) with electrical subcontracting firms, currently make up a majority of the Registry s board of seven, and included in the board's general power to manage the Registry s affairs, is the right to appoint the Registry s manager and to fill vacancies on the board itself.l1 There is no evidence, however, that the named individuals have collaborated to use this latent power in order to dictate to the three nonelectrical board members,!2 On the contrary, all that the record wil allow on control of the Registry is that Earl Scurlock, acting on behalf of the that theMemphis Chapter, picked the members of the first board,13 first board picked the succeeding board and so on I' and that Scurlock would probably designate their successors ifthe four named respondents were removed.l And while the board also has the power to approve sanctions for violations of the Registry rules-this is the function of the board that is most relevant to this proceeding, see Findings 25, 45-54-the record shows that all disciplinary actions were imposed by a unanimous vote of all board members present, as 16 As for the day-to-day business of therequired by Registry rules. Registry-running a bid depository for electrical subcontracting jobs this is carried out exclusively by Scurlock and his assistant (Juanita McClain), and there is no evidence that the named individual respond- 17 (8)ents in any way participate in this activity. C. Commerce 6. The Memphis Chapter and the Registry are engaged in "commerce " as ncommerce" is defined in the Federal Trade Commission 9 Registry Answer, 11 (4); Memphis Chapter Answer, TI (4); ex 2" , ex 3D , K; Dennig 1819- Ll) While Dennis was named in the c.complaint in his capacity as a director ;lnu an offcer, there was no ('vidence introduced respecting his duties as vice presidenl except that he presides at hoard meetings when B3rnett, the president of the Registry, is absent Barnett, whu ..Iso serves on the hoard of the Registry, was not named as an individual respondent in any caparity.

See ex 3C, K, ex 4A.

L" See Strong 1756, Dennis 1867. Since its format,ion, the Registry board has consi!\ted of four electrical subcon. tractors, an architect, an electrical engineer, and a geneml contractor. The president of the Registry has always been Cooper Bamett, a general contractor, Registry Answer. 11 (:I; Barnett 1573 ' ex 2F; Bartlett 1572 , Strung 1755, Smrluck 195354, 1999, 2009 I' ex 4B.

I" See Scurlock 1952- IG Reg-istry Answer. n (J2)(b)(i); ex 3F, M, ex 4S No Regislry business, including the irnposition ofsrlOctions can be tram;acted without a quorum affjve director' s. This means that a sanction carmut be approved without the vote of at. least one nonelectrical board member. ex 4S: Barnett 1575 , 1:,89, Dennis !867 17 See Findings 12 14- 15; see "Iso Cheoter 1733, Scurlock 1955 , ,WOO. , 240 Initial Decision Act as amended.1 D. The Role Of The Memphis Chapter In The Evolution Of The Memphis Area Electrical Bid Depositories 7. The Memphis Chapter operated a bid depository from January 1956 until August 1976.1 While the bid depository operated by the Memphis Chapter was intended to bind all members ofthe chapter to rules eliminating bid peddling,20 these rules were not rigorously enforced, and this earlier depository was widely regarded as ineffectual.

8. In 1976, the board ofthe Memphis Chapter directed their manag- , Earl Scurlock, to explore the feasibility of organizing a bid depository modeled after The Bid Registration Service of Memphis, Inc., a depository operated by the mechanical subcontractors in the Memphis area which had effectively eliminated bid peddling in the me- Scurlock contacted BV. Stevens, manager ofthechanical sub-trade.22 mechanical (9) subcontractors' bid depository, and Carl Langschmidt counsel for respondent Registry herein, and in 1976 counsel for the mechanical subcontractors' bid depository. Stevens and Langschmidt advised Scurlock about the technical and legal requirements for setting up a bid depository patterned on the mechanical subcontractors model.23 9. Stevens' and Langschmidt's advice was reported back to the Memphis Chapter by Scurlock, who was then authorized by Memphis Chapter to inform Langschmidt to draw up the necessary legal documents incorporating the Registry on September 7, 1976. 10. In October 1976, the board of directors ofthe Memphis Chapter approved a $2 000 loan to the Registry, which was intended to enable the Registry to begin its operations.25 This unsecured loan was paid tB ex 2C, ex 3H , ex 4J. The Regi try operates in the following 23 Memphis lIrea counties in Tennessee, and neighboring Mississippi and Arkansas: Shelby, Fayett, Lauderdale, and Tipton Counties, Tennessee DeSotu :yarshall, Benton, Tunica, Tate, Coachoma, Quitman, Panula, Lafayette, Tflllahatchie, Valobusha, CaJJlOun, and Grenada Counties, Mississippi; and in Crittenden, Phmip8. St. Francis, Lee, Cros, and the southern half of Mississippi County, Arbnsas. ex 3B, J , ex 4A. The geographicjurisdiclioll of the Memphis Chapter is essentially the same as the area served by the Registry. CX 2" 19 Memphis Chapter ADswer (l1)(a-h); ex 2A, ex 6B () Scurlock 2012.

11 Dennis 1905--08. Essentially, the rules ufthe Memphis Chapter s bid deposilory provided t.hat sealed bids had to be submitted by electrical subcontractors to designated branches of a commercial bank on all jobs valued in excess of $3 000. These sealed bids, which had to he submitted four hours priur to the deadline for t.he general contractors, could not be changed. The Memphis Chapter bid depository obtained no agreemer1ts from general contractors to use the bids submitted through the depository and, in practice, there were many instances when electrical contractors orally changed bids after the deadline- CX 2A- , CX 15A-eX 17B; Dennis 1908- , Scurlock 1995-97 2011- 22 CX 2E- , CX 68; Dennis 1907- , SturJock 1952-54, 2010. 1 ex 2E. , CX 68; Scurlock 1952- "ex 2F, CX 68, CX 7A-D; Scurluck 1952-54 5 ex 2F, ex 68, CX 8D-II; Scurlock 2014 252 FEDERAL TRADIC COMMISSION DECISIONS Initial Decision 107 FTC. back within a few months '6 and since 1976, the Registry has received no other loans from the Memphis Chapter.'7 11. Of the seven members of the first board of directors of the Registry picked by Scurlock, four were offcers or owners of electrical subcontracting firms that were members of the Memphis Chapter. Subsequent Registry boards during the period 1977 1983 included four representatives of electrical firms that were members of the Memphis Chapter.'9 In 1984 , three of the directors of the Registry , 30were similarly affliated with members of the Memphis Chapter and in 1985, of the seven Registry (10) board members, two-C. Dennis and James Overton-were connected with firms belonging to the Memphis Chapter.31 Since the Registry s inception, at least one offcer or director of the Memphis Chapter has been on the Registry board.

12. Scurlock, the manager ofthe Memphis Chapter, is also the only manager the Registry has ever had. Scurlock, who is paid a salary and bonuses by the Memphis Chapter but receives no separate compensation as manager of the Registry,34 is responsible for the day-today operations of both the Memphis Chapter and the Registry.35 Since its inception (and to this day) the Registry operates out of the offce of the Memphis Chapter.

E. The Operation Of The Bid Depository By The Registry 13. Since its creation in 1976 by the Memphis Chapter, the Registry has established and enforced rules designed to eliminate bid peddling in thc Memphis area electrical trade.

14. Scurlock and his assistant, Juanita McClain, gather information from trade publications ("Builders Exchange Weekly Bulletin and "Associated General Contractors (11) Weekly Bulletin ), news sources, as well as from subcontractors and general contractors, about 2" ex 21", ex 8D- , ex 9--X 10; Scurlock 2014. 27 ex 8E 2. Vernon G. Goldecke, one of the members ofthc Registry first board, was a diredor of the MtJrnphis Chapter in 1976. Others who served on the first Registry board and who were also members of the Memphis Chapter were Jar.k Gross, David Haines, and Frank Pitt. ex 2F. , K. ex 3R. 2" ex 2" , ex 3Rex 28 , ex 3V.

JJ Dennis, vi e pre ident of the Registry and a current member of the Memphis Chapter, was president of Memphi Chapter in 1976 when the Registry was organized. Dennis was also governor of Memphis Chapter in 1978- 1979 1982-1985- Dennis' firm, Byrd F:lectric, has been a member of the Memphis Chapter from 1967 to the present. ex 2G- , po, ex 3D , K, CX lias; Dennis 1818- Overtun is a current member ofthf' Memphis Chapter CX 2H CX 2"

J:, ex 2G.

I' Scurlock 20U9 3, Chester 1733, Strong 1796, Scurlock 1955. 36 CX 2G. The Registry pays the Memphis Chapter a negotiated monthly fee for use ofolIcespace and secretarial services. ex 2G, ex 26C; Barnett 1591- , Scurlock 2001--2. 17 ex 31r ex 160B-C; Arnuld 122, Mann 287, Baker 498, Boucher 679, Barnett 1579-80, 1599, 1603-4 , Chester . _. .... . _._ .._ g., . . .au__. , u - .u,. 240 Initial Decision projects that might trigger the use of the Registry. 15. Having made a determination that a particular job is one on which there is to be competitive bidding and that the electrical work is likely to exceed $5 000 in value 39 Scurlock and McClain poll all the general contractors who might conceivably be interested in bidding on the job to determine whether they are willing to accept bids through the Registry.4o Scurlock and McClain attempt to poll the general contractors several days in advance of the generals' bidding deadline; in actual practice, however, most of the generals are contacted on the day before the generals' deadline.41 Scurlock or McClain enter on a Registry work sheet the name of every general contacted the general's telephone number, the name ofthe job, the bid date, the bid time, the name of the general's architect, the name of the general' s engineer, and a notation as to whether the general has indicated a willingness to accept Registry bids.

16. The Registry requires general contractors, who have indicated a willingness to accept Registry bids, to agree that they will award the electrical subcontract to a firm that has a bid registered with the Registry and at the price fied with the Registry. (12J The winning general, however, need not select the low Registry bidder so long as it confines its selection to an electrical firm bidding through the Registry.

17. Since the Registry has no membership rolls, any licensed electrical subcontractor may submit a bid to a general who has previously indicated its wilingness to accept Registry bids. The electrical subcontractors in the Memphis area apparently learn the identity of generals willing to accept Registry bids from either Scurlock or McClain who encourage electricals to bid through the Registry. 18. An electrieal subcontractor using the Registry on any particular job may not submit bids for that job to a general contractor not using 3R Scurlock 195&-57.

q ex 3D, J; Scurlock 1981-82. The $5 000 limit is not an important restriction on the operation of I. he Regi t.ry since signiflcomt electricaljohs are valuedin the area of$50 000. , e. Zellner 824- , Morgan 926. In addition to the monetary limitation, the Registry does not operate when subcontractors bid directly to awarding authoritie for projects on which the bids arc scaled and opened publicly. ex 4J. o Tnman 225, Zellner 826, Martin 1634- , Scurlock 1956-57. " Arnold 99, Boucher 688-- , McGroom 766, Rarnett 1578 2 Scurlock 1956-59 H The Registry s bid forms give the following notice to genera! contractors who have indicated a willingness to accept. Registry bids: "He IGcneral Contractors agrees not to award the contract for the work covered by !.IPse bids on lhesaid project.toanypart.yot.hf'rt.hanasubcontractorwbohasdulyandtimely df'positcd and registered his bid with the Electrical Bid Registration Service and at tbe price so bid by the subcontractor, it being acknowledged t.hat as prime contractor he had the right. to register with the Registry any outside subcontractor bids which he received that. were not regist.ered with the Rer;stry and t.hereby be free to award the contract for such work to any such subcontractor SHbmitting an outside bid. " CX 4P. See also ex 3G, )j; Zellner 838. In recent years the Registry has made an intensive effort to inform Memphis area general contractors about. the Registry s rules, and to receive from these contractors an acknowledgement that they would abide by tlh' rules when using the Registry. CX 3H, N, ex 12TI-ZI9. See also Dennis 1878-79. Barnett 16!8- , Scurlock j987--8 254 FICDERAL TRADE COMMISSION DICCISIONS initial Decision 107 F. the Registry.

19. The Registry imposes on electrical subcontractors a strict deadline for submitting sub-bids. The deadline is three hours prior to the deadline for the general (13) contractors.46 In the Memphis area prime bids of general contractors are usually due at 2:00 p. 47 which means that the Registry has an effective deadline of 11:00 a. 20. Bids of electrical subcontractors may be amended or withdrawn before the Registry s deadline by the subcontractors' compliance with the same procedures as would have applied had the amended or withdrawn bids been original bids. (14) 21. After the Registry s bid submission deadline has tolled, those using the Registry cannot negotiate over price. The Registry requires that all awards made by general contractors must be at the price contained in the registered subcontractor bids. This prohibition against negotiation over price applies both before and after the award of the prime contract.

22. The Registry bids of electrical subcontractors must be submitted to the Registry on special forms provided by the Registry. The electrical subcontractor fills out a separate form for each general to whom 5 Registry Armwer, r (12)(a)(iii). See o/so ex 3G, 1\'. The Registry s rules provide WhtJrJ .. subcontractor registers a bid or bids with the Registry, he shallubmitnot any non-registered bids to any prime contractor or to the awarding authority in the case of direct bidding. ex 4M ,,; The Hegistry s rules provide 'lhedeadline for delivery of the copies of bids to the depository for registration (said deadline being herein referred to as the "deadline for registmtion of bids" for ease of reference) shall he three hours prior to the deadline established for delivery orhid by prime contractor to the awarding authority- Ifthe suhcontnlCtor bids are submitted directly to the awarding authority, the deadline for subcontractor bid registration shall be the same dearlline as established for delivery uf bids to the awarding authority When no deadline has been established for the delivery uf tbe prime contractor bids to the awarding authority, or for the delivery ofsubcuntractor bids to the awardi ngauthority in the case of direct bidding, the Registry shah establish a deadline for the registration of subcuntractors' bids and for the delivery of bids to the prime contractors or the awarding authority, as the case may be, after consultation with the prime contractors and/ur awarding authority CX 4M.N. See also Registry Answer, n (12)(a)(i). 47 Arnold 134-35 '8 The Registry s rules provides:

Any bid registered with the Registry may be amended or withdrawn before the deadline for registering of bids by cumplying with the same procedure as if the amendment or withdrawal were an original bid: e- , (1) the uriginal amendment or withdrawal signed by an authorized representative ofthe subcontractor and the duplicate copy being placed in the appropriate scaled envelopes for each prime contractor, or the awarding authority if bid directly, (2) the envelopes containing same bearing on their face the specified infurmation except being captiuned "AMENDVfENT OF ORIGINAL BID" or "WITHDRAWAL OF ORIGI!\'AL BID" and COPY OF AMENDMENT OF BID FOR REGISTRATIOi'" or " COPY OF WITHDRAWAL OF BID FOR REGISTRATIO)J", respectively, (3) the envelopes being delivered by subcontractor (,,) to the depository, time stamped aod deposited in the locked container for original bid to be delivered and the locked container for copies ofthe bids to be registered, and (b) in the case of direct bidding, to the awarding authority. Upon opening the container of original bids, the amendment or withdrawal shall be placed with the original bid to the prime contractor in the large envelope and delivered to the addressee as provided for original bid . L'pon opening the container of copies of bids for registratiun, the infonnation as to amendment or withdrawal ofa bid to the succes ful prime contractor, or the awarding authority in the case of direct bidding, will be tabnlated with the information about the original bid as provided above. This provision is not intended to foreclose, waive or otherwise hmit any right a subcontraclor may have to withdn.w a bid after the deadline for deposit and registratjon of bids on the ground of mistake, what rights a subcontractor may have being determined by the appljcable law of the jllrisdiction. 4R-S.ex 49 )."cr"t.rv A"""'..r q (1')11,1(;.;;\' n rh",tt 1. ):

ELEC. BID REG. SERVICE OF MEMPHIS, INC., ET AL. 255 240 Initial Decision it wishes to bid. The electricals may elect to bid different prices to different generals. The bid form for each general must be placed in a sealed envelope for transmission to the Registry. 23. When the sealed envelopes containing the electrical bids arrive at the Registry olIiee, they are placed in large envelopes designated for each general who has (15) agreed to accept Registry bids. The large envelopes are delivered to these generals near 12 noon, approximately two hours before the generals ' own deadline. 51 24. While a general contractor is permitted under the Registry rules to register late bids it has received from electrical subcontractors who have not fied sealed envelopes directly with the Registry, time constraints faced by general contractors in receiving and compiling bids on bid day make it impractical to do so, since any bid, by the terms ofthe Registry s rules, can only be considered if physically fied with the Registry prior to the Registry s deadline. 52 Should a general contractor use its offce staff to register these late bids (and the record shows that most general contractors do not consider this a viable way to expand on the number of firms bidding through the Registry), it would have the effect of diverting the general's personnel at the crucial (16) point in time near the general' s own bidding deadline when they could be negotiating over the terms of bids with trades that do not have bid depositories.

25. The Registry s rules are enforced by sanctions, mainly suspension from use ofthe Registry.51 Suspension necessarily means that on future jobs, the general contractor wil not have available Registry bids with the result that it wil have fewer competitive prices to work As for the electrical subs, suspen-with in making up its prime bid.55 sion is detrimental to their businesses since it means that they cannot 5G ex 4L-Q; Mann 285-6, Scurlock 1965-7.

51 Scurlock 1965-8. After the identity of the winning general "a8 been determined, the Registry lists the bids to that general, and this tahulation is sent to a11 electricals who had bid on the job. Scurlock 1968-9. 52 The Registry s rules provide:

By Prime Contractor 'Jr Awarding Authority (Outside Bid. Each prime contractor, and the awarding authority in the case of direct bidding, shall have the right to register any oul"ide bids he receives which have not been registered with the Registry by timely delivery of exact cupies of all out ide bids he desires to register placed in a single, sealed envelope, furnished by the Registry, t oan appropriate reprcscntativeofthe depository with the same information appearing on the face of the envelope as provided above for use by subcontractors in registering their own bids.

pon receipt of the sealed envelope containing the copies of outside bids from the prime contractor, or awarding authority, the representative of the depository (not the prime contractor or awarding authority) shall time stamp and deposit the envelope in the locked contlliner designated for the deposit of the copies of subcontractors' bids for registration.

The deadline for registration of outside bids by a prime contractor or awarding authority shall be the same as that provided below for registration by subcontractors of their bids. exSee 4M.also text of bid form, Note 43.

Arnold 96 101--2 110, 170-7\, Inman 218-19, Boucher 685-90, Zellner 816-17, Morgan 923, Naylor 1072- Birrell 1264- , Stewart 1:1,16-37, Barnett 1600-1, Martin 1679-80. See al. Finding 36 s. Registry Answer, TI (12)(b)(i); ex 3l"-H, M- , ex 4S; Strong 1768-69.See Findings 45-54. 55 Arnold 92- , Peters 343-47 , 35864, Zellner 819-- , Marlin 1675- 256 FEDERAL TRADIC COMMISSION DECISIONS Initial Decision 107 F. effectively bid to generals using the Registry. 26. Compliance with Registry rules is also secured by the Registry policy of notifying all general contractors and electrical subcontractors who regularly use the Registry of the identity of suspended firms.57 The Registry s notification policy, which ostensibly has the purpose of simply informing contractors and subs of the names of firms that will not be bidding through the Registry,58 tends to make adherence to Registry rules more certain since suspension may harm the reputation of a firm and make it more diffcult for it to get jobs in the future. 59 27. The Registry operates on the basis of a fee paid by the electrical subcontractor who has bid successfully on a particular job. The Registry s charge is 1-'1 percent of the contract price, but in no event less than $25 or more than $2 000. (17) F. The Market Setting Of The Bid Depository Operated By The Registry 28. In recent years there has been a drop in both the number and dollar value of jobs bid through the Registry. While complaint counsel do not dispute the fact that such a decline has occurred, it claims that precise market figures are simply unavailable, and it is sharply critical of respondents' attempt to fill in this lacuna by applying to total nonresidential construction figures (as provided by the authoritative W. Dodge survey) a factor of 10 percent, which is widely accepted as representing the portion of total construction fairly attributed to electrical work. l Even if respondents' evidence is somewhat flawed it is at least usefill for showing that the general trend has been in the direction of the Registry handling an increasingly diminished percentage of total Memphis area electrical subcontracting jobs, as shown in Table 1, below:

'" ex 92; Baker 425- 26.

- Registry Answer I (12)(h)(ii); ex 3H , 1\;, ex 8K- ;,H ex 8K- , ex 158F- ;" Boucher 691- "" ex 4S- "I Morg,H192G 01 Respundents' evidence is questioned because (a) it includes jobs under $5.000 that are not eligible for Registry considerFl.ion, ami (b) it includes negoli"ted work that has berm entirely removed from the competitive bidding proces See Stewart 1405-- , 1432- 00' % as (6) 5 10. 17.22.4429.41.0424.71.50.23. Column of Column Jobs Electrical Registry 000 619749000 127 (5) Awarded 588,000245,000687132,345255506 878,000916 Dollarof 8,412 Jobs Value Through Subcontracting increa Elec- 000000000000000 800200100 Electrical (4) ofJobs 880510550045,800740590637 Dollar 24,460 Memphis $33,460 Area Valuetrical Memphis the Table % 1 as Total 2 5.44 Of (3) 11. 14.12. 16.40.26. Column of Column Percentage A As Registry Processed 155123 Jobs (2) Number Electrical of 1. JobsThrough RX Registry 154;

theArea CX, (1) in 514559401489432452384472430 Number Electrical ofJobs Memphis 14Aex Year 198419831982198119801979197819771976 Sources: Initial Decision 107 F. 29. The record suggests several reasons for the decline shown in Table 1. There has been a marked trend in recent years away from bid work, and toward the use of prices negotiated between owner and an individual general contractor or owner and a (18) preselected group of general contractors.63 Moreover, even on jobs on which there is competitive bidding for the prime contract, the winning general may bypass subcontractor bidding because it is accustomed to work- It shoulding with a previously selected team of specialty tradesmen.64 also be noted that ordinarily the Registry will not be used unless the particular job is well-defined, complete, and assured of adequate financing.65 Finally, the Registry does not operate at all if the general has been preselected even if the electrical work is open to competitive bidding.

30. Notwithstanding the decline in the total number of jobs going through the Registry, the Registry nevertheless affects an important segment of electrical subcontracting work done in the Memphis area. On most significant electrical jobs in which bidding is involved, the Registry operates.6 Moreover, the volume of electrical subcontracting that passes through the Registry is cyclical, to the point that Scurlock testified that the machinery of the Registry must be preserved in anticipation of a shift from negotiated to bid work.6 31. The claim was made by several witnesses that the Registry is simply an option open to general contractors who elect to use a sealed bid system.69 The weight of the evidence is to the contrary. For while it is true that general contractors are (19) theoretically free to choose to go through the Registry or to bypass it 70 as a practical matter when the Registry is in operation, contractors are under pressure to use it since they want all the bids that they can possibly get, including the bids that can only be had by going through the Registry. It is the perception of generals that without such a full array of electrical bids they cannot prepare truly competitive prime bids. Moreover, general contractors are especially interested in obtaining the bids of the dependable and financially stable electrical firms which regularly use the Registry, and generals believe that they would be at a competitive disadvantage if other generals had access to these well-established firms (by agreeing to take Registry bids) while they remained outside "'I Al' nuld 58- , Inman 208-09, Scurlock 1976-81. "'Strung 18201- , Dermis 1852 "'Strong 1829- , Dpnnis 1852; seealso Martin 1674- !i; Dennis 1899-1900 ,;, Baker 482 , Zellner 826, Barnetl 1620, Martin 1700- ,;" Scurlock 2003- "., Strong 1759- , Scurlock 1959- '(I \1organ 937 . N".lylor l092 Wade 1144- :va!"lin1633- " Inman 213, Boucher 678, ZeHner 832. 843, Naylor 1067- , Wade 1139. larti\l 1673-75. 240 Initial Decision of the Registry.72 It should also be noted that the Registry rule prohibiting subcontractors from bidding both inside and outside of the Registry is specifically designed to force generals to use the Registry. 32. There is no credible evidence that the use ofthe Registry on any job was instigated by general contractors. 74 To the contrary, notwithstanding the pressure to use it in order to obtain a complete array of bids, the record shows that general contractors perceive of no other significant advantage to them from the use of the Registry; indeed, they would prefer not to use it, and would rather rely on the last (20) minute give-and-take over the telephone that prevails in their dealings with other sub-trades.

33. According to complaint counsel, the market significance of the Registry is somehow enhanced by entry conditions in the Memphis area. While there is some evidence in the record that licensing, bonding, 77 and other requirements may operate to restrict the number of electrical subcontractors, there was no testimony that the existing electrical firms constitute an inordinately small pool of competitors, or that Memphis area general contractors are typically confronted with a meager selection of electrical subcontractors from whom to pick. All that the record wil allow on this (21) point is that the general contractors prefer to obtain the bids of all firms interested 72 ex 16IE-F; Arnold 65, 73, 92- , 112- , 118, Inman 213, 224 , 226-27, Zellner 832-34, 843, Morgan 924, 926-28 945, Wade 1144, Barnett 1601, Martin 1670, 1675. Members of this class of subcontractors, which includes the membership of the Memphis Chapter, mlly not bid through the Re"Tjstry on a particular job for one or more of the following reasons: genera! distaste for federal jobs because of record-keeping requirements, the size of the job the kind of work involved, or commitment to other work. Zellner 830- , Morgan 951- , Clark 966, :vartin 1639-40, Dennis 1895-96 7J ex 160F-G; Dennis 1930-33.

1. See Inman 225 I'eters 393 , Boucher 695. 75 Arnold 64 65 120-22, Inman 224, Peters 363, Morrison 598, Boucher 695, Zellner 818, Morgan 923-24 , Naylor 1065-7 Wade1l38- 39.

16 Under Tennessee law, all electrical work in excess of 850 000 must he done by firms holding 01 state license. A key requirement forohtaining a state license is that the firm employ at least one master electrician. Only persons who have graduated with a degree in electrical engineering from a recognized unjver ity and who have two year of industry experience or, alternatively, persons with four yea r experienceasjourneymanelectriciOinsareeligible for the ma ter electrician examination. The master electrician eXOImination, which may be taken only once every six months, is administered hy county or municipal authorities. In recent years, the administration of the licensing examination in Shelby County has operated to exclude per who have been qualified as master electricians in other municipalities and counties in Tennessee and p.I p.where. Approximarcly 25 applicants were examined by the Shelhy County Electrical Licensing Board in February 1985- None of those persons passed the examination. The passing rate for prior examinations during the last several years has averaged less than 33 percent. Joint Exhibit 1A.Z; ex 116A-ZI37, CX 117, CX U8; Mann 283-4, Hales 742, Dennis 1883. Note, however, that at least one experienced electrician took the exam OIlthough he acknowledged that he was not familiar with the code, and would have to "blue' his way through. RX 3.

Memphis and Shelhy County law requires that all subcont.ractors be bonded and insured- Some !inns are qualified and bonded to perform work on smaller jobs only, and t.therefore may not work on larger projeel- CX 116A.Z137 78 There is some evidence that Memphis (or for that matter any other metropolitan area) is somewhat insulOited from Otl-ide competition. Electrical subcontractor from outside of the emphis area would have to assume transportation and subsistence costs that may make it diffcult for them to compete agOlinst Memphis electrical! ubcontractors. See Clark 981 , Wade 1110. Outside subcontractors also face the risk of baving to deal with cont.ractors whose ability is not known. Clark 981-85. In addition, local firms may have the advantage of e t.ablisbed rely1tionships with Jocallabor unions and material suppliers. CX 161C-D; Wade 1117- 18 Notwitbstanding these diffculties, attractive Memphis area job attract outside subcontractorsSee Clark 981. See, e. Morgan 953-M, Wade 1119 g, Initial Decision 107 F.TC in a project, including bids of electrical firms who use the Registry as well as those who are bidding outside of the Registry. G. The Effects Of The Registry 34. The effects of the Registry were analyzed in depth by two academic experts called as witnesses by complaint counsel-George S. Birrell, a civil engineer B! and John F. Stewart, an economist. The qualifications of these experts were not challenged by respondents, and no significant aspect of their testimony was disturbed by crossexamination. Moreover, their testimony was not only fully consistent with and supported by the testimony of respondents' own witnesses who testified that the Registry eliminates price cutting pressures, but it was also supported by the exhibits introduced into the record respecting the sanction incidents. See Findings 43-55. Accordingly, the contrast between the economic significance of bidding through the Registry and bidding without a bid registry that follows (Findings 35-42), draws heavily on this highly credible expert testimony. 35. By its terms, the Registry segments the bidding process by forcing general contractors to choose between taking bids from firms bidding inside or outside ofthe Registry, but not both Ifthe Registry did not exist, a general contractor would be free to obtain sub-bids from any subcontractor who might be interested in bidding on a (22) particular job. This segmentation of electrical subcontractors between those bidding inside and outside of the Registry, which is designed to prevent the bids received through the Registry from being undercut by outside bids B5 is perceived by general contractors depriving them of access to part of the universe of bidders that they need in order to make up a competitive prime bid. The perception of these general contractors is fully consistent with the expert testimony, grounded on bidding theory, to the effect that because segmentation of a market reduces the total number of bids received by a general, it tends to increase prices.

36. In addition to segmenting the market, the Registry imposes an artificial time limit on price negotiation. When the Registry is not in 6" Equally unimpressive is H!spondents' claim that the Rcgi.'try facilitateseDtry of new firms by proteding them from the price-cutting pressurr.s of bid peddling-See, e. Dennis 1883--85. Protecting a new entrant from price competition i not a cognizable economic justification. Stewart 2012- RI Birrell, an associate professor at Case Western L'university, is an expert in the management of constrllction projects including the contracting process, the formation ofthe construction team consistingofgencl"als and subs, estimating costs, bidding, and planning construction work. CX 128A.S; Birrel1 1168-90 B2 Stewart, an associate professor at the University of North Carolina, specializes in industrial organization. CX 129A.E; Stewart 1307- J Findings J6, 18; CX 133, CX 155T-X; Stewart 1333-39 j Kaylor 1061- 85 Strong 1806.

Sf, Arnold 95-101 , 123-27, 196- , Inmann 227, 233, 241. , Boucher 688, Zellner 832, 836- , Morgan 923, 941--2 Wade 1139.

7 ex 131B, CX 155T, v-x; Birrell 1271- , Stewart 1327-39. 240 Initial Decision use, or where a particular trade has no bid depository to turn to, the bidding process is subject to increasingly vigorous price pressures as telephone negotiations intensify near the general contractors' prime bid deadline88 Such last-minute telephone negotiations may be initiated either by general contractors or by subcontractors. During the course of these telephone negotiations, generals or subcontractors may employ various bidding strategies and pressures89 To begin with a general may simply shop by informing a subcontractor that its bid is too high without specifying the exact bid of any other subcontractor.90 Another strategy that may be employed is outright bid peddling, whereby the general (23) uses the specific bid of one subcontractor to drive down the bid ofanother. 91 Stil another ploy, is for a subcontractor to volunteer a last-minute telephone change, perhaps citing a sudden concession from a supplier or the savings that arise when the subcontractor finds an acceptable alternative material under the specification provision allowing for the substitution of "or equals Irrespective ofthe exact bidding strategy used, and who has initiated the last-minute telephone contact, the record evidence is that preaward price concessions are almost universally incorporated into the general contractor s prime bid with the result that the awarding party receives a lower price.

37. The pre-award bargaining in the absence of a bid depository (again, usually in the form of last-minute telephone conversations) may touch on price indirectly as general contractors and electrical subcontractors negotiate over such matters as or equals, work scope, and possible redundancies or overlaps.94 See Findings 38-40. 38. Commonly used in the construction industry is the concept of or equals, that is, the substitution ofmateria1 called for by a specification with a material of equal quality.95 It has been the experience of firms in the construction industry that some of the best price reductions for these "equals" come just before the generals' deadline as suppliers maneuver in an effort to have their customers-the subcontractors-submit winning sub-bids. By cutting off the electrical1 subcontractors' bidding three hours before the generals' deadline, the Registry tends to inhibit the use of such late price (24) concessions from suppliers to electrical1s, which might, in turn, lower the prime 88 Morrison 568- , 593 - , 603, Boucher 67&-77, ZeHner 844-1. , Naylor 1065- , Wade J 13-15, 1122 - , 1138 Birrell 121J.14.

89 See ex Physical Exhibit A 90 Arnold 183- , Peters 365-67, Zellner 849, Wade 1127- 29. 90 Sep Mann 287, Bouchcr679.

! Baker 190-91 , Zellner 840, Wade 1135-37, BinelJ 123f!10.See also finding 38 ex 155P; Arnold 91- , 191, Morri.'on 575 , 593-94, Boucher 681, McGroom 784- , Zcllner 834- , Birrell 1213-14, 1259-60, Dennis 1919 , Birrell 1206-13.

80 Birrell 1238-39.

" Morrison 604-06, Zellner 854, Wade 1122--23. 262 FEDERAL TRADE COMMISSION DICCISIONS Initial Decision 107 F. bids of the generals.

39. Work scope is the subcontractor s perception, derived from an examination of drawings and specifications, of the service to be provided on a project. On the basis ofthis examination, the subcontractor typically makes a "quantity take-oft of work units to be provided and then based on his projection of costs and targeted margin, a bid price is worked up. Different subcontractors, however, have different perceptions of work scope on any given job, and one subcontractor may have included what another has omitted.9 When such differences become apparent to the general contractor after a bid is fied the usual procedure (in the absence of a bid depository) is for the general and subcontractors to engage in telephone negotiations clarifying and, if necessary, adjusting price to reflect any new understanding about work scope.9 The Registry s rules do not allow for such post-fiing price negotiation over work scope)OO 40. Still another area affected by Registry rules is negotiation over redundancies. Should the general contractor discover a redundancy or overlap, say, control wiring that may be done by mechanicals or electricals, or scaffolding which may be done by the general itself or by one of the sub-trademen, the procedure followed in the absence of a bid depository is for the general to contact the subsidiary trades bidding on the job, inquire about the possible redundancy, and negotiate a price adjustment. (25) While Registry rules do not prohibit the first step in this procedure-the inquiry about a possible redundancylO'-there is an absolute prohibition against the post- fiing negotiation of a price concession, the most direct way of eliminating the redundancy. 103 Under the Registry rules all that a general confronted with a redundancy problem may do is wait until after the generals bidding deadline has passed, and assuming it has been awarded the prime contract, it could then negotiate a "change order )04 A postaward change order, however, is an option that is only available to the winning general; moreover, the post-bidding negotiation of change orders may slow down the construction process, cause the renegotia- I Wade 1122-23. See also Wade 1163-64 "" Birrell 1206-08 Wade 1113-15, Birrell 1212- , 1218-19.

100 Zellner 844- , Birrell 1227- LOL ex Physical Exhibit A; Arnuld 121- , 153, 172- , Inman 214- , 253- , Z llner 854- , Naylor 1066-9 Birrell 1209- 13. As Birn 1I put it r perceive that relationship (b tween discussions and price ch,mgesJ as intimate; that the purpose of the discussion is to establish if change!! need to be made in price Lo enable the minimization of overlaps and omissiuns across competing bidders in one trade and across the bidders in all trades. For these people to discuss something about the project without it being related to the price ofthe project, you would have to think maybe pretty hard to find some topic to discuss, ifit didn t have a relationship to price. Birrell 1232.See also Wade 1123- Barnett 1585 I"J Arnold 122, 162- , 173, Inman 257, 267- , BirrellI227- , Dennis 1910. Arnold 167- , Inman 269-70. Chester 1721g., 240 Initial Decision tion of related subcontracts, and are generally regarded as tending to increase costs. 105 41. If the Registry did not exist, even after a general contractor has been awarded the prime contract, the successful general and all interested subcontractors could engage in further negotiations. Thus in trades which do not have a registry, or when the Registry is not operating on an electrical job in the Memphis area, the winning general is likely to be courted in the post-award period by subcontractors who are now (26) prepared to lower their pre-award bid in recognition of the added leverage enjoyed by the successful general contractor.!06 In addition, there may be post-award negotiations about work scopes and the substitution of materials ("or equals ) that could change the subcontractor s bid.107 While lower subcontracting bids received in the post-award period may be passed on to the awarding authority, there is little incentive to do so, and most post-award reductions in price only result in improved margins for general contractors.!08 42. Complaint counsel' s experts concluded that the Registry s rules limiting price negotiation and segmenting the market, as described in Findings 35-41, are likely to raise the cost of electrical subcontracting ) 09 services.

43. Respondents argue that the Registry has no impact on price because subcontractors submit their lowest possible price to the Registry, confident that their sealed bids wil not be subject to peddling.!l0 As a corollary of this "best price" argument, the claim is made that in the absence of the Registry, subcontractors may anticipate bid peddling by inflating their bids in order to leave room for negotiation. The notion of "best price" as one determined subjectively by businessmen was sharply criticized by complaint counsel's experts. Professors Stewart and Birrell testified that (27) all businessmen view their offers as the "best price . The function ofthe market is to test whether this so-called "best price" can be lowered stil further.!!! Moreover if in fact the Registry was the source ofthe "best price, or if in the absence of a bid depository experience showed that margins are inflated in anticipation of bid peddling, one would expect to see generals replicating the Registry in bid depositories for other trades. No such ,Uj Ar!1old 169- , Inm,m 253-l, 266-68, 272, Birr 1I 1235-38. 111 Wade 1126-27 BirrcH 1204, 1258-59. Post.award peddling may take place over an extensive period of time since some sub-trades arc not required to be on the joh site until other work is completed. Birre!) 1259 '01 Naylor 1073-74, Birrell 1257.

lob Inman 2411, Morrison 594, McGroom 784. A benefi does accrue to the owner, of course, if the genera!' s bid had included an allowance for expected savings resuJtin/;from post-award bid peddling ex 155P-Q; Wade 1156 BincH 1240.

1(1 ex 131A-CX 134, CX 155P-Q, S-X; Birrell 1213-14, 1261- , 127J- , 1291- , Stp-wart 13J9-21, 1333--7. I LOThe "best price" argument was supported by several witnesses called by respondents (Barnett 1574, Martin J630-31 , Chester 1712, Dennis 1850-51, Scurlock 2004-(6) as weJJ as bythe testimony of witnesses called by complaint counselwlw said that the Registry was a source of good or low prices. See Arnold 140, Inman 243-4 Petp-rs 401-02, Boucher 707- , Zp-llner 861, Morgan 937, Wade 1145-6, 1149, III Birrell 1287--8, 1294- , Stewart 135G-51 264 EDERAL TRADIC COMMISSION DECISIONS Initial Decision 107 F. trend exists, and the Registry itself is essentially a product ofelectrical subcontractor initiative rather than general contractor demand.!'2 In addition, there is impressive direct proof that the Registry does not in fact produce the "best price . In the first place, as the sanction incidents (see Findings 45-54) demonstrate, the disciplinary machinery ofthe Registry itself is more often than not invoked for the very reason that the general was offered (and accepted) a better price outside of the Registry. 113 Second, the whole notion of the Registry as the source of the "best price" was substantially demolished by the testimony of respondents' own witnesses to the effect that the purpose ofthe Registry is to reduce price-cutting pressures. Note, for example, the following testimony of Registry board member and president Barnett:

My particular interest in the Registry is that it promotes ethical bidding practices. It tends to discourage and if not-I can t say eliminate, but the aim would be to eliminate unethical practices such as bid shopping, bid peddling, price cutting, things of this nature that go on when there are not bids provided or recorded and open to public review, and this is-this is the primary reason for the establishment ufthe Registry, and this has been the aim ufthe Registry ever since it was established and went into operation.! 14 (28) Barnett further testified:

Q: Why do you think the price cutting and bid peddling, why do you think that' s a bad practice in the industry? What does it do when it's there? A: Well, the only thing I can say is that it provides second opportunities for people to bid the joh when we as general contractors are not provided that opportunity. It is-ever since I've been in the business, it's been considered as unethical practices. I was taught to believe this. I do believe it, and therefore, I don t subscribe to the theory of bid peddling or price cutting, and I personally try to discourage it anywhere I can and I feel our Registry also does so.1J5 As for the prospect of inflated bids in the absence of a bid depository, Professor Birrell testified that the very purpose of the intensive telephone negotiations that characterize non-bid depository markets is to test for such inflation.!'6 44. The adverse impact on price attributed by complaint counsel' experts to the Registry s limitation on price negotiation and its segmentation of the market is confirmed by the sanction incidents. See Findings 45-54.

45. Maler Construction Co. Maler, a general contractor, was sus- See Findings 7 8, 31-32. Be!' (llw CX 159G; Inman 225, Peters 393 "'I Stew8.rt 134 H' Bilrndl15711- 80.

'L.' Bilrnett 1580. See als" ex 158B- , ex 160B- , ex 161" Q; Bilrnett 1603-05, Milrtin 1691 , 1699-1700 Chester 1712, 1726, Strong 1792- , Dennis 1851 1H; BirreJl1275 77 1286- 240 Initial Decision , topended from use of the Registry for the period July 27 , 1977 January 26 1978. On the Lipsey s Seafood Restaurant job, Maler had agreed to accept Registry bids, but awarded the electrical work to a subcontractor who had not bid through the Registry. The unregistered electrical bid was some $300 lower than the lowest Registry bid. Maler claimed that it had to go outside of the registry when the architect of the job redesigned the specifications in order to reduce costs, but Allen Electric, the low Registry bidder, refused to rework its bid. Allen later fied the complaint against Maler which eventually led to Maler s suspension. While Maler s claim respecting the change in specifications (29) was not well established on the record, there is no question that a lower bid was made outside of the registry. 117 46. Inland Construction Co. Inland, a general contractor, was suspended from use of the Registry during the period September 18 1980, to March 17, 1981. On the Hickory Ridge Mall job, Inland permitted Haines Electric Co., which had bid through the Registry, to modify its bid after the Registry s filing deadline had passed. The modification consisted of Haines lowering its original bid by changing the "alternates" appearing on its bid sheet from additions to deductions. Haines' base bid was $749 120, and before the modification, its bid for Alternate 1 was $756 970 ($749 120 base bid + $7 850), $777 636 for Alternate 4 ($749 120 base bid + $28 516), and $778 320 for Alternate 5 ($749,120 base bid + $29 200). By changing each of these alternates from an addition to a deduction, Haines lowered its bid to $741 270 for Alternate 1, to $720 604 for Alternate , and to $719 920 for Alternate 5. The Registry charged Inland with violating its rules by accepting these price reductions from Haines. IIB In commenting on this incident, the Registry said- The Registry Offce received several verbal complaints stating they believed Haines Electric Company violated the rules and regulations in that they changed their alternates from an add to a deduct. The rules and regulations ofthe Registry Service would not permit a firm to change a price or an alternate period. After an electrical contractor registers his bid he then has two options: (a) that it is to remain in the registry as bid or (b) to withdraw, ll9 (30) For its part in the Hickory Ridge Mall incident, Haines was suspended from use of the Registry between September 18, 1980, and March 17 1981.

'Ii ex ira-CX 24 , ex 137, ex 147A lib ex 25A-CX 30, ex 13R, ex 141B '18 ex 25B- )111 ex 28R IT1 addition to being suspended for the Hickory Ridge Mall job, Haines was suspended from the Registry belween May 28, 1982, and :May 28, 1983, (subsequently changed lo Fehruary 15, 19111, after an appeal) because of its actions on the V, A. Hospital-Ambulatory Care Addition job, This suspension came about after the Registry received a complaint letter from Anderson Electrical alleging that Haines had submitted Registry bids and then bid outside the Registry to a general contractor who was not using the Registry. Haines was suspended (footnotecont , Initial Decision 107 F.TC. 47. Dick Corporation. Dick, a general contractor, was suspended from use of the Registry indefinitely beginning on September 11 1980. The suspension was imposed because Dick agreed to accept electrical bids through the Registry on the City of Memphis' V olunteer Park Phase III job, but awarded the electrical subcontract to an electrical subcontractor (Wallace Electric) who had not bid through the Registry. The lowest base bid that Dick received through the Registry was $2 397 000 from Shelby Electric. Dick awarded the job to Wallace at a bid price of$2 180 000 for a slightly different scope of work after city oficials determined at the last-minute that Dick' winning prime bid was above the amount budgeted by the city for the job. Confronted with this change, Dick attempted to negotiate a reduction from Shelby, either in the form of a new bid or an informal reduction of its existing bid. When this effort failed, Dick went outside of the Registry to Wallace.1 48. APAC Tennessee Construction Co. APAC Tennessee, a general contractor, was suspended from use of the Registry for six months beginning on January 5 1982. On the Federal Express Headquarters Site Work job, APAC accepted Registry bids, but awarded the job to a bidder outside the Registry. The outside bid was some $4 000 lower than any bid received through the Registry, taking into account an adjustment made for a modified scope of work.1 (31) 49. Engineering Management Co. Engineering Management, a general contractor, was suspended from use ofthe Registry for one month beginning on August 25, 1982. This suspension originated with the River Place job on which Engineering Management permitted Mann Electric to change its price after the Registry s deadline had tolled. Mann s original base bid through the Registry was $129 830. Allen Electric filed with the Registry a base bid of$104 500 plus additional charges for offce space work. When Arnold, president of Engineering Management, spoke to Mann about the scope of the work in Mann bid, he learned that Mann s bid actually was some $9 000 lower than Allen s bid since Mann had intended that its base bid include a substantial amount of offce space work. At the disciplinary hearing before the Registry Board, Arnold tried to explain that the bids were ambiguous, and needed clarification before they could be fairly compared, but the Registry suspended his firm anyway.123 For its part the River Place violation, Mann Electric was suspended from the Registry for one month beginning on August 25 , 1982.121 even though it had submitted identical bids both inside arid outside the Registry, and its Registry hid was the lowest bid among the Regi try bidders. ex 86B-CX 97; Dennis 1928- '!l ex 32A-CX 39. ex 139A, ex 148A , ex 152A-E;Pelers 348- 110 1 ex 41A-CX 46B, ex 123, ex 139B, ex 148B, ex 153; .\01"rison 575 92. " ex 170- ex 51B, ex 127, ex 140, ex 149A; Arnold 80- , Mann 288- Lo!' ex 51R In addition to heiog uspended for its rule in the River Place job, Mann Will suspended from the liegistl)' from June 3. 1983. thruugh December 2 , Wa3, in cot1lection with the Kroger Southaven Store job. Thi 240 Initial Decision 50. Ben J. Malone Co. Malone, a general contractor, was suspended from use of the Registry for six months beginning on August 25, 1982. This sanction was imposed when Malone accepted Registry bids on the Federal Express Power Roof Exhauster and Ventilators job, but awarded the contract to an electrical subcontractor bidding outside the Registry. Malone had received six bids through the Registry, ranging from Anderson (32) Electric s $185 220 to Chisca Electric $433 356. Malone also received a bid for $166 000 outside ofthe Registry from American Electric. Although American s bid was for a slightly different scope of work. Malone considered American s bid more favorable than any Registry bid in terms of both price and scope of work. Moreover, since Malone had used American previously, and was familiar with the quality of its work, this low outside bid was especially attractive. The disciplinary action against Malone was initiated by Anderson Electric.1 51. Martin Construction Co. Martin Construction, a general contractor, was suspended from use of the Registry for six months beginning on September 14, 1982. On the Memphis Area Transit Authority, Offce Modifications job, Martin agreed to accept Registry bids, but awarded the subcontract to an electrical subcontractor bidding outside the Registry whose bid had not been registered. Martin had gone outside of the Registry because "Curley" Morgan, Martin s estimator was disappointed when he received only three bids through the Registry. These bids were for $28 860 (Mid City Electric), $31 384 (Chisca Electric), and $39,502 (Comm. & Ind. Electric). The low Registry bidder (Mid City Electric) called Morgan after the bids were delivered by the Registry to declare its withdrawal, claiming mistake. As a result of the Mid City withdrawal, Morgan was Jeft with only two Registry bids. Morgan testified that he was surprised that Mid City Electric had withdrawn its bid on the basis of an alleged mistake since the bid was only 10 percent lower than the next Jowest bid in the Registry. In Morgan s experience, bids containing mistakes are usually 25 to 30 percent Jower than the next lowest bid. Because of the sudden withdrawaJ of Mid City, Morgan sought to obtain bids outside the Registry before placing his own bid for the prime contract. Morgan called several electricals, and eventually received a bid from A.C. Electric which was $4 000 lower than the bid withdrawn by Mid City Electric. Using this lower outside electrical bid, Morgan became (33) the sucpension came about after the Registry received a complaint Jetter from Carson Eledric alleging that Mann had bid both inside and outside the Registry on the Kroger job. Man explained t.o the Registry that the successful general contractor, R. taylor & Co . who had not indicated a wilingness to accept Registry bids, had telephoned Mann after Naylor won the prime contract. to determine if Mann Electric wanted the electrical job. Mann quoted Naylor the same price for the electrical work that Mann had bid through the Registry. Dcspite this cxp1anation the Registry suspended Man.n- Mann s quotatjon was $15 950 lower than any other bid received hy Naylor outside of the Registry. ex 105A-CX 110; Mann 291- , NayJor 1053- 12.\ CX 52B-CX 59, CX 141, CX 149B; McGroom 779-94. 268 FICDERAL TRADE COMMISSION DECISIONS Initial Decision 107 F. cessfullow bidder on the prime contract. Morgan testified that if he had used the lowest bid remaining in the Registry after Mid City withdrew, his firm would not have won the prime contract. The hearing which resulted in the disciplinary sanction was scheduled after the Registry received a complaint from Chisca Electric (the low Registry bidder after Mid City withdrew), requesting that the Registry investigate Martin s award ofthe electrical subcontract outside ofthe Registry. 126 52. c.R. Boucher Construction Co. Boucher, a general contractor was suspended from use ofthe Registry during the period January 24 1984, through July 24, 1984, because it had agreed to accept Registry bids on the Honey s Auto Parts Store job but awarded the electrical subcontract to a firm that had not bid through the Registry. Boucher accepted the outside bid because it was approximately $1 000 below any Registry bid. As it happens, Boucher only won the prime contract by being less than $1 000 lower than any other general, and probably would not have obtained the prime contract but for the lower outside electrical bid. 127 The Registry s disciplinary action against Boucher was initiated following the receipt of a complaint from Allen Electric the low bidder in the Registry.

53. Crown Electric Co. Crown, an electrical subcontractor, was suspended from use of the Registry from March 8, 1978, unti April 7 1978, when it violated the Registry s rules requiring that all bids must be made in exact compliance with the plans and specifications. Crown s Registry bid of$55 000 for the electrical work on the Federal Express Town and Country Shopping Center was substantially lower than the next lowest Registry bid 01'$89 500. When the Registry offce contracted Crown to ask about this discrepancy, Crown explained that its bid excluded a generator which would have raised the bid by some $26 000 to $81 000, or stil $8 500 lower than the next lowest (34) Registry bid. In suspending Crown, the Registry Board noted that the bid price was significantly lower than the next lowest price but not qualified to indicate a variance from the plans and specifications of the project. 128 In effect, the Registry suspended Crown for trying to use the Registry while keeping open the option of negotiating with the winning general about doing the work in a different way (namely, that the general shop independently for a generator), and at a substantially lower price than that offered by the other Registry bidders.1 54. A-I Electric Co. , an electrical subcontractor, was suspended from use of the Registry from November 30, 1979, through May 30 116 ex 60A-CX 633, ex 142, ex 150A; Morgao 890- 901 )27 ex 64A- -cx 69, ex 143, ex 150B; Boucher 6B6-9l ex 72B.

ex 70-CX 758, ex 144, ex I5lA 240 Initial Decision 1980, because it submitted a bid through the Registry on the Dobbs House project, and then submitted a lower bid directly to the awarding authority. A- s original bid through the Registry was $87 345. Later, when a mistake was uncovered, it changed its bid to $79 111 in bidding directly to the awarding authority,!3o 55. Stewart examined the ten sanction incidents described in Findings 45-54 for added costs fairly attributable to the Registry: that is what the effect on the winning electrical bid would have been if the Registry rules had operated effectively to eliminate (35) the violation usually in the form of acceptance of lower outside bids. Stewart's analysis is shown in Table 2, below:

Table 2 Effect Of Registry Rules In Inflating Winning Electrical Bids (1) (2) (3) (4) Maximum * Sanction Winning Inflation If Registry Col. 3 as Incident Electrical Bid Rules Had Operated % of Co I. 2 Maler 865. $300. Inland 720,604. 56,979. Dick 180 000. 217 000. APAC 225,400. 000. Engineering Mgt. 98,480. 020. Malone 166,000. 19,220. 11.57 Martin 27,515. 869. 14. R. Boucher 480. 680. 5.44 Crown 81,000. 500. 10.49 111. 389.

TOTALS 599,455. $316 957. 8% or 10 incident average of 7. 1 % Sources: CX 146; see also Stewart 1357-86; CX 136A-CX 145, CX 147A-CX 1518. * Stewart also calculated minimum price inflations based upon record evidence that certain jobs involved alternatives requiring adjustments in columns 2 and 3. See Stewart 1385and CX 146.

56. Stewart argued that in addition to the impact on price resulting from the limitations on negotiations and segmentation ofthe market 130 ex 80-CX 85, ex 145, ex I5IH. Other incidents of suspension of electricals involved Binghampton Electric Co. and Chisca Electric Co. Binghampt.on was suspended from the Registry from March 21 1978, through September 20 1978, in connection with the 980 South Third Streetjoh because it allegedly submitted a bid to a general contractor that was different from the bid fied with the Registry for the same general. Binghatnpton attempted to explain to the Registry board that its "outside" bid was merely an attempt to clarify its illegible Registry form but Bingharnpton was suspended anyway. CX 75C-X 79. Chisra was suspended from using the Registry from November 19, 1982, through .January 19, 1983, in connection with tllc TmmesseeAir National Guard, Jet Fuel Storage job because it altered its bid to the successful general contractor after the bid registration deadEne set by the Registry. CX 99A- , ex 103. In stil another incident, Chisca was absolved by the Registry s board of the charge of improperly changing its bid on tbe IRS-SCRS Computer Room Expansion job. RX 2A- 270 FEDERAL TRADE COMMISSION DICCISIONS Initial Decision 107 F. the Registry increases the likelihood that electrical subcontractors may engage in bid rigging or other forms of price-fixing by providing a forum for the conspirators, as well as a mechanism for immediately detecting violations of any price-fixing agreement.31 I have given little weight to this speculation since there is no evidence whatever that the Registry has been used as a front for a price-fixing agreement or to allocate contracts, and no convincing reasons were advanced by Stewart for speculating about the possibility of conspiracy in a (36) construction industry in which actual conspiracy is rampant without the aid of bid depositories,!32 H. Respondents ' Proffered Justifications 57. Respondents not only claim that the Registry produces the lowest possible prices (see Finding 43), but also that the rules of the Registry are justified because of their contribution to improve effciency in the bidding process, as well as for their elimination of evils associated with bid peddling,!33 See Findings 58-62. 58. The three-hour bidding deadline imposed by the Registry was defended as simply a modest extension of prevailing custom in the Memphis area where it is the practice of some generals to require subcontractors to submit their bids by noon so that the generals may prepare their bids by the customary 2:00 p.m. prime bidding deadlinel34 This deadline is not incorporated in any formal rule, and the evidence indicates that there is far from universal compliance with the custom,!35 Moreover, this informal deadline does not preclude, as the Registry s rules do, a general contractor from engaging in price negotiation after a subcontractor s bid has been submitted,!36 59. It was contended by several witnesses that the time limitations imposed by the Registry were designed to eliminate chaos in the bidding process and to establish a more orderly procedure,!37 There is no evidence, however, that without a registry the bidding process is beyond the capability of general contractors who, in fact, seem to function quite effciently in dealing over the telephone with firms in other trades which (37) freely make price changes up to the last minute before the general's prime bid is due. l3B Besides, to the extent 13 ex 155X.Y; Stewart 1386 89.

' See Stewart 146&-7.

IJJ See however, admission of Registry president Barnett that the Registry doe not increase competition and its not the intent to increase cumpetition . Barnett 1607. lJ; Zellner 861- , Barnett 1583-5, Martin 1628-29 \ Zellner 862- , Barnett 1584, Martin 1663- 65. 136 Zellner 868-9, Stewart 1399-1400, Martin 1663-65. J37 Strong 1766; see also Martin 1633.

IJB See Findings 36-40. Arnold 63 198- , Inman 211- , 224 , Peters 410- , Baker 490.91 , Morrison 567- 593- , Boucher 676-77, 695, Zellner 814- , 817- , 834- , 843, Morgan 923-24, Naylor 1066- , 1072, Wade 1120-27, Barnett 1604-5, One of respondents' witnesses, Dennis, an electrical subcontractor and mernber of the Registry board, even suggested thllt the Registry itself may be a source ofdisordcr if, for example, a general did not decide unti the last minute to take Registrv bids necessity'ltin!r a frantic effort. t, f) inform j".,tri,. l" t- t.,,'v g.

240 Initial Decision that the Registry does provide a service (written bids, presented in standardized form, and delivered according to a fixed time schedule) which some general contractors may desire, this hardly justifies the Registry s absolute restrictions on all alternative forms of bidding, including last-minute bidding by telephone before the deadline (all bids must be physically fied with the Registry, see Finding 24), or the Registry s restrictions on negotiating with those subcontractors who have fied within the deadline.!39 As it happens, the significance ofthe claimed eflciency must be vastly overstated since there is no evidence that general contractors have sought to replicate the Registry in other trades, or that the impetus for the Registry comes from anyone except the electrical subcontractors. Moreover, even assuming that for some reason (unrevealed in this record), closed, written electrical bids which are delivered at a fixed time, are needed by a particular gener- , this could be accomplished without the restrictive superstructure of the Registry by the simple expedient ofa statement by the general that it wants its bids in that fashion as a condition for doing business with it.!'O 60. The opinion was expressed by some witnesses that bid peddling is unethical because the subcontractor who is forced by last-minute pressures to lower a previously submitted bid may do so by cutting corners on quality to the point that safety hazards (38) may be created.!41 No witness, however, could identify a single job on which quality or safety were put in jeopardy as a result of bid peddling.!'2 Moreover, since the construction industry routinely uses several levels of inspection-by architect, engineer, general contractor, and government inspectorsl'3- to determine compliance with specifications and to assure that quality and safety requirements are met, it would take a deliberate decision to engage in subterfuge for the subcontractor even to attempt to avoid these standards. On this record there is no evidence that such malfeasance is any more or less prevalent among "shopped" or "peddled" subcontractors than it is among parshould submit bids through the Registry for that particular general. Dennis 1854.See a/so Stewart 2074-75 for a discussion of the additional informational burden created by the Registry since generals and subs must determine who is bidding inside and outside of the Registry 1:!9Stewart2047-49 2052-55.

140 Stewart. 2048-9.

'" Barnett 1579- , Martin 1632- , 1635-37, Chester 170607, 1710- , Denriis 1850- , 1856-3, Scurlock 2012. The more general claim that the Registry seeks to eliminate bid peddling because it is "unethical" (see ex 16iJ); Barnett 1579, Dennis 1911) does nut state a cogni7.able economic effciency. Birrel! 1292-93. By the same token, the Registry cannot properly he justified by referring to closed bidding systems operated by buyers like tbe federal government. The public policy considerations behind such system, namuly, the paramount importance assigned to the appearance of fairness, is not properly invoked to defend a system designed essentially to avoid price cutting.See Stewart 1396-1400.

142 See. e, Morri on 570, Barllelt 1598-99, Chester 1724, 173f:- , Strong 1798-99, Dennis 1902-04. As it 11appens, respondents introduced no evidence relating to the prevalence of hid peddling either before or after the creation of the Registry.

L43 Morrison 643--4, Martin 1636- , 164:'---6, Che ter 1727- , Strong 1771- ...

Initial Decision 107 F. ticipants in the Registry.!44 What the record does show is that generals, a group of expert buyers, routinely make their own estimates of what the work of a sub-trade should cost, and that they then review sub-bids to determine if they are suspiciously low.!45 A bid from a financially suspect or managerially inept subcontractor, who might be tempted to skimp on quality, is likely to be rejected no matter how attractive it may seem. l46 Again, it is also significant that there is no record proof that the Registry operates at the request of contractors who, it may be fairly assumed, would be vigorous (39) supporters of such an institution if it were identified as a guarantor of quality.!47 A more plausible scenario than the sacrifice of quality predicted by respondents, is that a subcontractor wil react to downward pressures on price by pressuring their established suppliers for a concession, or by bending every effort to determine if there are alternative and lower-priced sources available for materials and labor, but sources that do not compromise quality.l48 Another avenue that might be pursued by the pressured subcontractor is to review margins for the purpose of determining whether the job is worth doing at a reduced profit.!49 These ways of reducing price are more likely to be followed than a sacrifice of quality since such a compromise must not only survive the various levels of inspection described above, but even if it were not detected in the building stage and was only uncovered later by the owner, this could lead to a blemish on the reputation of a subcontractor which could translate into no future contracts at any price.150 61. The argument was made that the low bid resulting from bid peddling is conducive to procrastination. This could occur, it is alleged, when a subcontractor yields to bid peddling pressure knowing that at the low bid price it cannot properly perform the work, but takes on the project anyway in anticipation that somewhere down the line a more attractive project may materialize, and then both jobs can be completed profitably. While it is claimed that this kind of bid strategy can lead to costly delays, no proof was adduced as to its actual occurrence.!5! (40) 62. Finally, there was testimony that the Registry is designed to protect the subcontractor s investment in working up a bid. The argument was made that a sealed bid system of the kind operated by the '" ex 155Zl; Strong 1799-1800, Dennis 1887-92. iWadcli27- , Birre1l120U- ",; Bjrn ll 1197 , 1200- , 1208- , .Martin 1632, 1667- 11, See Findjng 32 " :\forrison 604- , Wade 1122- , 1136-37, 1146-47, Birrell 1242- ""See Mann 316, :vorrison 599-600. Included in a subcontmctor s bid is a profit component that is hardly innexible: it is atJ estimate derived from expectations respecting future workload, the likelihood that more lurrative of projects may emerge, and the competitive tale of the market. Birrell J 199- 1200. , '" Scr Mortin 1643 - , Chester 1723-21, Strong 1803-4, Dennis 1890-9l. 1.01 Se rang 1757- , 1762-66.

g..

240 Initial Decision Registry is necessary in order that a subcontractor s bid, which can cost thousands of dollars to compile, is fairly considered on its merits and is not used simply as bait for the purpose of obtaining a stillower bid.1 There is no evidence, however, that there exists a group of subcontractors who are willing to take a "free ride, in the sense that they do not compose their own bids and simply sit back, waiting to be shopped in the expectation that they will simply undercut whatever their competitors may bid.1 Besides, the record evidence showing that electricals have varying costs suggests that blind reliance on a competitor s figures would involve the considerable risk of a costly miscalculation.1 (41) DISCUSSION In bidding for the prime contract on construction jobs, general contractors assemble subsidiary bids from the electrical and other specialty trades. The Electrical Bid Registration Service of Memphis, Inc. ("Registry ) was formed by the National Electrical Contractors Association, Memphis Chapter ("Memphis Chapter ), for the purpose of placing various restrictions on the process by which Memphis area electrical subcontractors submit such sub-bids to general contractors. These restrictions take the form of Registry rules requiring electrical subcontractors who use the Registry to submit their sealed bids which may not be changed, no later than three hours before the deadline for the opening ofthe general contractors' prime bids. This temporal limitation, designed to eliminate bid peddling (the practice of disclosing one subcontractor s bid to another subcontractor in an attempt by a general contractor to get a still lower sub-bid), effectively cuts off all price negotiation during the crucial three hour period prior to the generals' customary bidding deadline. The Registry also impacts on the bidding process by segregating firms bidding in the Registry from possible price cutters bidding outside of the Registry. This segmentation of competition is accomplished by a Registry rule prohibiting electrical subcontractors from bidding both inside and outside of the Registry, and complimentary rules that (1) forbid general contractors from accepting bids both inside and outside of the Registry, and (2) require the generals who agree to accept Registry bids to award the job to an electrical subcontractor (but not necessarily the low bidder) who has bid through the Registry. The record reveals that 10, Stror1g 1756, 176869. Dennis J864- 'oj Sep ex 155Z1; Martin 1647- , 1677- , Stewart 205S- 10' St!'wart 2055- .59 Initial Decision 107 F. these Registry rules are enforced, and that disciplinary proceedings and accompanying sanctions-mostly suspensions of various lengths-are usually invoked when a general contractor, (42) learning of a better bid outside of the Registry, decides to ignore the Registry bids in favor of the lower outside bid. Complaint counsel maintain that even if the practices described above are not governed by the per se rule against a price fixing conspiracy, the Registry and the Memphis Chapter are engaged in a restraint designed to impact on price negotiations, which should be treated under the modified rule of reason analysis applied in NCAA v. Board of Regents 104 S.Ct. 2948 (1984). There, the NCAA had entered into contracts with television networks limiting the number of times anyone college could have its football games televised, and in effect, establishing the price that each college could receive from the networks for televising its games. These collective agreements with the networks were complemented by NCAA rules prohibiting its members from negotiating independently for the broadcast of individual games based on the popularity or caliber of the teams involved or viewer interest in a particular contest. Violations of the NCAA rules subjected members to sanctions, including possible expulsion from the organization or a suspension of television appearances. While the restraints in NCAA obviously involved tampering with price competition, the Supreme Court declined to follow a per se approach since collegiate athletics by its terms must involve some forms of collective agreement-for example, joint decisions respecting eligibility of students to participate in athletics-and therefore the plausibility of any procompetitive justification (such as injection of new forms of competition, the facilitation of entry, and the broadening of consumer choice) should be weighed against proven harm. In its approach to facially suspect but perhaps justifiable conduct NCAA was a logical extension of Broadcast Music, Inc. v. CBS, 441 U. S. 11 (1979) where the per se rule was not invoked when the practice in question-blanket licensing of the rights to broadcast copyrighted musical compositions-was defended as the only practical way of achieving cost-effective distribution (and of solving the concomitant problems of monitoring use and receiving payment of royalties) in a market characterized by thousands of copyright (43) owners and millions of compositions. The Court's remand decision in Broadcast Music indicates that this apparently acceptable effciency justification was to be weighed against the fact that the questioned practice obviously tends to reduce any incentive toward price competition among composers with whom the networks may have preferred to deal on a basis other than a blanket license arrangement. As it happens, application of NCAA and Broadcast Music to this 240 Initial Decision case would represent a departure from earlier bid depository decisions-Christiansen v. Mechanical Contractors Bid Depository, 230 Supp. 186 (D. Utah 1964), aff'd 352 F. 2d 817 (10th Cir.), cert. denied 384 U.S. 918 (1966), and two cases decided under the California antitrust law People v. Inland Bid Depository, 233 Cal. App. 2d 851, 44 Cal. Reptr. 206 (Dist. Ct. App. 1965), and Oakland-Alameda County Builders' Exchange v. F.P. Lathrop Construction Co. 4 Cal. 3d 354, 93 Cal. Reptr. 602, 482 P.2d 226 (1971)-in which the approach taken by the courts was one of virtual per se condemnation of the practice as either a price-fixing conspiracy or a group boycott (that is, a boycott of nonparticipating or suspended general contractors or subcontractors) with little attention to actual harm or possible justifications.1 It is clear, however, from the plain language of the complaint that this case is grounded on the theory that the mere fact that prices are tampered with in the sense that price negotiation is limited, does not resolve the question oflegality, and consistent with NCAA and Broadcast Music complaint counsel must show actual or probable anticompetitive effects from the challenged practice whiJe respondents are to be given an opportunity to demonstrate procompetitive benefits. (44) In NCAA itself, the two-part, modified rule of reason analysis proceeded from the assumption that the television plan was essentially a horizontal output restriction, which potentially could raise prices or minimally establish a price structure that was both unresponsive to viewer demand and unrelated to the prices that might prevail in a competitive market. The Supreme Court then said that these presumed effects shifted a "heavy burden (NCAA 104 S. Ct. at 2967) to the NCAA which had to show that the restraint on price negotiation was justified because it resulted in procompetitive effciencies. In concluding that this burden was not met, the Court disposed of the notion that a rule of reason analysis is synonymous with examination of a wide gamut of possible justifications. The Court held that once it is demonstrated that a questioned practice operates as a restriction on price or output, only convincing proof that competition has been enhanced is to be considered. Thus, the Court specifically rejected the argument that the television restriction was necessary to promote live gate attendance since acceptance of this approach would be tantamount to saying that if a product was suffciently unattractive to consumers then it may qualify as a candidate for removal from competition itself. Id. at 2969.

L55 Support for the application of the per Re rule to bid depositories can b found in United Stales v. Socorzy- Vacuum Oil Co. , 310 U,S. 150 (940), where the Supreme Court condemned without con idcrati(Jn of possible justifications "laJny combination which tampers with price structures. Id. at 221. The Court appHed the per Sf' rule not only to agreements among sellers to set uniform prices directly, hut al o to any agreement whose purpose is effect.ively to control the price ora product or(ld.serviceat 222-23), the acknowledged objedive of the Registry. Sr€. Findings 13, 21 , 43.

), g., Initial Decision 107 F. Applying NCAA to the instant case, complaint counsel has the burden of proving, as in fact the complaint alleges, that the Registry produces anticompetitive effects, the most significant being that the Registry causes or probably causes an increase in the cost of electrical subcontracting services in the Memphis area. As indicated in the Findings, complaint counsel has met this burden through expert testimony corroborated by the actual experience of general contractors and electrical subcontractors as well as the record evidence respecting the so-called "sanction" incidents. Also, consistent with NCAA once complaint counsel had shown that the Registry rules cutting off negotiation and segmenting bidding tend to create priceenhancing influences on jobs bid through the Regitry, a detailed analysis of market power, including definition of market and market shares, becomes superfluous. NCAA 104 S.Ct. 2965-7. Moreover, it should be noted (45) that as a practical matter the Registry s rules must embrace an economically significant segment of Memphis construction work for how else could one account for the perception of general contractors that they are pressured to use the Registry whenever it is in operation in order to obtain a full complement of competitive bids. Besides, respondents themselves must be convinced of the economic importance of eliminating price cutting on jobs going through the Registry for otherwise there would be no point in their imposition of the Registry s highly restrictive bidding rules. See Washington Crab Assn., et aI. 66 F. C. 45, 119 (1964). Since complaint counsel has met its burden under NCAA I next turn to the question of whether respondents have shown countervailing procompetitive justifications. As respondents would have it, not only does the Registry produce the ultimate procompetitive effects contemplated by NCAA in the form ofthe lowest possible prices, but it is also said to facilitate the orderly preparation of bids while eliminating unethical practices which if left uncontrolled could produce quality or even safety problems. This particular array of proferred justifications was obviously intended to bring the Registry within the four corners of Cullum Electric Mechanical, Inc. v. Mechanical Contractors Association of South Carolina 436 F.Supp. 418 aff'd 569 2d 821 (4th Cir. cert. denied 439 U.S. 910 (1978). There the mechanical subcontractors in South Carolina had entered into contracts with most of the general contractors in the area requiring the generals to reject the bids of mechanical subs that had been submitted less than five hours before the generals' bidding deadline. Cullum, a mechanical subcontractor, had its low bid rejected because it had been submitted after the prescribed deadline. In assessing the impact ofthe bid depository under Sherman 1, the District Court said that the arrangement was not intended to fix prices, but was designed instead EL.rC. tH1J ttt;lj, "J:n v llr. V.l InUl!n.l U.lU u_. 240 Initial Decision to eliminate what it characterized as chaotic bidding and bid peddling. The court then concluded that the registry s elimination of lastminute bidding and bid peddling did not have an impact on price because the members of the registry testified that these (46) prohibitions encouraged them to make their registry bids at the lowest price possible. Clearly it was this evidence that led the lower court Cullum to conclude- The record before the court in this case is devoid of any indication that the five-hour bid procedure was devised by the (mechanical subcontractorsJ with any intention whatsoever of fixing prices. More significantly, however, the record also fails to reflect that the five-hour bid procedure has had any effect whatsoever upon prices, whether to raise, lower or stabilize them. Plaintiff has simply failed to establish that general contractors are paying the same amount, or a greater or less amount for mechanical work than they would pay under a system not regulated to eliminate such practices as bid peddling. 436 F.Supp. at 427.

In sharp contrast to Cullum, here there is an impressive record proof that the Registry rules do in fact impact adversely on price. For notwithstanding the claim that subcontractors are encouraged to give their best price to the Registry since they know there will be no peddling under the Registry s rules, both the expert testimony and other evidence in this record show that a businessman s self-serving statement that he has given his best price amounts to little more than hyperbole which must be tested in the marketplace. As Professor Stewart observed, every businessman believes that his price is the best price and that his profit margins are fair. The function of the market is to test this "best price" hypothesis and to make certain that margins do not reflect what businessmen want rather than what competition wil allow. That the Registry serves to insulate margins from such competitive pressures is shown in part by the fact that in most instances Registry sanctions were imposed because some subcontractor outside of the Registry had offered a price that was lower than the lowest price offered through the Registry. Equally impressive is the testimony of respondents' own witnesses who said that the purpose of the Registry is to eliminate price cutting, which must of necessity mean that to the extent that the Registry carries out this acknowledged purpose, it produces prices that could have been lower. It is also significant that the impetus for the Registry comes from the electricals, and not from the generals who presumably would (47) sponsor a bid depository of their own, or replicate it on an individual job basis, if they were convinced that this kind of limitation on negotiation actually produces the best possible price. As for the conclusion in Cullum that in the absence of a bid registry the result would be a chaotic ineffciency, most of the credible evi- Initial Decision 107 F. dence in this record is to the contrary. The record shows that Memphis general contractors operate quite effciently in other specialty trades without a bid depository. In point of fact, what the Cullum court described as a "chaotic situation" (436 F.Supp. at 420), on this record amounts to nothing more than the usual give-and-take of price negotiation that may result in lower prices as the deadline approaches for the generals' prime bid.

Finally, the Cullum decision reflects a view about the ethical propriety of bid peddling that is not only contrary to NCAA' admonition that only procompetitive effciency justifications are to be considered but it is also at odds with the Supreme Court' s opinion in National Society of Professional Engineers v. United States 435 U.S. 679 (1978). There, too, a group of businessmen attempted to surround a restrictive practice (an association rule prohibiting price bidding and only allowing a discussion about price after an engineer had been selected) with an ethical aura by claiming that competitive bidding would so tempt engineers to ignore safety factors, that a total exemption from the antitrust laws was required. The Supreme Court rejected out of hand this kind offrontal assault on the basic premise of the antitrust laws, to wit, that competition is to determine price and quality, and the Court held that except for extraordinary circumstances, competition is not to be eliminated in the name ofthe ethical norms of private groups.!56 Certainly no such extraordinary circumstances were shown on this record. On the contrary, the record shows that built into the construction (48) industry is an elaborate system of specific tions and inspections to make certain that quality standards are maintained. In a word, if there is a problem of inferior quality in the construction industry, it exists with or without bid peddling, and with or without bid depositories.

In contrast to the substantial evidence showing that the Memphis area electrical bid depository is an unreasonable restraint of trade because of its unjustified impact on price competition, there was a failure of proof respecting the complaint charge that the Registry contributes to collusive agreements. On this issue, I see no reason for following an economist's speculative rumination over how a bid depository may make collusive agreements more readily enforceable when the track record of the construction industry shows that collusion is endemic without the aid of such "enforcement" As for the complaint allegations respecting the role ofthe Memphis Chapter, the record shows that it was the guiding light behind the creation ofthe Registry in the first place, and that its influence on the 156 Earlier, in Fashion Originators Guild of America (FOGA) v. FTC 312 u.S. 457 (1911) the Supreme Court said that even ifdcsign piracy were a tort under state law, it would notjustify the severe restraint ofa collective refusal by clothing designers to deal with distributors of unauthorized copies of their desiRJ!!. ), 240 Initial Decision Registry persists to this day: the electrical subcontractors on the first Registry board came from the membership rolls of Memphis Chapter the first Registry board selected the next board and so on, and the only manager the Registry has ever had is Scurlock, manager of the Memphis Chapter. It is inconceivable that Scurlock, who is only compensated by the Memphis Chapter, would operate the Registry in a way that was inconsistent with the interests of the Memphis Chapter. In short, the Registry is nothing more than an alter ego or disguised continuation ofthe old bid depository operated by the Memphis Chapter, and it would be turning precedent on its head to say that the successor (the Registry) may be named in an order, but not the originator (Memphis Chapter). See F. Collier Son Corp. v. FTC 427 F.2d 261 (5th Cir. cert. denied, 400 U.S. 926 (1970). While the responsibilty of Memphis Chapter for the policies and acts of the Registry is manifest, there is no basis on this record for issuing an order that is binding on the individually named respondents. Under complaint counsel's theory of individual (49) responsibilty, any four electrical subcontractors serving on the Registry s board are liable if for no other reason than that they constitute a majority. This liability, according to complaint counsel, attaches irrespective of the lack of evidence that the four imposed their wil on the other board members, or the total failure of proof respecting the named individuals' participation in the day-to-day affairs of the Registry. This is a flmsy basis for naming individuals, and is not supported by the cases holding that individuals are properly named only when they control or actively manage an enterprise, and an order could be evaded if they were not named. FTC v. Standard Education Society, 302 S. 112 (1937); Doyle v. FTC 356 F.2d 381 (5th Cir. 1966). In contrast even if such an order were justified here on the basis of actual control or management of the Registry by the individual respondents (and again, no such record was made), it would be an exercise in futility since any named four could be replaced immediately by a fresh foursome who had not been named. (50) CONCLUSIONS 1. The Federal Trade Commission has jurisdiction over the subject matter of this proceeding and over the respondents. 2. The acts and practices charged in the complaint took place in or affected commerce within the meaning ofthe Federal Trade Commission Act.

3. Respondent, the Memphis Chapter, was instrumental in creating Initial Decision 107 F. the Registry, and the Memphis Chapter has perpetuated its influence over the Registry by designating electrical subcontractors as a majority ofthe Registry s board, and by installng the manager of the Memphis Chapter as manager of the Registry.

4. By its terms, the Registry s rules cut off price negotiation after the Registry s deadline, prohibit subcontractors from bidding both inside and outside of the Registry, and require general contractors who agree to accept Registry bids from awarding the job to a subcontractor bidding outside of the Registry.

5. The operation of the Registry as described in Paragraph 4 above actually or probably increases the price for electrical services by arbitrarily cutting off price negotiation and by segmenting the bidding market into two distinct sets of electrical bidders-those in the Registry and those outside.

6. The adverse effects ofthe Registry are not offset by any procompetitive justification, and no convincing showing has been made that the Registry is necessary for quality, safety, or for any other reason. 7. The Registry and the Memphis Chapter have engaged in an unreasonable restraint of trade. (51) , There was a failure of proof as to responsibility of the named individual respondents for the acts of the Registry or for the need to name the individual respondents in order to obtain effective relief Accordingly, the following order should be issued: ORDER It is ordered That respondents The Electrical Bid Registration Service of Memphis, Inc. ("Registry ), a corporation, its successors and assigns, and the National Electrical Contractors Association, Memphis Chapter ("Memphis Chapter ), a corporation, its successors and assigns, and respondents' agents, representatives, and employees, directly or indirectly, or through any corporate or other device, in connection with the awarding of building construction contracts or subcontracts in or affecting commerce, as commerce is defined in the Federal Trade Commission Act, as amended, shall forthwith cease and desist from entering into, continuing, cooperating in, or carrying out any course of action, agreement, combination, or conspiracy with each other, or with electrical subcontractors or general contractors in the greater Memphis area:

(1) That requires or provides that electrical subcontractors using the services of a bid registration service are prohibited from or are 240 Initial Decision subject to any disciplinary action or threat of disciplinary action for (a) negotiating, after the deadline for the fiing or deposit of bids with the bid registration service, with general contractors using the services ofthe bid registration service; (b) submitting further bids to such general contractors after the deadline for the fiing or deposit of bids with the bid registration service; or (c) (52) accepting a contract at a price other than the price submitted by such electrical subcontractors through the bid registration service prior to the deadline for the registering of bids;

(2) That requires or provides that general contractors using the services of a bid registration service are prohibited from or are subject to any disciplinary action or threat of disciplinary action for (a) negotiating, after the deadline for the registering of bids with the bid registration service, with electrical subcontractors using the services of the bid registration service; (b) attempting to obtain or obtaining further offers to perform jobs for which bids were taken through the bid registration service; or (c) awarding contracts to electrical subcontractors at prices other than those submitted through the bid registration service prior to the deadline for the registering of bids; (3) That requires or provides that any person or firm that uses a bid registration service with respect to any specific job must (a) receive or solicit bids from, or submit bids to, only those persons or firms that are using the services of the bid registration service with respect to that job; or (b) register with the bid registry a copy of any bid that it has received or solicited from, or has submitted to, any person or firm that is not using the services of the bid registration service with respect to that job; (53) (4) That requires or provides that any person or firm that in any fashion uses a bid registration service must receive or solicit bids from, or submit bids to, only those companies, firms, or individuals that are also members of, signatories to, or participants in said bid registration service;

(5) That in any manner prohibits, restricts, or discourages price negotiation between an electrical subcontractor and a general contractor or awarding authority, including, but not limited to, (a) declaring such price negotiation to be unethical or improper; (b) taking or threatening to take punitive or disciplinary action against a person or firm for engaging or attempting to engage in such price negotiation; or (c) urging, inducing, or encouraging electrical subcontractors or general contractors to refrain from such price negotiation; or (6) That has the purpose or effect of unreasonably restraining price competition for electrical subcontracting services. Provided that nothing in this order shall prohibit the Registry from charging a reasonable fee (a) to a general contractor who uses the Initial Decision 107 F. services of the Registry for a particular job and awards the subcontract for that job to a nonparticipating subcontractor; or (b) to a subcontractor who uses the Registry on a particular job and is awarded the subcontract for that job by a nonparticipating general contractor.

Provided further that nothing in this order shall prohibit the respondents from (a) complying with the unilateral request of an awarding authority that a job be listed on a (54) sealed-bid basis without further price negotiation; or (b) seeking or petitioning for legislation concerning bidding procedures in the construction business. II.

It is further ordered That the Registry shan immediately reinstate any firm suspended from participation in its bid registration service which suspension resulted from conduct engaged in by respondents which hereafter would amount to a violation of this order. It is further ordered That the Registry and the Memphis Chapter within ninety (90) days after the date of service of this order, remove from their respective constitutions, by-laws, codes or standards of conduct, rules, regulations, existing policy statements, or guidelines any provision, interpretation, or policy statement that is inconsistent with the provisions of Part I of this order. IV.

It is further ordered That:

A. The Registry shan within fifteen (15) days of the date of service of this order distribute a copy of this order to an persons who are employees, offcers, or directors as of the date of service of this order and to an persons or firms that have participated in the Registry at any time prior to service of this order. Furthermore, within fifteen (15) days ofthe date that any person becomes an employee, offcer, or director ofthe Registry, its successors or assigns, or any person or firm becomes (55) affliated with or commences participation in the Registry, its successors, or assigns, the Registry shan distribute a copy of this order to any such person or firm; and B. The Memphis Chapter shan within fifteen (15) days of the date of service ofthis order distribute a copy ofthis order to an persons who are employees, offcers, directors, or members as ofthe date of service 240 Initial Decision of this order. Furthermore, within fifteen (15) days of the date that any person becomes an employee, offcer, or director of the Memphis Chapter, its successors, or assigns, or any person or firm becomes a member of the Memphis Chapter, its successors, or assigns, the Memphis Chapter shall distribute a copy of this order to any such person or firm.

It is further ordered That respondents notify the Commission at least thirty (30) days prior to any proposed change in their corporate existences such as dissolution or the creation of successor corporations or any other change in the corporations that may affect compliance obligations arising out of the order, or at least thirty (30) days prior to the formation by or with the participation of any respondent of any other corporation or organization that conducts the business of a bid registration service.

VI.

It is further ordered That respondents shall: A. Within sixty (60) days after the date of service of this order submit a written report to the Federal Trade Commission setting forth in detail the lIanner and form in which they have complied with this order;

B. For a period of five (5) years after the date of service ofthis order maintain and make available to the Federal Trade Commission staff for inspection and (56) copying, upon reasonable notice, records pertaining to any action taken in connection with any activity covered by Parts I and II ofthis order, including written communications and summaries of oral communications, to and from the respondents; and C. In addition to the report required by Section VI(A) of this order within one year after the date of service of this order, and annually for a period of five (5) years on or before the anniversary of the date of service of this order, and at such other times as the Commission may by written notice to the respondents require, fie a written report with the Federal Trade Commission setting forth in detail the manner and form in which the respondents have complied and are complying with this order.

Final Order 107 F.

FINAL ORDER The Administrative Law Judge fied his Initial Decision in this matter on November 21 1985, finding the corporate respondents Electrical Bid Registration Service of Memphis, Inc., and National Electrical Contractors Association, Memphis Chapter, Inc. to have violated Section 5 of the Federal Trade Commission Act, 15 C. , by engaging in acts and practices as alleged in the complaint. On December 11 , 1985, the Respondents fied a notice oftheir intention to appeal the Initial Decision. That notice was withdrawn on January 10, 1986. Counsel Supporting the Complaint fied a notice of intention to appeal the Initial Decision on December 13, 1985, but withdrew their notice on January 8, 1986. (2) The Commission has determined that the case should be placed on its own docket for review and that the Initial Decision, with the exception of Finding 56 and the associated discussion, should become effective as the decision of the Commission. Accordingly, It is ordered That the Initial Decision, except as noted above, and the order contained therein shall become effective on February 12 1986.

Acting Chairman Calvani would not have placed this matter on the Commission s docket for review and would have allowed the Initial Decision in its entirety to become effective as provided in Section 51(a) of the Commission s Rules. The Commission having determined to take this procedural step, he concurs in the issuance of the order contained in the Initial Decision.

285 Complaint