FPC 6

Grinnell and a sister company are implicated in fire protection system scandal!!

Charges of falsification of inspection records, bid rigging & price fixing

Fire protection giant Grinnell, and a sister company, Tyco Australia Pty. Ltd, have both paid millions in fines in December, 1999, to settle a massive complaint in two Australian jurisdictions.

The Australian Competition and Consumer Commission brought proceedings against Grinnell, Tyco and others, charging the defendants with collusion to illegally rig bids on 145 fire protection projects, and at least 158 fire alarm projects. The scheme was "highly organized and deliberate," according to the Commission report, "substantial losses resulted to the consumers ... (the violations were)...very serious."

Most alarmingly, the commission also charged that Tyco falsified maintenance records, to show they had inspected fire protection systems at a hospital, theater, college and a retirement home, when in fact the systems were not inspected. Nonetheless. Tyco billed for the inspections that were never performed. Meanwhile, the fire systems at the Prince Alexandra Hospital deteriorated to the point where there was no measurable flow of water to hydrants on five upper floors.

Because of Tyco’s knowing frauds, hundreds of persons were exposed to vastly increased risk of death by fire.

"This extremely reprehensible conduct could have endangered lives and the property of its customers," said the Commission chair, Professor Allan Fels. "From at least 1990 until 1998, Tyco was only performing about half the contracted alarm routines and less than half of the annual sprinkler routines. At no stage did it employ sufficient staff to perform the contracts or have a system to check if routines were performed or had been done. Tyco’s management was aware there were insufficient staff to carry out the majority, let alone all, the work contracted yet continued to renew existing contracts and enter new ones," said Fels.

"Tyco also issued certificates of maintenance to building owners without knowing if such routines had happened and knowing that less than half of its contacted work was being done.

Further, Tyco billed its customers without knowing whether the work was being done and accepted payments in advance knowing it was not going to perform all contracted work," Fels continued.

The Federal Court ordered a three year injunction against Tyco and also ordered Tyco to write to its customers who were defrauded. Tyco was also ordered to reform its procedures.

Tyco’s upper management was also implicated in the price-fixing scandal, including a manager of two Territory operations. The manager, according to the Commission, "learned at quite an early time" about the scheme, "appreciated it was wrong" "but failed ... to put a stop to the conduct."

The Commission’s December 14, 1999 Order levied fines of $3,300,000 against Grinnell Asia Pacific Pty ltd, and another $1,400,000 fine against Grinnell’s sister company, Tyco Australia for the bid rigging and price fixing charges.

Grinnell, Tyco and others had held regular meetings at which the fire protection companies agreed among themselves who would "win" each bid contact and they would agree on the price for the project.

The Judge in the case noted that consumers had suffered substantial losses. The scheme started in the mid-1980s, when Grinnell, Tyco and the other fire protection companies would collude at secret meetings deemed the "Coffee Club." When the companies agreed who would "win" a bid, the others would submit artificially high bids. This practice is called "cover pricing." The conspirators also agreed that they would not give large discounts to building contractors. They also fixed labor and materials costs for alarm projects, allowing for a 40% profit margin.