FTC Targets Alleged Conspiracy Against Competition for Kansas City School District Bus Service Contract

Three school bus transportation companies have agreed to settle separate Federal Trade Commission and State of Missouri charges in connection with a "joint venture" called Kansas City School Transportation, and the venture's bid on a three-year contract to provide bus service for children in the Kansas City Missouri School District.  According to the FTC, the joint venture was set up to keep the firms from having to compete with one another, and to allow them to allocate among themselves the areas of the district each would serve.  The FTC alleged that the school district had "little choice" but to accept the joint bid – these firms (or their predecessors) had provided bus service in the past and few other bids were received.

Named in the FTC complaint detailing the alleged conspiracy to restrain competition are:

• B & J School Bus Service, Inc., of Kansas City;
• Ryder Student Transportation Services, Inc., of Miami, Florida; and
• Mayflower Contract Services, Inc., of Overland Park, Kansas.

The proposed FTC settlement agreement, announced today for public comment, would prohibit each company from entering into similar agreements with any other school bus transportation company restraining competition for school bus service in the Kansas City area.  The settlement agreement also would prohibit the companies, for three years, from communicating to past, present or likely future providers of bus service to the Kansas City school district their plans to bid, or not to bid, for those services.  The office of the Missouri Attorney General will file a similar settlement in the Circuit Court of Cole County, Missouri, today.

According to the FTC complaint, four companies provided most of the school bus transportation to the Kansas City school district for many years prior to the 1984/1985 school year -- B & J; R. W. Harmon & Sons, Inc. (purchased by a predecessor of Mayflower in 1984); Pace School Bus Service (purchased by a predecessor of Mayflower in 1985); and KAL Leasing, Inc. (purchased in 1986 by a predecessor of Ryder).  For the 1984/1985 school year, the complaint states, the district decided to adopt a competitive bidding process with the expectation that, by increasing competition, it would get lower rates.

The FTC alleged that, in response to this request for bids, Harmon, Pace, KAL and B & J "agreed not to compete with each other with respect to whether, and on what terms, they would submit bids to [the school district] for providing school bus transportation services."  Instead, the FTC charged, the four companies agreed to form Kansas City School Transportation and submit a joint bid, and then to allocate among themselves the portions of the district to which each would provide service.  "The four companies would, thereby, be able to continue generally to serve schools located in areas of the [district] that they had served in the past," the FTC said.

Although the companies called Kansas City School Transportation a "joint venture," they did not integrate their operations in any substantial manner, or make any substantial capital contributions to the venture, the FTC charged.

The proposed consent agreement to settle these charges would prohibit each respondent -- B & J, Ryder and Mayflower -- as well as their successors, from soliciting or attempting to enter into, organize, or implement any agreement or understanding with another respondent or school bus transportation provider in the three-county Kansas City area, if the agreement or understanding is:

• to submit jointly-determined bids, or to refrain from bidding, for school bus transportation services in the area;
• with respect to price or other terms and conditions relating to such services for the area; or
• to allocate or divide jobs, markets, customers, contracts, or territories for such services in the area.

Further, the proposed consent agreement contains a provision that would expire in three years, and would prohibit each respondent from communicating with certain entities about its intent to bid, or not to bid, to provide school bus transportation services for the Kansas City Missouri School District.  The entities with whom such communication would be prohibited during that three-year period include:

• any other respondent;
• any entity that has provided school bus transportation services in the Kansas City area at any time since 1982;
• any entity currently providing such services;
• any entity known to have been requested to provide such services; or
• any entity that has publicly announced its intention to provide such services.

The settlement would not prohibit otherwise legal joint ventures.  Also, if requested in writing by a potential purchaser of school bus transportation services, the agreement would not bar the respondents from making a joint bid or engaging in other joint undertakings.

The FTC's Chicago Regional Office worked with the Missouri Attorney General's office on the investigation in this case.

The Commission vote to accept the proposed FTC consent agreement for public comment was 5-0, although Commissioner Mary L. Azcuenaga issued a statement in which she dissented in part.

According to the statement, the order does not prohibit price fixing, bid rigging, or market allocation outside the three-county Kansas City area even though two respondents are national companies.  Thus, Azcuenaga said, if either engaged in another illegal conspiracy outside the Kansas City area, the FTC could not seek civil penalties for violation of the current order.

"The conduct alleged in the complaint is plainly unlawful," she said, adding that the joint venture "can aptly be characterized as a sham or cover for an illegal conspiracy."  Further, Azcuenaga said, "[w]hen the Commission finds bid rigging, market allocation or price fixing, it should take strong action to prohibit the participants from repeating the violation."

In conclusion, Azcuenaga said, "[t]his Order, limited to three counties in Missouri, hardly amounts to a slap on the wrist."

The agreement will be published in the Federal Register shortly and will be subject to public comment for 60 days, after which the Commission will decide whether to make it final. Comments should be addressed to the Office of the Secretary, FTC, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580.

NOTE:  A consent agreement is for settlement purposes only and does not constitute an admission of a law violation.  When the Commission issues a consent order on a final basis, it carries the force of law with respect to future actions.  Each violation of such an order may result in a civil penalty of $10,000.

Copies of the FTC complaint and proposed consent agreement, as well as the settlement reached by the State of Missouri with the respondents, are available from the FTC's Public Reference Branch, Room 130, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202-326-2222; TTY 1-866-653-4261.

(FTC File No. 901 0172)
(KCSchool)