Economy & Trade, Headlines, North America

U.S.: Salt Giants “Locked out” Rivals in Ohio, Probe Finds

Pratap Chatterjee*

WASHINGTON, Jan 13 2011 (IPS) - When the price of salt in Ohio skyrocketed 236 percent in the winter of 2008, Ted Strickland, the governor of the state, asked the state inspector general to figure out why. Investigators quickly found that two government contractors – Cargill and Morton Salt – were responsible for this sudden price increase.

Salt is in high demand during the harsh winters in the U.S. Midwest, but not just to bring out the flavour in local food. Instead when temperatures drop below freezing and a major storm is expected, government authorities dispatch trucks and snow ploughs to spread large quantities of crystalline salt on the roads that dissolve into the fallen snow and lower the melting point to turn it into water.

A study done by Professor David Kuemmel of Marquette University in Madison, Wisconsin concluded that road salt can reduce the risk of pedestrians and cars slipping on icy road surfaces by almost 90 percent. The Salt Institute in Alexandria, Virginia, estimates that government authorities in the U.S. spent some 700 million dollars a year buying 22 million tonnes of rock salt to keep the roads free of snow.

The state of Ohio owns two salt mines – one in Cleveland and the other in Fairport – which it has leased for 100 years to Cargill and Morton to extract salt. Cargill, one of the world’s largest private companies, is based in Minneapolis, while Morton Salt is a Chicago-based company that was recently bought up by K+S, a German conglomerate. These two companies sold 77 million dollars worth of salt back to the Ohio government in 2010 alone.

The report alleged that the two companies took advantage of the Ohio department of transportation’s (ODOT) decision to interpret the “Buy Ohio” law to stipulate that if any two bidders offer salt mined in Ohio to the government, all other bids are to be excluded no matter how much lower they are.

“Lockout bidding has so discouraged out-of-state vendors that they are reluctant to submit bids, assuming that Cargill and Morton will lock them out of the market by both bidding in as many counties as possible,” the report concludes. “Evidence of all of these indicators were primarily identified in the 54-county northern region of the state, where lockout prevails and Cargill and Morton have segmented the market into counties that both companies consistently win, year after year.”

Charlie Ortman, engineer for Ross County in Ohio, estimates his county spent an extra 300,000 dollars on inflated salt prices in 2008 and 2009 when prices jumped from just over 44 dollars a tonne to slightly more than 150 dollars per tonne.

“When we spend that kind of money for salt, it means capital improvement projects like bridge replacement and culvert replacement have to wait,” Ortman told the local newspaper. “We didn’t have that money that we could have given the public smoother roads and bridges with.” Both companies disagree with the inspector general’s findings. “In Ohio, and everywhere else, we compete independently and fairly under the bidding procedures set out by the relevant procurement officials,” Morton Salt said in a press statement.

The Ohio inspector general “admitted that it ‘failed to find any evidence that the two companies communicated on salt bids’ because in fact Cargill never did or would talk with its competitors about bids,” Cargill spokesman Mark Klein wrote in an email to IPS.

“The price of rock salt reflected supply and demand factors, not questionable bidding practices,” he added.

But the inspector general’s report noted that Cargill’s profit margins in Ohio were significantly higher than its margins in seven other states. “At its extreme, in the winter of 2007-08, Cargill’s ODOT profit margin was a staggering 4,000 percent higher than its profit margin on its contract with a transportation agency in a neighboring state,” allege the investigators.

Not only did the companies charge unreasonable prices, the inspector general report says that Cargill and Morton sometimes sold the government non-Ohio salt. “We identified 115 instances in which Cargill certified that it was delivering Ohio-mined salt when a portion of the salt came from out of state,” the investigators concluded.

Cargill’s Klein says that there were only two such incidents. Klein also claims that only four percent of the Ohio awards legally required the company to provide Ohio salt.

The inspector general also published evidence of alleged improper payments. Tony DiPietro, a former Ohio department of transportation executive who went to work for Cargill, allegedly provided approximately 4,700 dollars in gratuities to “public employees who had significant influence on the purchasing of Cargill’s road salt and other Cargill deicing products”.

Frank Bianchi, the vice president of Granger Trucking, one of Cargill’s salt haulers, “spent thousands of dollars to entertain public officials throughout northeast Ohio in the name of Cargill”, the report alleges.

“The vast majority of these entertainment expenses were minor and none were intended to improperly influence purchases,” Klein wrote.

“Nonetheless, in June 2009, after considering how the entertainment could be misconstrued, Cargill Deicing Technology instituted a specific ‘zero tolerance’ policy for entertaining government officials and employees. Since this policy was put into place, there have been no further entertainment expenses relating to Ohio public officials or employees.”

The report concludes that the ODOT may have overpaid Cargill and Morton between 47 million and 59 million dollars over the last decade as a result of the “lockout bidding” practices. ODOT now has 60 days to decide whether or not to respond.

*Pratap Chatterjee is a visiting fellow at the Center for American Progress in Washington DC specializing in fraud, waste and abuse in government procurement.

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