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Project on Government Oversight

POGO opposes industry-driven effort to further remove contract oversight and provisions that protect taxpayers

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May 10, 2005 | By: Scott H. Amey, J.D.

Submitted via e-mail: ernest.woodson@gsa.gov
Hard copy to follow

General Services Administration
ATTN: Laurie Duarte
FAR Secretariat (MVA)
1800 F Street, N.W., Room 4035
Washington, D.C.  20405

Re: GSAR ANPR 2005-N01: "Waiver of Consequential Damages and 'Post Award' Audit Provisions"

Dear Ms. Duarte:

The Project On Government Oversight (POGO) provides the following public comment to GSAR ANPR 2005-N01: "Waiver of Consequential Damages and 'Post Award' Audit Provisions" published at 70 Federal Register 12167 (March 11, 2005 ) (subsequent corrections published at 70 Fed. Reg. 19051 and 70 Fed. Reg. 13005).  POGO investigates, exposes, and seeks to remedy systemic abuses of power, mismanagement, and subservience by the federal government to powerful special interests.  POGO is concerned that any industry-driven change to acquisition regulations governing consequential damages[1] and post-award audits for commercial items would place the government in an extremely vulnerable position.  The government must protect taxpayers, and watering down or eliminating contract provisions will not perform that task.

First, contracting officers have the ability to waive the consequential damage provisions set forth in the FAR.  Currently, the commercial item consequential damages provision shields vendors from liability "for consequential damages resulting from any defect or deficiencies in accepted items."   48 C.F.R. § 52.212-4(p).  In addition, the FAR leaves the door open for contracting officers to tailor commercial item consequential damages provisions.  See 48 C.F.R. § 12.302(b). Furthermore, 48 C.F.R. 12.302(c) states that a "contracting officer shall not tailor any clause or otherwise include any additional terms or conditions in a solicitation or contract for commercial items in a manner that is inconsistent with customary commercial practice for the item being acquired unless a waiver is approved in accordance with agency procedures."  Therefore, a contracting officer is already required to follow the practices of the commercial marketplace.

Any tailoring by contracting officers should be restricted to a case-by-case basis.  They should depend on commercial standards for granting a complete waiver.  Taxpayers could be left vulnerable without case-by-case determinations being made when a tailored exemption is provided to a contractor.

"Industry concerns" about this issue are nothing more than an effort to gain a complete exemption from consequential damages for commercial item acquisitions.  POGO does not think that a blanket exemption is in the government's best interest.  Rather, the government should conduct a thorough review to determine if contracting officers should tailor more consequential damage contract provisions on a case-by-case basis to meet commercial practices.  Any revisions to the consequential damages provision should only be approved after the government finds evidence that the current provision is not in the government's best interest.  Additionally, that evidence must also show that the lack of a complete waiver of the commercial item consequential damage provision eliminates contractors who might otherwise do business with the federal government; is counterproductive to efficient procurement; or increases costs.

Government contracts include other provisions (i.e., breach of contract, default, damages, and warranty clauses) that provide a level of protection from waste, fraud or abuse.  The government, however, should utilize every contracting clause, provision, or concept legally available to ensure protection of taxpayer dollars.  In essence, the government has accepted damage provisions as a cost of doing business, and a reasonable insurance policy when buying goods or services from commercial entities.

Second, POGO strongly avers that limiting or eliminating post-award audit provisions from commercial item contracts would have an immensely negative impact on holding contractors accountable.  The Federal Register notice states that "Contractors' major concerns with GSA's post-award audit authority include complaints that they are too broad and not consistent with commercial contract practices."  70 Fed. Reg. at 12168.  Although that concern may be technically accurate, it ignores the fundamental difference between commercial and government contracts.  The government is spending taxpayer dollars and the use of post-award audit provisions helps to ensure fair and reasonable pricing, and maintains public confidence in the contracting system.

Contractors should have nothing to hide when it comes to contracting with the federal government.  As Justice Holmes warned many years ago:  "Men must turn square corners when they deal with the Government."  Rock Island, Arkansas & Louisiana R.R. Co. v. United States, 254 U.S. 141, 143, 41 S. Ct. 55, 65 L. Ed. 188 (1920) (emphasis added).  Contractors lobbying for relaxed or complete exemptions from any audit provisions are in essence arguing for turning a "blind eye" to "bad deals."  Until the day arrives when contractors operate without misconduct, over-billing, billing errors, or false claims, audit provisions are one of the only tools that effectively ensure that contract dollars are being spent legally and effectively.

Sincerely,

Scott H. Amey
General Counsel
scott@pogo.org


1. Consequential damages are defined as "losses that do not flow directly and immediately from an injurious act but that result indirectly from the act."  Black’s Law Dictionary (8th ed. 2004).

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