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Project on Government Oversight

POGO makes comment on Contractor Compliance Program and Integrity Reporting

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January 14, 2008 | By: Neil Gordon, Scott H. Amey, J.D.

POGO supports contractor compliance program and integrity reporting, but the proposed rule’s mandatory reporting requirement must be clarified and expanded to require contractors to disclose a broader array of unethical conduct.



January 14, 2008

General Services Administration
Regulatory Secretariat (VIR)
1800 F Street, NW
Room 4035
ATTN: Laurieann Duarte
Washington, DC  20405

Sent by Facsimile: (202) 501-4067

Subject: FAR Case 2007-006


Dear Ms. Duarte:

The Project On Government Oversight (POGO) provides the following public comment to FAR Case 2007-006—“Contractor Compliance Program and Integrity Reporting.” (72 Fed. Reg. 64019 (November 14, 2007).) POGO is an independent nonprofit organization that investigates and exposes corruption and other misconduct in order to achieve a more accountable federal government, and therefore POGO has a keen interest in government contracting matters, especially matters related to the promulgation of federal acquisition regulations. POGO supports the proposed rule, as well as its objectives. POGO believes, however, that the proposed rule’s mandatory reporting requirement must be clarified and expanded to require contractors to disclose a broader array of unethical conduct.

The proposed rule by the Civilian Agency Acquisition Council and the Defense Acquisition Regulations Council, at the request of the Department of Justice, amends the Federal Acquisition Regulation (FAR) and the “Contractor Code of Business Ethics and Conduct.” (72 Fed. Reg. 65873 (November 23, 2007).) Specifically, the proposed rule would (1) require contractors to have a code of ethics and business conduct, (2) establish and maintain specific internal controls to detect and prevent improper conduct in connection with the award or performance of federal contracts or subcontracts, and (3) require the notification of contracting officers without delay when there are violations of federal criminal laws with regard to such contracts or subcontracts. The proposed rule also stipulates that the failure to comply with the notification requirement could result in suspension or debarment.

While the proposed rule is certainly an improvement over the current contractor compliance system, which went into effect in December 2007, POGO believes the mandatory reporting requirement is far too narrow and in need of clarification.

Integrity and Business Ethics Disclosure Inadequate

The proposed rule requires contractors “to timely disclose a violation of Federal criminal law in connection with the award or performance of any Government contract performed by the contractor or a subcontract awarded thereunder (see 9.406–2(b)(1)(v) and 9.407–2(a)(7)).” (Emphasis added.) Failure to timely report criminal violations could result in suspension or debarment actions against the contractor pursuant to amendments proposed at FAR Subparts 3.1002 (Contractor Code of Business Ethics and Conduct), 9.406-2 (Causes for debarment), and 9.407-2 (Causes for suspension). 

This requirement is ambiguous because it fails to adequately establish what a “violation” is and when “timely” disclosure must occur—after a violation occurs, after an internal review is performed, after a criminal cased is filed, after verdict by a court or jury, or after an appeal. The timing of a violation is troublesome because contractors often settle cases without any admission of fault or liability. As a result, there might be a question as to whether a “violation” occurred and whether it must be report to the government. There has also been a rise in deferred and non-prosecution agreements in criminal cases brought by the government against contractors, which creates confusion regarding disclosure of criminal violations.

POGO also believes that the proposed rule’s narrow focus excludes a vast universe of misconduct that has bearing on contractors’ “satisfactory record of integrity and business ethics” and their degree of “integrity and honesty.” Contractors do more than conduct business with the federal government, and they can misbehave in ways that do not involve violations of federal criminal statutes. For example, under the proposed rule, contractors will not be required to report civil or administrative judgments or penalties assessed against them in matters involving the environment, public health, securities, antitrust, workplace discrimination, or human rights. Contractors would not have to report when they have had their contracts terminated for default, or report violations of the laws (criminal or otherwise) of a city, county, state, or a foreign country. As a result of its narrow focus, the proposed rule would limit the information provided to contracting officers, depriving them of information essential to ensuring integrity in contracting and reducing unethical conduct.

The Councils should consider that suspension and debarment offices have shifted their focus from contract-only responsibility reviews to looking at contractors’ entire corporate culture, which includes both public and private criminal, civil, and administrative actions, cases, and remedies. In addition, according to Security and Exchange Commission regulations, publicly traded corporations must report “any material pending legal proceedings.” (17 C.F.R. § 229.103; see also Public Law 107-204 (the “Sarbanes-Oxley Act of 2002,” enhancing reporting requirements for publicly traded corporations).) There has been a government shift to full disclosure of contractors’ track records, and the Councils should not confine the amount of information available to the government or the public.

FAR Subsection 9.104-1(d) Ignored

T
he proposed rule attempts to combine contractors’ records of performance with their “record of integrity and business ethics.” The proposed amendment to FAR Subpart 9.104-1 to include a reference to FAR Subpart 42.15 downplays the importance of FAR Subparts 9.104(d) and 52.203-13. All too often contractors cite their good performance grades, and no genuine government review is conducted of their overall level of responsibility or nonresponsibility. POGO urges the Councils to create a contractor integrity and business ethics section in FAR Part 42 that would require government officials to record and maintain integrity and business ethics information that can be shared with government officials. Although contractor performance and responsibility are part of FAR Subpart 9.1, distinctive data and information should be collect on each.

Disclosure Essential

The information obtained by contracting officers needs to be shared government-wide. The consolidation of contractor information is vital to making pre-award responsibility determinations to prevent risky contractors from receiving federal contract awards. Unfortunately, the proposed rule emphasizes that criminal violations should be considered in the context of suspension and debarment, thereby ignoring the usefulness of civil and administrative information in pre-award responsibility and suspension/debarment determinations. Currently, there is no government database or system in place to review contractors’ responsibility levels.

Government contracts are predicated on a basic principle – taxpayer dollars should only be awarded to responsible contractors.  The Federal Acquisition Regulation (FAR) Subpart 9.103 states:

(a) Purchases shall be made from, and contracts shall be awarded to, responsible prospective contractors only.

(b) No purchase or award shall be made unless the contracting officer makes an affirmative determination of responsibility. In the absence of information clearly indicating that the prospective contractor is responsible, the contracting officer shall make a determination of nonresponsibility. (Emphasis added.)

For a government contracting officer to determine whether a contractor is responsible, the contractor must, according to FAR Subpart 9.104-1, meet the following standards: 

* * *

(c) Have a satisfactory performance record (see 9.104-3(b) and Subpart 42.15). A prospective contractor shall not be determined responsible or nonresponsible solely on the basis of a lack of relevant performance history, except as provided in 9.104-2;

(d) Have a satisfactory record of integrity and business ethics. (Emphasis added.)

These standards require contractors to prove that they have a satisfactory performance and responsibility record. They are extremely vague and provide little advice in making a responsibility determination. Furthermore, there is no established government-wide definition of satisfactory and, until recently, the government did not have mandatory contractor code of business ethics and conduct in place. With that system now in place (effective December 2007), POGO urges the Councils to create a database that is accessible to the federal contracting officers and to the public. Such a database will help reduce waste, fraud, abuse, and mismanagement of taxpayers’ resources, enhance integrity in the procurement system by strengthening the requirements for contractor corporate compliance systems, and add clarity and consistency in agency requirements.

The proposed rule’s amendments to FAR Subpart 52.203-13 would be a step forward in reporting contractor nonresponsibility. POGO supports the proposed language at 52.203-13(b)(3) which requires that

The Contractor shall notify, in writing, the agency Office of the Inspector General, with a copy to the Contracting Officer, whenever the Contractor has reasonable grounds to believe that a principal, employee, agent, or subcontractor of the Contractor has committed a violation of Federal criminal law in connection with the award or performance of this contract or any subcontract thereunder.

POGO urges, however, the Councils to expand the scope of reporting to include all criminal, civil, and administrative violations so that contracting officers and the public have access to contractors’ complete performance and responsibility track record. As stated above, the Councils should also consider clarifying the types of violations that contractors must report, and to better define what represents “reasonable grounds” for reporting and what constitutes “timely reporting” of a criminal violation as proposed by FAR Subsection 3.1002(c), 9.406-2, 9.407-2, and 52.203-13.

Tracking and reporting the misconduct of federal contractors has been one of POGO’s core functions since our founding in 1981. In 2007, POGO updated its Federal Contractor Misconduct Database (FCMD),[1] a web-based compilation of the alleged and actual wrongdoing of the federal government’s largest contractors. POGO originally introduced the FCMD in 2002 as a resource for government contracting officers in their efforts to curb procurement fraud, waste, and abuse. The FCMD collects all instances of actual or alleged misconduct committed by contractors since 1995 at the local, state, federal, and international level in any kind of civil, criminal, or administrative proceeding. By casting a wide net, POGO has found hundreds of instances of misconduct in which the fifty largest contractors have paid billions of dollars in fines, penalties, restitution, and settlements. A similar government-run database would assist the acquisition workforce and better protect the public interest.

Contractor misconduct is a term used by POGO to highlight instances when companies that sell goods or services to the government violate laws or regulations, or are accused of wrongdoing in their dealings with the government, persons, and private entities. POGO has compiled the FCMD because there is no government repository for federal contractor misconduct information. At best, the General Services Administration’s (GSA) Excluded Parties List System (EPLS) lists suspended or debarred individuals and contractors, but it does not document contractors’ overall performance or responsibility track record. A federal contractor responsibility database will shine additional light on criminal, civil, and administrative actions and suspensions and debarments. This information can be used to benefit contracting decisions by ensuring that government contracts go to responsible contractors. Without a system of vetting contractors to determine whether they are truly responsible, the government is shirking its responsibility to protect its constituents, the American public.

POGO supports the proposed rule, but believes it should be clarified and strengthened by expanding the mandatory reporting requirement to include all actions that indicate contractors’ level of responsibility. Thank you for your consideration of this comment. If you have any questions, you may contact me at (202) 347-1122.

Sincerely,


Scott H. Amey
General Counsel
scott@pogo.org
  Neil Gordon
Investigator
ngordon@pogo.org

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1. http://www.contractormisconduct.org
 

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