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Project on Government Oversight

POGO Comments on Responsible Contractor "Anti-Scofflaw" Federal Regulations

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November 5, 1999

General Services Administration
FAR Secretariat (MVR)
ATTN: Ms. Laurie Duarte
1800 F Street, NW, Room 4035
Washington, DC 20405

Re: FAR Case 1999-010

Dear Ms. Duarte:

Thank you for the opportunity to comment on Federal Acquisition Regulation (FAR) case 1999-010. POGO is a nonprofit, nonpartisan organization that has, for almost 20 years, investigated, exposed and worked to remedy abuses of power, mismanagement, and subservience to special interests, by the Federal government.

We support the proposed amendment that would clarify existing FAR rules that instruct Federal contracting officers to enter only into contracts with "responsible contractors." The proposed anti-scofflaw regulation would make it clear to businesses that there actually are consequences for breaking the law. It would also make clear that taxpayers will no longer pay for any of the legal defense costs of businesses that have violated laws.

The first issue addressed by the proposed rule is the current practice of awarding Federal contracts to businesses that have repeatedly or substantially violated laws or regulations. In clarifying the existing FAR, the proposed rule includes examples of what a "satisfactory record of integrity and business ethics" would involve. These examples include "compliance with federal laws including tax laws, labor and employment laws, environmental laws, antitrust laws, and consumer protection laws."

Furthermore, the proposed rule would require that "All offerors must certify to contracting officers whether within the past three years, they have been convicted of any felonies (or have any felony indictment currently pending against them) or have otherwise been found liable in a civil proceeding arising from violation of any federal tax, labor and employment, environmental, antitrust, or consumer protection laws."

Although common sense would eliminate from consideration any companies who have seriously or repeatedly violated the law from consideration for further contract awards, common practice apparently does not. There are numerous examples where a company that has been fined for regulatory violations has been awarded contract after contract by the Federal government.

For example, the General Accounting Office (GAO) released a report in 1995 entitled "Worker Protection: Federal Contractors and Violations of Labor Law." This report stated that, of the $182 billion in federal contracts awarded to parent firms, over $23 billion in federal contracts went to 80 firms that had violated the National Labor Relations Act (NLRA). Thousands of workers were directly affected by these violations of the NLRA, yet Federal contracts were still awarded to these firms.

The awarding of Federal contracts to businesses who have violated the laws and regulations of this nation has been done at the expense of the employees of these companies, the tax-paying public, the consumer, and the environment. By clarifying the existing regulation, the Government will demonstrate to the public and to businesses that these business corporations will be held accountable when they break laws.

The second issue in the proposed rule is whether certain legal proceeding expenses will be allowable costs under Federal contracts. Currently, legal defense and other proceedings costs are not allowed to be billed to contracts if there has been, for example, a conviction in a criminal case or the imposition of a monetary penalty in a civil proceeding. In other cases, however, where the Federal Government brings a civil proceeding against a contractor (National Labor Relations Board proceeding, for example) and there is a finding that a contractor has violated a law or regulation and the remedy ordered is not monetary, then the contractor can bill its legal defense and proceedings costs to its Federal contracts.

Under the proposed regulation, costs would be unallowable if incurred in connection with any Federal, state, local, civil, administrative, or foreign government proceeding if a contractor is found to have violated, or failed to comply with, any law or regulation. In other words, if a business is found guilty of breaking a law or of noncompliance with a regulation, regardless of the penalty imposed, the American taxpayer should not and will not be made to pay for that company's defense. Distinguishing whether legal proceeding costs should be made allowable based on the remedy imposed (e.g., monetary penalty, injunction, etc.) seems to us to make no sense. The nexus of allowability should rest upon conviction, liability, or some other judgment by a body of competent jurisdiction that a contractor has violated a law or regulation (or has otherwise settled or compromised the matter). Consequently POGO strongly supports the proposed amendment to FAR 31.205-47.

POGO supports the proposed amendments to FAR 31.205-21, "Labor relations costs." The current FAR rule is not neutral. It permits reimbursement of contractor costs in order to deter unionization. The current rule funds anti-union activity carried out by special interests against its' employees; an abuse of power and waste of taxpayer money. Accordingly, we support extension of the neutrality provisions contained in other cost-based Federal program rules to the FAR, and wholeheartedly support this proposed amendment.

These amendments to the FAR will add a badly needed element of accountability for Federal contractors. If a government contractor breaks the law, they should be held accountable. They should not expect to receive additional Federal contracts, nor should they be allowed to bill the very taxpayers whom they have harmed.

Sincerely,

Danielle Brian
Executive Director

 

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