Databases and Loopholes

The House yesterday approved the Federal Spending Accountability Act, which mandates the creation of a database of contractor misdeeds that could be used in award decisions.

Introduced by Rep. Carolyn Maloney (D-N.Y.), the legislation presses an idea that has been bouncing around in Congress for a while: to hold companies responsible for bad behavior. It was approved by a voice vote just hours after going to the floor for debate.

Sen. Claire McCaskill (D-Mo.) introduced a similar bill in the Senate a short time later.

Here's what they had to say in a press release:

"Right now, there is nothing stopping a fraudulent contractor from bouncing from federal agency to federal agency, fleecing U.S. taxpayers the whole way," said Maloney. "The federal government's watchdogs -- federal suspension and debarment officials -- lack the centralized information they need to crack down on fraudulent contractors. Congress can and should do more to fortify the federal procurement system and help government watchdogs show the door to contractors who are lining their pockets at the expense of hardworking taxpayers."

"This bill will put in place the necessary infrastructure to ensure that federal spending goes to businesses that work within the law, not outside it. It is time to empower our federal contracting officials with the information they need to protect American tax dollars. I applaud Congresswoman Maloney for initiating this very common sense policy," said McCaskill, who introduced the Contractor and Federal Spending Accountability Act in the Senate today and plans to seek to attach the language to the National Defense Authorization Act next week.

The House also approved legislation that would eliminate a notable loophole in proposed regulations that would exempt U.S. contractors in foreign countries from having to report waste, fraud or abuse they encounter while doing work for the government.

The loophole was the stuff of teeth-gnashing and fingerpointing in recent weeks on the Hill.

"This loophole is so outrageous that once exposed in the light of day it was simply indefensible. No contractor should be given a green light to defraud taxpayers. We need to protect taxpayer dollars and our troops serving overseas by closing this loophole with the force of law," said Rep. Peter Welch of Vermont.

In case you were wondering, the proposed law is called Close the Contractor Fraud Loophole Act.

By Robert O'Harrow |  April 24, 2008; 7:00 AM ET
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Let's be clear about one thing - the merits or lack thereof of any specific legislation aside. Any entity receiving contracts from the U. S. Government, be they U.S. or foreign owned, has always been and is covered by the anti-fraud statutes, be it the False Claims Act, the Foreign Corrupt Practices Act, or the rest. The "Close the Contractor Fraud Loophole" Act is not about closing any loophole that would somehow condone fraud,
because none existed; it is about process - first imposing a new requirement on all contractors for mandatory disclosure of violations of criminal law (which while it sounds eminently logical, may actually be counterproductive) and then imposing a requirement that foreign owned companies have the same type of ethics and compliance programs as is today required for U.S. government contractors. Among the significant challenges for the U.S. government as it seeks to directly contract with host nation firms, and for U.S. prime contractors performing work on behalf of the U.S. government through subcontracts with those local national firms overseas, is whether the concept of formal ethics programs, hotlines and the like are common or even understood in that nation's marketplace. This will be an issue for firms in developed nations and an even greater challenge in developing nations, where an American-type government contracting system doesn't exist. In short, the debate over the foreign exemption is NOT about allowing foreign firms to fleece the American taxpayer. It is about the degree to which the U. S. Government can or should impose its unique PROCESS requirements on companies operating under the laws of other countries. It is far from a simple question.

In addition, while many see the Maloney database bill as merely a resource for government contracting officers to use to determining the fitness of a firm for being awarded a government contract, the truth is that without some clear, responsible and objective set of processes and criteria to govern the information included in the database and how it should be measured and used, it is difficult to see how a government contracting officer will be able to effectively and FAIRLY utilize the information. For example, there is a big difference between a settlement with no findings of guilt or innocence and a fully adjudicated finding. Which types of violations are more severe than others? How are they to be measured and compared? At what point has a company "paid its debt" to society or effectively remediated previous internal problems? No one suggests that companies with a pattern of violating federal law should benefit from taxpayer-funded government contracts, nor is there any evidence that such happens routinely today. Ethical contracting is indeed important; so, too, is a balanced, due process aligned with the sentences/fines already imposed.

Posted by: Stan Soloway | April 25, 2008 4:12 PM

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