By Dana Hedgpeth
Washington Post Staff Writer
Thursday, November 15, 2007
The Justice Department has proposed tough new regulations for those who do business with the government, a reflection of the growing number of fraud, bribery and waste cases arising from the multibillion-dollar federal procurement process, say industry experts and regulators.
The new rules would require federal contractors to report themselves if any of their employees -- or subcontractors -- violate a criminal law related to a contract worth more than $5 million while that work is being done. If a contractor is caught not reporting its violations, it could be suspended or barred from doing business with the government for up to three years.
"This is a sea change in federal procurement law," said Peter S. Spivack, a partner at the law firm Hogan & Hartson who specializes in defending government contractors. "It requires contractors to turn themselves in if they believe someone committed fraud, for example, in doing a contract."
Currently, contractors can voluntarily report themselves. But the Justice Department says it is necessary to make reporting mandatory because "few companies have actually responded" to voluntary disclosure rules.
Having companies turn themselves in "hasn't worked" Spivack said, "so now they're saying, 'We're going to force you to turn yourself in, and if you don't and we find out later, we're going to keep you from doing business with the federal government.' That's giving the government the gun and the bullets and asking them not to shoot you."
The new rules also call for companies to put in place internal controls to ensure adequate documentation, adherence to proper procedures and other protocols to catch fraud and other such crimes. The government would also be required to consider whether a company had been ethical and performed with integrity its past work on federal contracts.
The department submitted the proposed changes to the Civilian Agency Acquisition Council and the Defense Acquisition Regulations Council, and then they will be made to the Federal Acquisition Regulation, which governs procurement. Companies have until Jan. 14 to respond to the proposals.
The Justice Department's move to implement such changes stems, experts say, from the growing number of cases of fraud and bribery, many of which happened during reconstruction efforts in Iraq and Afghanistan.
"We are dealing with a very significant enforcement environment right now," said David Nadler, a government contracting lawyer at Dickstein Shapiro. "The procurement community has been rocked by a number of scandals. The regulatory authorities are looking for ways to address the perceived problems with contractor compliance. The DOJ is clearly being more aggressive."