The Oversight is Not Over!

By David Lundsten and John Ford

The war on terrorism, the wars in Iraq and Afghanistan, allegations of waste, fraud and abuse, and the changed political situation in Washington, D.C. have all combined to encourage Congress to take action. This new focus means new “oversight” laws, such as the House’s “Accountability in Contracting Act” and the Senate’s “Accountability in Government Contracting Act of 2007,” and many amendments to other bills that don’t otherwise appear to have anything to do with government contracting.

The list is so long that we can only give you a few words on some of the more significant pending items:

• Accountability in Contracting Act (House): This Act requires a quarterly report to Congress of all audits that identify questioned costs exceeding $1 million (including draft audit reports); and also requires minimizing the use of cost-reimbursement contracts. Since the new FAR T&M rules require a move away from T&M contracting, it looks like fixed-price contracts may be the most common type in the not-too-distant future.

• Rep. Towns introduced legislation that requires the automatic suspension and debarment for even minor tax penalties or violations (so-called “tax cheaters”).

• Rep. Waxman has proposed legislation that is intended to ensure that contracts are not awarded to companies with an established “pattern of abuse” of federal laws – a sort of blacklisting rule similar to that put in place by regulation in the last days of the Clinton Administration, but quickly rescinded by President Bush.

• Sen. Sessions added an amendment to the minimum wage bill providing for a 10-year automatic debarment of contractors who have knowingly violated the Immigration and Nationality Act by hiring undocumented workers. The amendment was dropped at the last minute and did not become law. However, similar provisions are still circulating.

• Rep. Maloney has proposed legislation to create a government-wide database that tracks contractor violations of federal laws and more. The proposed legislation would require the automatic suspension and debarment of a company that has committed the same infraction twice in a three-year period if the infraction qualifies as one that leads to suspension or debarment.

• The House Homeland Security Appropriations Act (2008) mandates “full and open competition” for all DHS contracting – which would mean there can be no small business set-asides or 8(a) awards. So far, this presumably unintended consequence has not been fixed.

• The Senate’s Accountability in Government Contracting Act of 2007 extends the DoD’s competition rules to all multiple-award schedules and contracts – but caps the dollar value of any individual task order under a single-award IDIQ contract at $100 million. It should be noted that there is already a FAR case to extend the DFARS competition rules government-wide.

• The Senate version of the 2008 Defense Authorization bill, and Waxman’s Clean Contracting Act would redefine commercial services and exclude those that are “of a type” provided to commercial customers. In other words, if the service isn’t actually being sold to commercial customers, a company can’t offer the service to the government as a commercial item. It must be treated as a non-commercial item, which involves much more scrutiny and more stringent rules and regulations. The Senate Bill also requires DoD to report annually to Congress on every T&M contract that is in place, as well as DoD’s plan to convert each T&M contract to a performance-based fixed-price contract, or to have the work performed by the government.

• The House version of the 2008 Defense Authorization bill has a provision allowing the government to require certified cost or pricing data for sole-source commercial contracts. Certifying cost or pricing data invokes the Truth in Negotiations Act (TINA) rules and sanctions, which can be severe if a contractor violates them (not only fines but possible time in jail if the violation is knowing and willful).

• Both the Senate and House Defense Authorization bills impose restrictions on DoD using interagency contracts, and prohibit items unique to DoD from being acquired through contracts of other agencies. Apparently, this is in response to the Abu Ghraib situation where prisoner interrogators were obtained by the Army off an Interior Department BPA issued under a GSA Schedule for other services and other perceived problems regarding the practice known as “off-loading.”

• The FAR Council has published a proposed rule requiring contractors receiving awards in excess of $5 million and periods of performance longer than 119 days to have a written code of ethics in place within 30 days after contract award, and to have an employee ethics compliance training program and an internal control system “proportionate” to the size of the company in place within 90 days after contract award.

While this is not a complete listing of all pending legislation that might affect government contractors, it is enough to get the picture. Contractors are now living under a magnifying glass and need to be extremely careful in their business dealings with the government. Equally important, contractors need to keep current with any new laws and regulatory changes so they can properly price their proposals and have other requisite controls and systems in place.

Dave is a Partner with CB&H's Government Contractor Services Group. He can be reached at dlundsten@cbh.com. John is a Director with the Group, and he can be reached at jford@cbh.com.