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Government Contractors

Prohibition of Reimbursement of Congressional Investigation Costs

On February 17, 2016, the Federal Register published a proposed rule that would prohibit government contractors from claiming costs incurred in response to a congressional investigation or inquiry that is the subject matter of a proceeding resulting in a disposition as described in 10 U.S.C. 2324(k)(2).

As a refresher for those who are lucky enough to not deal with legal expense on a recurring basis, 10 U.S.C. 2324(K)(2) – Allowable Costs Under Defense Contracts, states that a disposition includes any of the following that results from a violation or failure to comply with, a Federal or State statute or regulation:

  1. A conviction (including a conviction pursuant to a plea of nolo contendere) by reason of the violation or failure;
  2. In the case of a civil or administrative proceeding involving an allegation of fraud or similar misconduct, a determination of contractor liability on the basis of the violation or failure;
  3. In the case of any civil or administrative proceeding, the imposition of a monetary penalty or an order to take corrective action under Section 2409 of this title by reason of the violation or failure; or
  4. A final decision to debar or suspend the contractor; to rescind or void the contract; or to terminate the contract for default, all by reason of the violation or failure.

Federal Acquisition Regulation 31.205-47, Costs Related to Legal and Other Proceedings, would be updated with paragraph (f)(9), as follows, to add the following specific language to reflect the above violations or failures, as it connects to congressional investigation or inquiry:

(f) * * *

(9) A Congressional investigation or inquiry into an issue that is the subject matter of a proceeding resulting in a disposition as described in paragraphs (b)(1) through (5) of this section (see 10 U.S.C. 2324(e)(1)(Q)).

This proposed rule would implement Section 857 of the National Defense Authorization Act (NDAA) and would allow the rule to apply to all Federal agencies and not just the Department of Defense, the National Aeronautics and Space Administration and the Coast Guard, as the NDAA currently covers.

Written comments are due on or before April 18, 2016, and can be submitted through the following link at regulations.gov.

For any questions on the proposed regulation or the possible impact to your business, please do not hesitate to contact us.

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