Magazine article Business Credit

Under Construction: The Modernization of Federal Contracting Law

Magazine article Business Credit

Under Construction: The Modernization of Federal Contracting Law

Article excerpt

With the U.S. economy practically dead in the water, the federal government is trying to step into the role of buoy, mainlining more than $1 trillion through two separate stimulus packages into the financial system at-large. There are hundreds of billions of dollars earmarked for a variety of infrastructure and construction projects aimed at keeping Americans employed and scores of industrial sectors afloat but, for the construction sector, it may not be enough to offset the slashes in state budgets.

In addition to the funneling of funds into infrastructure projects, the federal government has also instituted some major changes in federal contracting in the waning days of 2008 and the early months of 2009. E-Verify, which applies to contractors and subcontractors, was passed in November and went into effect on January 15, 2009. This was followed by an executive order by President Barack Obama that repealed the ban on Project Labor Agreement (PLAs), while also encouraging the use of PLAs by agencies on contracts of $25 million or more.

Rounding out the contracting shift are the new provisions of the Federal Acquisition Regulation (FAR) that went into effect for federal contractors on December 12, 2008. The changes state that contractors must disclose directly to the government instances of "credible evidence" of violations of federal criminal law, making false claims and receiving "significant overpayments," or otherwise face suspension or debarment from federal contracting. The Civilian Agency Acquisition Council and the Defense Acquisition Regulation Council admit that the amendments to the FAR represent a major departure from the former practice of voluntary disclosures. "Every violation of Federal, civil or criminal law that meets the criteria of the rule must be disclosed to the Inspector General (IG)," stressed Chris Isleib, Office of the Secretary of Defense, Department of Defense (DoD). "Only significant overpayments, other than contract financing payments, need to be disclosed."

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The move has sparked concern and created a din among contractors about how far-reaching the provisions are, but the Department of Justice (DoJ) and the Office of the Inspector General (OIG) claimed that the longstanding voluntary measures had largely been ignored by contractors over the last decade. At the same time, the agencies have been quick to point out that mandatory disclosures have been imposed on various other sectors during the past 20 years. In the midst of a financial meltdown that had spread worldwide, the Councils published in the Federal Register Final Rule in November that, "Our government's expectations of its contractors has not kept pace with the reforms in self-governance in industries such as banking, securities and health care."

"The program is here, so people are going to have to deal with it" stated Claude Goddard, Government Contracts Practice, the law firm Akerman Senterfitt. "I think that it's going to be interesting to see how many disclosures are going to be made." He added, "I think we're going to have this deluge of reporting at the very start, and then it'll probably settle down after a while, but contractors are going to be forced to make the hard decision to go in there and disclose a lot of things that in the past they probably would not have chosen to disclose or would have chosen disclosing to the Contracting Officer rather than the IG."

The mandatory disclosures of FAR are defined in FAR 52.203-13, amending the existing Contractor Code of Business Ethics and Conducts clause. In federal contracts that exceed $5 million and will last 120 days or more, contractors are obligated to contact the IG when it is believed that a principal, employee, agent or subcontractor has committed fraud, either by accepting a bribe or being guilty of any of the gratuity violations found in Title 18 of the United States Code, or has submitted a false claim. …

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