Magazine article Insight on the News

What Does It Take to Lose a Contract? Arthur Andersen's Complicity in the Enron Fiasco Has Raised Debate about What Actions Should Disqualify Contractors from Performing Government Service. (Nation: Federal Contracting)

Magazine article Insight on the News

What Does It Take to Lose a Contract? Arthur Andersen's Complicity in the Enron Fiasco Has Raised Debate about What Actions Should Disqualify Contractors from Performing Government Service. (Nation: Federal Contracting)

Article excerpt

Spokesmen for Arthur Andersen LLP, once one of the most respected accounting firms in the world, testified before Congress in February that employees deliberately shredded records containing details of the Enron debacle that were under subpoena. Coupled with its approval of dubious accounting practices that allowed Enron to hide hundreds of millions of dollars of debt, this testimony has caused many Washington insiders to question whether Arthur Andersen should continue to be allowed to profit from government contracts.

Last year the federal government could not account for $1.3 trillion at the Department of Defense (DoD), as well as hundreds of billions of dollars at other government departments and agencies. This raised serious questions that have yet to be answered not only about the private accountancy and auditing contractors that serve the federal government, but about when and what actions should disqualify contractors from government service and/or require revocation of their federal contracts.

For instance, between 1996 and 2000, Arthur Andersen had federal contracts totaling at least $300 million for consulting services to nearly every U.S. government agency. Because of its admitted role in the Enron scandal, could Arthur Andersen be barred or suspended from participating in government contracts? While no decision has been made about its status as a federal contractor, the General Services Administration (GSA) is investigating whether such action should be taken against the firm.

Under Federal Acquisition Regulations (FAR), contractors can be barred from conducting business with the U.S. government for fraud, antitrust violations, embezzlement and/or commission of any other offense indicating a lack of business integrity or honesty that seriously and directly affects the contractor's responsibility.

According to a soon-to-be-released report from the Washington-based Project on Government Oversight (POGO), a nonprofit organization dedicated to improving public policy, since 1990 the top 43 federal contractors together have accounted for 28 criminal convictions. The following are examples of just a few of these as listed in the POGO report:

* 2001: Two TRW subsidiaries pleaded guilty to environmental crimes and paid a fine of $12 million.

* 1999: Two Litton Industries subsidiaries pleaded guilty to procurement fraud and paid a criminal fine of more than $17 million.

* 1996: The Archer Daniels Midland Co. pleaded guilty to price-fixing and paid a criminal fine of $100 million.

* 1995: Lockheed Martin, a top U.S. government contractor, pleaded guilty to violating the Foreign Corrupt Practices Act for paying bribes to officials of the Egyptian government. The government contractor paid a criminal fine of $24.8 million.

Lockheed Martin, although found guilty in several cases of bribery, never has been disqualified or suspended from bidding on U.S. government contracts -- it's just too big and important. In fact, according to POGO, since 1995 the military-industrial giant and its subsidiaries have been accused of 40 civil and criminal violations but still reap the financial benefits of federal contracts.

FAR prohibits contractors from billing the government if there has been a conviction in a criminal case or a monetary penalty in civil proceedings. However, when the federal government brings civil actions against a contractor and the contractor is found guilty but no penalties are levied, contractors are allowed to bill the cost of their legal defense to the federal contract. In other words, when a contractor is found guilty of violating FAR but no fine is imposed, taxpayers pick up the legal tab even when the company has been found guilty of breaking the law.

This suggests to critics that the law is out of balance. And they point to Arthur Andersen as an example. According to records obtained from the GSA, between 1996 and 2000, Arthur Andersen enjoyed government contracts totaling nearly $30 million from the Department of Housing and Urban Development (HUD). …

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