Proposed Federal Acquisition Regulation changes mandating contractor self-disclosure have resulted in serious controversy between contractors and Congress.
The Department of Justice requested the rule, claiming it was necessary because "few companies" have participated in the Defense Department's voluntary disclosure program. Justice's request failed to explain why voluntary disclosures were infrequent, or any reason not to conclude that fewer violations were occurring or that contractors were informally resolving violations with contracting officers.
The proposed rule requires contractors to report violations of federal criminal law by any of its principals, employees, agents, or subcontractors relating to any government contract award or performance. They must also provide "full cooperation with any government agencies responsible for audit, investigation, or corrective actions." It also sets as grounds for suspension or debarment a contractor's "knowing failure to timely disclose" a violation of criminal law connected to a government contract or a contract overpayment.
This proposed rule appears to exempt from the self-reporting requirements commercial items, contracts performed entirely outside the United States, and contracts worth under $5 million with a performance period under 120 days. However, these exemptions are excluded from the suspension and debarment provisions, raising questions as to the practical effect of their exclusion.
The House Committee on Oversight and Government Reform has objected to the exemptions for contracts performed overseas and for commercial items, although such exemptions are common to the regulation. Committee leaders have issued letters to executive agencies inquiring as to "why and how such a policy was developed," and sought documents pertaining to these exemptions.
The "overseas loophole" has fueled controversy along with the "Close the Contractor Fraud Loophole Act" sponsored by Rep. Peter Welch, D-Vt. Conversely, many associations, including the Council of Defense and Space Industries Associations (COD-SIA), and individual government contractors have submitted comments strongly opposing this mandatory disclosure rule.
Regardless of the exemptions, if the proposed rule becomes final, the ramifications for government contractors are considerable. Requiring self-disclosure along with full cooperation with government audits and investigation threatens longstanding attorney-client relationships, compelling contractors to produce records that historically have enjoyed attorney-client and work-product protection. Forcing waiver of these privileges as a condition for doing business with the government may be counterproductive, and hardly fosters a cooperative contracting environment. …