Vendors must report ‘credible’ violations of contract law

By Jason Miller
Executive Editor

The voluntary reporting system for violations of criminal or federal contract law for vendors no longer was effective.

So instead, the Justice Department spearheaded the new mandatory disclosure rule published in the Federal Register Wednesday for vendors do reveal possible violations of criminal law or the False Claims Act.

One administration official, who requested anonymity, says the rule clarifies the expectations of contractors of when and how to report potential violations in a timely manner.

“Justice felt it was necessary and was the initiator to [the Office of Federal Procurement Policy] ,” says the official during a conference call with reporters Thursday. “There were a number of factors why these disclosures dried up. Justice’s National Procurement Fraud Task Force examined this and concluded for whatever reasons, some internal to Justice and some not, voluntary disclosure wasn’t working.”

The new rule requires vendors to set up internal controls, audit their processes for identifying potential violations, create a hotline or other way for employees to anonymously report potential problems, and most controversially, made it mandatory for vendors to report potential violations based on credible evidence.

“Credible evidence means more than reasonable grounds to suspect a violation,” the official says. “Agencies working on this wrestled with this. They intentionally chose not to define this to give contractor leeway. But rumors are not enough.”

The official says Justice wants vendors to investigate the potential violation before reporting it to the government.

“The violations are pretty serious, we are talking about blatant violations of legal business practices and business ethics,” says Lesley Field, acting administrator of the Office of Federal Procurement Policy. “It seems to be very clear of what are transgressions against these practices.”

Field says OFPP will issue a memo to Chief Acquisition Officers and Senior Procurement Executives in the next week or so to ensure they understand what this new rules entails.

“The memo will reiterate the strengths of the case and goes through other [Federal Acquisition Regulations] changes,” Field says. “We also are going to submit the Procurement Fraud Task Force Web site so the contracting officers know what resources are available, and increase the visibility of this issue.”

Stan Soloway, president of the Professional Services Council, says vendors are unhappy with the rule.

“The rule should not have been the first thing out of the block,” Soloway says. “There is concern about the mandatory requirements. Not many people in industry think this is a good thing.”

Soloway adds that the first thing Justice should have done was reviewed their own processes for how vendors report potential violations.

Now that the rule is finalized, Soloway says a Justice official told him the department would be reviewing their internal processes to see how they can approve them.

Soloway commends the FAR Council’s changes to the final rules that took into account the concerns of industry.

“The big issue early on was the proposed rule really had this broad scope that basically said report any violation,” he says. “The narrowing of scope has taken place so we have a better idea of what has to be reported and by whom. It helps reduce the burden, but it doesn’t eliminate it. There still will be some burden on vendors.”

Soloway says the mandatory reporting is the biggest change. The other aspects of the rule-the hotline or ethics training-are doable or already being done by most companies.

All contracts awarded after Dec. 12 must include these new ethics requirements.

On the Web:

Federal Register –Contractor Business Ethics Compliance Program and Disclosure Requirements

FederalNewsRadio – Contractor ethics final rule issued

(Copyright 2008 by All Rights Reserved.)