Committee approves bill on contractor fraud

The House Oversight and Government Reform Committee approved a bill April 16 that would close a loophole in dealing with contractors in acquisition regulations. However, the panel amended the bill slightly to give regulators six months after the measure became law to close the loophole through the regulatory process.

The Close the Contractor Fraud Loophole Act , introduced April 3 by Rep. Peter Welch (D-Vt.), would require federal contractors to notify the contracting agency’s inspector general in writing if the company thinks it may have violated federal criminal law or was overpaid erroneously. Under the bill, agencies could consider suspending or debarring a contractor who knowingly fails to notify officials of a violation. The bill would apply to contracts performed in the United States or overseas. The measure now goes to the full House.

Welch’s bill originates from a change to the Federal Acquisition Regulation in November that required contractors to voluntarily report fraud and abuses, post inspector generals’ fraud hot line posters, and have a business code of ethics. However, the rule exempted contracts for commercial items and, in particular, contracts performed overseas, a provision officials based on a 20-year-old Defense Department rule.

That tells contractors, “if you’re going to commit fraud, go overseas and do it,” Welch said at an April 15 hearing of the House Oversight and Government Reform Committee’s Government Management, Organization and Procurement Subcommittee.

Rep. Tom Davis (R-Va.), ranking member of the committee, said Welch’s bill “is designed to close more political holes than loopholes.”

Regulators have opened a new FAR case to eliminate the exemptions after realizing the exemptions’ effect.

Welch noted that none of the top administration and agency acquisition officials committed to a timeline of when the regulation would be effective. “It raises significant questions, certainly on my part,” he said.

Paul Denett, administrator of the Office of Federal Procurement Policy, said he would speed the proposed rule through the regulatory process.

“Give us a turn at bat, you’ll be pleased by the outcome,” Denett said.

Procurement officials told lawmakers the regulatory process would close the loophole as legislators want, rendering Welch’s bill unnecessary.

“I can’t quite accept that,” said Rep. Edolphus Towns (D-N.Y.), the subcommittee's chairman.

Some lawmakers said they don’t trust the administration to finish the job, and that  requires them to step in.

“We need to do something,” Towns said.