House members seek information on proposed regulations

House members with oversight responsibilities are concerned about two exemptions in proposed contracting regulations designed to prevent fraud in purchasing. However, officials say the basis for one of the exemptions has been around for decades.

In a letter sent March 19 to several top administration officials who work closely with acquisitions, Reps. Henry Waxman (D-Calif.), Edolphus Towns (D-N.Y.) and Peter Welch (D-Vt.) wrote that the proposed acquisition regulations would exempt contractors from reporting fraud and abuse if the contract is for commercial items or the work is performed outside the United States.

“At a time when the United States is engaged in wars in Iraq and Afghanistan [and] conducting extensive redevelopment programs in both countries…preventing fraud by contractors overseas should be a high priority,” wrote Waxman, chairman of the Oversight and Government Reform Committee. Towns is chairman of that panel's procurement subcommittee, and Welch is a committee member.

Their concern centers on the exemptions in a proposed acquisition regulation. In a Nov. 14 Federal Register notice, the Civilian Agency Acquisition Council and the Defense Acquisition Regulations Council proposed to amend the Federal Acquisition Regulation to require contractors to have a code of ethics and business conduct. The proposal would require contractors to establish internal controls to detect improper conduct related to government contracts. It also would require contractors to notify inspectors general and contracting officers of criminal violations.

A clause in the proposal exempts contracts or subcontracts for commercial items and “contracts or subcontracts performed outside the United States,” the notice states.

The exemption regarding overseas contracts “raises serious questions as to why and how such a policy was developed,” Waxman, Towns and Welch wrote.

Jane Lee, spokeswoman for the Office of Management and Budget, on Thursday said the OMB is reviewing the members' request.

The FAR Council currently is in the process of reviewing comments on the proposed rule, Lee said.

Meanwhile, the councils finalized a separate but related rule nine days later. It requires contractors to display an agency’s office of the inspector general fraud hotline posters, and it also provides the same overseas exemption.

However, the Defense Federal Acquisition Regulation Supplement has the same hotline posters exemption. Overseas contracts are excluded from the requirement to put up IG hotline posters.

“Contractors who are awarded a DOD contract of $5 million or more must display DOD hotline posters prepared by the DOD Office of Inspector General unless the contract will be performed in a foreign country,” the regulation states.

Acquisition officials say that provision was the basis for the new governmentwide regulations.

“The DFARS clause has been around for decades,” one acquisition official said.

With the clause having been in the regulation for so long without raising alarms, the councils based their rules on it, the official said.“This is much ado about nothing,” that official added.

However, the official also questioned whether there was a real purpose for the exemption.

In comments on the proposal, agency IGs who mentioned the exemptions disagreed with them. The DOD IG recommended deleting the exemptions and other qualifications that would essentially excuse certain contracts.

Patricia Brannin, acting deputy DOD IG for policy and oversight, wrote that the regulations should apply to all companies because all contractors have “the responsibility to report potential violations of criminal law or potential safety issues related to government contracts or subcontracts.”

The three House members also want information from administration officials on the proposed regulations. They requested documents that address the commercial items and overseas exemptions.