OMB issues memo on new contractor self-reporting rule

The Office of Management and Budget issued a memorandum to chief acquisition officers and senior procurement executives on Thursday informing them of a new rule requiring companies to disclose government overpayments and their own criminal contracting violations.

The final rule, published in the Federal Register on Wednesday, establishes mandatory self-reporting by company executives as soon as there is "credible evidence" that the company or one of its employees has violated contracting regulations related to fraud, bribery, conflicts of interest, false claims or gratuity.

The policy has undergone multiple revisions and comment periods and generated a firestorm of controversy in Congress for its initial exclusion of contractors working outside the United States. That loophole was closed forcibly with legislation passed earlier this year.

Contractors and procurement lawyers also have been concerned about the rule since it was first proposed, and Colleen Preston, executive vice president for policy and operations at the Professional Services Council, said the contracting community still is watching with trepidation to see how the new policy will be implemented.

It remains unclear, Preston said, exactly when contractors are supposed to disclose a violation and what constitutes "credible evidence." She said she also doesn't know the extent to which inspectors general will take into consideration corrective action already taken by companies.

"Our fear is they'll be taking action on every disclosure," she said. "The concern is that -- and this is the nature of how [inspectors general] do business -- they'll open an investigation and investigate it until they don't have any issues left [and] then make some determination. But really we have no idea how they'll implement this."

Lesley Field, deputy administrator for OMB's Office of Federal Procurement Policy, said the memo will ensure that agency officials know about the new rule and have the resources they need to increase its visibility.

"I think we have a responsibility to make sure contractors understand their responsibilities subject to this change, since they're subject to debarment and suspension for knowingly failing to disclose violations," Field said.

Another administration official, speaking on condition of anonymity, said government efforts to clear up any uncertainty surrounding the new rule, including explanatory presentations, were under way already and will continue now that the policy has been finalized.

Hundreds of individuals and organizations commented on draft versions of the rule and while the fundamental premise of mandatory contractor self-reporting did not change, Preston said she thinks the Civilian Agency Acquisition and the Defense Acquisition Regulations councils made a good-faith effort to take the feedback into consideration. "I think they made some adjustments and did, at least, go through and listen to everyone's concerns and discussed them," Preston said. "And they did make some changes. They didn't concede anything but then again they did respond to some of the fundamental concerns."

Field said changing the reporting trigger from as soon as there is "reasonable grounds" to suspect a violation to "credible evidence" of a violation shows the government's commitment to avoiding a knee-jerk ethics requirement.

"It's about striking the right balance," Field said. "We want disclosure and made it very strong that contractors could be disbarred for not disclosing, but also want to show some semblance of fairness when there is uncertainty."

Now that the rule is finalized and will be implemented as of Dec. 12, companies must get to work establishing the corporate mechanisms to deal with the new requirements.

"Companies are really going to have to ramp up their compliance programs," Preston said. "I think everybody's still uncertain at this point what that will mean, but certainly it will increase substantially the burden on contractors to increase their training and increase their legal and compliance departments to make sure they're in sync with this."