House committee approves bill to close contracting loophole

A bill that closes a loophole exempting companies working on overseas contracts from fraud-reporting requirements was approved by voice vote on Wednesday by the House Oversight and Government Reform Committee.

On Tuesday, Bush administration officials told lawmakers on the Government Management, Organization and Procurement Subcommittee that they were removing such language from a recent proposed rule, rendering legislation unnecessary.

"Our initial preference is to proceed through the regulatory mechanism before going through the legislative process," said Barry Sabin, acting chief of staff and principal deputy assistant attorney general for the Justice Department's criminal division. Justice was the agency that requested the regulatory change.

But Rep. Peter Welch, D-Vt., who introduced the bill (H.R.5712) to close the loophole on April 3, expressed skepticism that the administration would have acted without congressional pressure.

"I don't think it's a coincidence that there was no action toward fixing the rule until the chairman held a hearing and we introduced the legislation," Welch said. "Also, no one on the panel is committing to when that final rule will be published and implemented. So it raises significant questions as to whether if we drop the pressure, the ball will be dropped." Administration witnesses called the language in the proposed rule a "drafting error."

Paul A. Denett, administrator for the Office of Management and Budget's federal procurement policy shop, assured Welch that the rule was a high priority for the administration and will be expedited through the regulatory process.

The proposed change to the Federal Acquisition Regulation, which would require contractors to self-report certain criminal procurement violations, was published in November 2007 and has received comments for months. Despite the fact that several stakeholders, including Justice, recommended removing the exemption in formal comments, the clause excluding companies performing contracts entirely outside the United States has only recently come to the attention of lawmakers.

Witnesses said the exception was included almost as a matter of routine and patterned after Defense Department regulations exempting overseas contracts from "hot line poster" requirements, which mandate that information on how contractor employees can report suspected fraud and misconduct be publicly displayed in the workplace.

"For many months prior to this hearing there have been suggestions floating around that somehow, someone influenced one of these career civil servants to put that [exemption] in, and that is absolutely not true," said David Drabkin, acting chief acquisition officer for the General Services Administration.

Denett said the Civilian Agency Acquisition Council and Defense Acquisition Regulations Council -- jointly responsible for issuing changes to the FAR -- sent a revised proposed rule to OMB on April 8. He said during Tuesday's hearing that he was "inclined to favor the elimination of exemptions for overseas contracts and commercial item acquisitions for purposes of this rulemaking."

Democratic lawmakers said they believe Welch's legislation still may be necessary despite the administration's actions to close the loophole. Rep. Edolphus Towns, D-N.Y., and chairman of the subcommittee, said the legislation would "make sure these types of loopholes stay closed and closed forever."