A recent report to the Commission on Wartime Contracting, entitled “Hard Lessons: The Iraq Reconstruction Experience,” has again focused the spotlight on deterring waste and fraud within the government contracting community. With the creation of a new position, the Chief Performance Officer, to oversee budget and spending reform, the Obama Administration has signaled its heightened interest in reviewing government contracts, and its intention to use federal contracting regulations to reign in fraud on the government.  

One key regulation in the government’s arsenal to manage a contractor’s activities is the new and improved Contractor Code of Business Ethics, prescribed at FAR 3.10 and set forth at FAR 52.203-13. In addition to requiring contractors to have a business ethics compliance program in place, the new regulations — which became effective on December 12, 2008 — impose mandatory disclosure requirements on contractors doing business with the federal government. The mandatory disclosure rules require government contractors to “timely” disclose to the responsible federal agency, the Office of the Inspector General (OIG), and the federal contracting officer whenever they have “credible evidence” of (1) a violation of certain federal criminal laws; and/or (2) a violation of the civil False Claims Act. The rule applies to federal government contracts executed after the December 12, 2008, that are expected to exceed $5,000,000 in value, and that require more than 120 days to perform. For contracts entered prior to December 12, 2008, a violation of the new mandatory disclosure rules can still serve as the basis for suspension and debarment for up to three years after final payment under the contract is made.  

Furthermore, additional oversight in the form of amendments to the False Claims Act may emerge from the 111th Congress, as well. At the close of the prior Congress, bills were pending in both the House of Representatives and the Senate to amend portions of the False Claims Act codified at 31 U.S.C. §§ 3729–3733. While neither bill has been reintroduced in the current session, key amendments in the prior bills are likely to reappear in proposed legislation from the new Congress, including the following:  

  • An expansion of liability, removing the requirement that a false or fraudulent claim for payment must be presented directly to a federal employee or member of the Armed Forces. Claims made to a contractor or the grantee of a federal program, for example, would also create a cause of action;  
  • Expansion of the statute of limitations. Claims under the Act could be brought within 10 years, instead of the current six years. Further, new or amended complaints filed by the government would be permitted to relate back, for the purposes of the statute of limitations, to the time that the original complaint was filed, where the claim arises from the same set of facts; and  
  • Waivers or limitations of the rights of a person to bring a qui tam action in contracts, agreements, or private terms would be void.  

Contractors must dedicate more time to business ethics and internal controls and ensuring that, at a minimum, invoices accurately reflects the amount of work actually performed, and materials actually delivered and installed under the contract. Finally, developing a business ethics awareness and compliance program is not only required, but such a plan would help alleviate fears of a visit from Uncle Sam.