A series of recent developments — including the Department of Justice’s (DOJ) formation of a Procurement Collusion Strike Force and report that “procurement fraud” recoveries comprised the second largest category of False Claims Act (FCA) recoveries for DOJ in FY 2019 — have signaled a renewed focus by DOJ on the “mandatory disclosure” rule for government contractors. As such, contractors would be wise to refamiliarize themselves with these important obligations.
Remind me, what is the “mandatory disclosure” rule?
Published by the Federal Acquisition Regulation (FAR) Council in 2008, the “mandatory disclosure” rule is primarily set forth in two separate sections of the FAR: (1) FAR 52.203-13 (Contractor Code of Business Ethics and Conduct); and (2) FAR 9.406-2 (Causes for Debarment) and FAR 9.407-2 (Causes for Suspension).
FAR 52.203-13(b)(3)(i) states, in relevant part:
The Contractor shall timely disclose, in writing, to the agency Office of the Inspector General (OIG), with a copy to the Contracting Officer, whenever, in connection with the award, performance, or closeout of this contract or any subcontract thereunder, the Contractor has credible evidence that a principal, employee, agent, or subcontractor of the Contractor has committed—
(A) A violation of Federal criminal law involving fraud, conflict of interest, bribery, or gratuity violations found in Title 18 of the United States Code; or
FAR 9.406-2 and 9.407-2, in turn, state, respectively, that the Government may debar or suspend a contractor for, among other things, the following:
Knowing failure by a principal, until 3 years after final payment on any Government contract awarded to the contractor, to timely disclose to the Government, in connection with the award, performance, or closeout of the contract or a subcontract thereunder, credible evidence of—
(A) Violation of Federal criminal law involving fraud, conflict of interest, bribery, or gratuity violations found in Title 18 of the United States Code;
(C) Significant overpayment(s) on the contract, other than overpayments resulting from contract financing payments as defined in [FAR] 32.001[.]
Well, what does “timely disclose” mean?
The FAR, unfortunately, does not specifically define “timely disclose” in this context. However, the preamble to the final “mandatory disclosure” rule explains that, “[u]ntil the contractor has determined the evidence to be credible, there can be no ‘knowing failure to timely disclose’” (73 Fed. Reg. at 67,074).
Further, guidance published by the American Bar Association on this issue states, in relevant part:
It would be reasonable for the Government to permit a contractor some period of time after the existence of credible evidence has been determined to prepare its submission of evidence to the Government. That said, contractors will be well advised to establish that the time taken to prepare their submission is no longer than necessary.
The bottom line, though, is that what constitutes a “timely” disclosure is a very fact-specific inquiry, and that inquiry necessarily comes after a contractor’s inquiry into whether “credible evidence” of an enumerated violation exists.
So, what does “credible evidence” mean?
The FAR also does not define “credible evidence,” but the preamble to the “mandatory disclosure” rule notes that the contractor should have the opportunity “to take some time for the preliminary examination of the evidence to determine its credibility before deciding to disclose to the Government” (73 Fed. Reg. 67073). As with the determination of what constitutes a “timely” disclosure, the determination of what constitutes “credible evidence” is a very fact-dependent inquiry, and one that should be made in coordination with experienced legal counsel.