As previously discussed in this blog, there is a pending FAR rule relating to "Contractor Compliance and Integrity Reporting" pursuant to which a contractor could be suspended or debarred for failure to disclose to the agency IG and contracting officer that it has reasonable grounds to believe that there has been a violation of federal criminal law, or that it has received a significant overpayment, in connection with a contract or subcontract valued at $5 million or more.  Finding this disclosure overly narrow, DOJ recommended broadening the proposed rule to include mandatory disclosure of FCA violations as well.

As reported in the April 22, 2008 issue of the Federal Contracts Report, the revisions to the pending proposed rule include DOJ’s recommendation and, as revised, would require contractors to file a report whenever it has “a reasonable basis to believe that” the FCA has been violated.

Such a rule would be absurd, on a number of levels:

  • The contractor is essentially stripped of its ability to evaluate its conduct and come to a reasoned conclusion that it did not violate the FCA.  Instead, potential violations – those based only on “reasonable grounds to believe”  misconduct has occurred – must be reported or the contractor risks a government-wide exclusion from federal contracting and collateral exclusions at the state and local levels
  • Once the contractor discloses its conclusion that it has potentially violated the FCA, it requires little imagination to predict the initiation of a DOJ investigation, with a heavy reliance in "settlement" negotiations on the contractor’s mandated "admissions" and "declarations against interest."  After all, if the contractor has conceded that it has reasonable grounds to believe that the FCA has been violated, who is DOJ to disagree?  But it gets "better" —
  • It is when the contractor concludes that there is no "potential" FCA violation and therefore makes no disclosure that the FCA claims a front row seat in the theater of the absurd.  Because the failure to disclose leads to debarment or suspension, the Government can characterize the undisclosed potential violation as a material fact that, if disclosed, would have affected the award of contracts thereafter placed with the contractor.  With this wave of the regulatory wand, the failure to disclose a potential violation of the FCA becomes an actual violation of the FCA under the "fraudulent inducement" line of FCA cases.  Otto von Bismarck captured it best — "The less people know about how sausages and laws are made, the better they’ll sleep at night."
  • This really simplifies life for DOJ.  It really does not matter whether the contractor’s underlying conduct was, in the end, defensible.  The mere fact that the contractor failed to disclose a potential violation of the FCA is all that is needed to establish the "falsity" element of an actual FCA violation.  And because such nondisclosures will most likely be the product of a considered judgment that there was no FCA violation to begin with, the Government will have little difficulty in establishing the "willful" nature of the nondisclosure.  The ultimate propriety or impropriety of the contractor’s underlying conduct becomes irrelevant.  All that matters is that the contractor failed voluntarily to fall on its sword and throw itself on the mercy of DOJ in connection with an issue as to which reasonable minds might differ.  Who needs judges or juries when rule makers can so readily make their customary roles so irrelevant?  Maybe George Gershwin had DOJ’s reduced burden under this rule in mind when he penned "Nice Work If You Can Get It."

Authored by:

John W. Chierichella



Aleksander Lamvol