ethics corner

February 2007

Contractors Should Get Ready for Scrutiny

By Joe Corrigan and David Hickey

Federal contractors must be prepared for the change in political and business climate in Congress. The success of the Democratic Party in the 2006 elections in part was based on a coherent theme of ethical misconduct by the Republican Party and mismanagement of contracts by the executive branch. Perhaps secondary only to the war, this theme resonated enough to give Democrats control of the 110th Congress.

Legislative and oversight investigative planning by committee chairmen is underway. Congressional impact on the contracting community could be more significant than it has been in a decade. Companies can minimize risks by assessing political dangers and self-assessing ethics and compliance programs.

Year-end 2006 activities provide a road map of those issues most likely to dominate congressional oversight. For example, the then-minority staff of the House Government Reform Committee prepared a report for Representatives Waxman, Cardoza, Obey, Holmes Norton, and Tierney entitled “Waste, Fraud and Abuse in Hurricane Katrina Contracts.” Several congressional committees will now hold oversight hearings on Katrina contracting.

A similar report on Iraq contracting is not far behind. Before the election, the House Government Reform Committee was investigating contracting in Iraq. In addition to those issues highlighted in reports on disaster relief in the wake of Hurricane Katrina, the Government Accountability Office has identified “acquisition and contracting issues” as a top area of oversight for the 110th Congress. It also has detailed experts to assist congressional investigations into particular contracts.

The depth and breadth of oversight hearings and investigations is illustrated by the Democratic leaders’ announced intentions. Rep. Henry Waxman will chair the Government Reform Committee and has announced the intent to conduct several investigations on contracting. Rep. Ike Skelton, chairman of the House Armed Services Committee, has announced the creation of an oversight subcommittee. In a recent press release Skelton wrote, “Our agenda for the 110th Congress will restore the House Armed Services Committee’s historic commitment to robust oversight of the Pentagon and of the Administration’s military policies.” On the Energy and Commerce Committee, Chairman John Dingell has promised investigations into contracting in Iraq.

Other House Committees are expected to engage in oversight hearings as well. The chair for the Small Business Committee, Nydia Velazquez, recently wrote: “The federal government has not met their small business contracting goal in over six years, and last year alone large corporations received $12 billion in small business contracting awards. It is clear we need to restore accountability into the current system, and open up the federal marketplace to small firms to ensure the federal government is receiving the best savings for the taxpayer dollar.” Homeland Security, Appropriations, and the Permanent Select Committee on Intelligence are also likely to have oversight hearings that could impact contractors.

The Senate is expected to join the House with the same vigor and scope as it conducts similar monitoring, oversight and investigations of contractor performance. Last fall, the Democratic Policy Committee held an oversight hearing on “Accountability for Contracting Abuses in Iraq.” This hearing, conducted only by Democratic senators, highlighted waste, fraud and abuse issues by government contractors and served as a harbinger of what is to come. Additionally, Sen. Carl Levin, chairman of the Senate Armed Services Committee, and Sen. John McCain replacing term limited John Warner as the ranking minority member, will continue to be active in defense contract oversight.

Last Spring all Democratic members on the Senate Homeland Security and Governmental Affairs Committees pressed for hearings “on the billions of dollars in Iraqi reconstruction funds that have been squandered due to waste, fraud, abuse and mismanagement.” Now in the majority, these same members no doubt will continue to pursue congressional oversight on these and other contracts. Like the House, other Senate committees are expected to conduct oversight hearings. The Small Business and Entrepreneurship Committee, for example, may look into the Defense Department’s reliance on indefinite-delivery indefinite-quantity contracts.

All contracts are subject to congressional oversight. But contracts hinting of political affiliation, large cost overruns, or any hint of waste or fraud, will see special scrutiny. Sole-source awards for homeland security and Iraq reconstruction contracts are prime targets for detailed oversight committee scrutiny. Contracts subjected to heightened scrutiny should expect multiple investigations and audits.

In addition to oversight and investigations, the 110th Congress will seek to stem perceived improprieties through robust legislative activity. The “Clean Contracting Act,” which was already introduced, addresses a wide range of perceived contracting abuses and provides for tighter controls, restrictions and reporting requirements. Similar proposals will surely follow.

However the increased congressional activity manifests itself, be it oversight hearings, special investigations, or proposed legislation, the answer is proactive preparation. Since the “power of the purse” and associated oversight are among the most potent constitutional powers of Congress, one critical area of examination for any company is adequate accounting for spending federal funds under government contracts. Strong ethics and compliance programs, coupled with a reputation for performance and integrity are the best insurance for passing muster under intense congressional scrutiny.

Joe Corrigan is director of governmental affairs and David Hickey is an attorney at the international law firm of Greenberg Traurig. The opinions expressed here are solely those of the authors and are not intended to provide legal advice or represent the view of NDIA or the NDIA Ethics Committee. Chris Romig, director of government affairs at Greenberg Traurig, contributed to this article.

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