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Statement of John S. Pachter
Smith Pachter McWhorter PLC
June 18, 2001
Members
of the FAR Council, Ladies and Gentlemen. I appreciate
the opportunity to share thoughts with you this afternoon
on this important subject. The views I express are
my own, and are not submitted on behalf of any organization.
I speak in favor of revocation of the December 20, 2000
rule.
Unlike
other procurement regulations, this radical overhaul of
the concept of contractor responsibility does not respond
to a shortcoming in the contracting system. This regulation
would broadly disqualify companies for failure to demonstrate "satisfactory
compliance with the law including tax, labor and
employment, environmental, antitrust and consumer protection
laws." Decisions concerning compliance with these laws,
until now reserved for agency debarring officials, would
be entrusted to the individual contracting officer.
The
regulation forsakes any inquiry into the connection between
compliance with these statutes and a bidder’s record
of integrity as
a contractor. Nor does the rule make any allowance
for remedial action by the contractor for alleged violations.
This approach is forbidden by the debarment regulations,
which make the concept of present responsibility the
touchstone of eligibility for contract award. Debarment
and suspension, according to those regulations, are to "be
imposed only in the public interest for the Government’s
protection and not for purposes of punishment."
Since
the head of the agency cannot use debarment and suspension
as a form of punishment, we may fairly ask how the authors
of the new regulation could justify conferring such power
on each contracting officer in responsibility determinations. The
drafters do not answer this question. These contracting
officers, with no guidance, would be thrust into areas
where they have neither training nor expertise. Even unintentional violations
of laws unrelated to procurement, particularly in the environmental
area, could be considered evidence of lack of integrity
and business ethics. Moreover, with hundreds of contracting
officers in the federal government, there would be wildly
disparate treatment of contractors. So the question is
not whether the government should do business with lawbreakers.
No one is arguing that it should. Rather, the question
is what procedures are best designed to protect the government’s
interest as well as that of its contractors.
The
rule would also place an unfair burden on companies—especially
small businesses—by requiring them to research and
certify compliance with a broad range of laws, on pain
of suffering further penalties from an allegedly false
certification. The burden is not eased by having a "check-the-box" certification.
Because an incorrectly checked box may subject the contractor
to criminal penalties, it must perform the same rigorous
record review and due diligence required under the heavily
criticized initial version of the rule. Moreover, if the
contractor has committed any infraction in the past,
it must provide an explanation—thereby eliminating
the suggested paperwork reduction. The result would be
a huge demand for more government filing space—for
documents no one wants or needs.
The overall
impact of the rule would fall most heavily on smaller companies.
Does anyone seriously believe Microsoft would be declared
ineligible for award of a government contract because of
antitrust violations?
The
lack of objective standards is especially troubling.
The rule provides the contracting officer with a "hierarchy" of
black marks to consider, from most serious to least serious:
convictions, civil court judgments, administrative judgments
and indictments. This "hierarchy" does not remove subjectivity.
Indeed, the preamble to the rule says contracting officers "are
not limited to considering only the listed violations" but
also "must" consider additional information, including
alleged violations of foreign and state law as well as
civil or administrative complaints. Moreover, the contracting
officer has the sole discretion to decide what is meant
by "satisfactory compliance with the law," how many and
what kind constitute "repeated, pervasive or significant" violations,
and what is meant by "must consider relevant credible information."
Such
policy decisions have properly been reserved for agency
debarring officials, to be made after notice to the contractor
and an opportunity to be heard. Indeed, court decisions
and debarment regulations require no less. The proposed
regulation, however, would provide only for notification
to the contractor after the contracting officer
eliminates the company from the competition. The contractor’s
only remedy would be an after-the-fact bid protest or lawsuit.
Companies would be forced to repeat this process from agency
to agency and even within the same agency. One contracting
officer’s decision would have no binding effect on
another contracting officer, and each official could have
separate views on the meaning of "satisfactory compliance," "credible
information," "significant violations" and other terms,
including the broad category "consumer protection laws," for
which there is no guidance.
Finally,
the changes regarding allowability of labor relations and
legal costs compound the problem. Now, costs of activities
that "assist, promote or deter" unionization would be unallowable.
This is purportedly designed to preserve neutrality. Yet,
costs are allowable if they relate to "maintaining
satisfactory relations between the contractor and its employees,
including costs of shop stewards" and "labor management
committees." These are activities that assist or
promote unionization—hardly a sign of neutrality.
In addition, costs are unallowable if they are "incurred
in civil or administrative proceedings brought by a government
where the contractor violated, or failed to comply with,
a law or regulation." These costs are disallowed whether
or not the charges involve fraud or misconduct or have
any bearing on the company’s integrity as a government
contractor.
In
short, agencies would have a vastly expanded – but unwanted – arsenal
against disfavored contractors, and virtually no restraints
on its use. The rule would disregard the time-honored notion
that responsibility determinations must relate to the company’s
record of integrity as a contractor. In other words,
the concept of present responsibility, until now imbedded
in procurement law, would be left in the dust. Contracting
officers would become policemen for allegations involving
virtually any law unrelated to the procurement process.
Anyone with sufficient motivation could mount a crusade
to disqualify a contractor for alleged violations of "the
law" – federal, state or foreign – as decided
by a single contracting officer. The contractor would be
left with no semblance of due process.
In
its April 3, 2001 announcement, the Federal Acquisition
Regulatory Council correctly identified reasons to revoke
the rule entirely. In summary, (1) there is no justification
for including in responsibility determinations coverage
of laws such as tax, labor and employment, environmental,
antitrust and consumer protection, (2) contracting officers
would not have sufficient guidelines to prevent arbitrary
or abusive interpretation, and (3) the rule cannot be justified
from a cost/benefit perspective. Enforcement of the listed
laws is the duty of the agencies responsible for them,
and those agencies, without this misguided rule, may cite
a pattern of violations as a cause for debarment or suspension.
Whether the contractor has demonstrated present responsibility
through rebuttal or remedial action is for the agency’s
debarring official to determine after notice and hearing – the
hallmarks of due process.
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