Capitol_30749MediumOn March 31, 2014, the Armed Services Committees of the Senate and the House of Representatives sent letters to industry associations, the ABA, and other organizations seeking suggestions for reducing the cost of defense procurement. 

A suggestion that could reduce costs for both Government and industry and improve working relationships is to undertake a review of the experience with the mandatory disclosure rule which now has been in place for more than five years. Presumably, both Government and contractors have sufficient experience to identify best practices for compliance, as well as accommodations and changes that could lessen the burden of the rule. A dialog should be possible about aspects of compliance with the rule that consume time and resources, but produce little meaningful benefit.

For example, industry has observed for some time that reporting small mischarges and overcharges under the rule to the IG (where the buying agency has been reimbursed) involves extra and unnecessary investigation, documentation, and legal review. Government has observed that not all contractors follow the same practice for reporting such issues. A reasonable question is whether at this point the Government is concerned about these relatively small events or has enough experience to make some judgment about its real risk in these situations. Is an adjustment to the rule warranted? If not an adjustment to the requirements of the rule, it seems that at least guidance with respect to the meaning of “significant overpayment” is warranted such that a report under the rule is not necessary in every case (assuming, of course, that the Government has been reimbursed).

Whenever a materiality threshold or de minimis standard has been raised, there have been arguments presented that there are, nevertheless, some small things that indicate bad behavior, e.g., falsified reports, bribery, persistent patterns of small dishonest acts, etc. Again, presumably with five years of experience, both sides understand how to craft necessary exceptions that can be administered without requiring every small error to be the subject of a report.

There also may be other areas where guidance would be appropriate that would involve the exercise of reasonable judgment. For example, if the contractor has a robust compliance program as evidenced by its performance since the rule was instituted, should there be instances where contractor-specific accommodations may be negotiable?

The need to improve cost efficiency likely requires more trust on both sides. Not every error is fraud or the result of a failed process. Industry and Government have common objectives both to protect the integrity of the procurement process and to reduce cost. With respect to the mandatory disclosure rule, five years of experience should provide adequate information to make meaningful improvements.