10 November 2008
The Emergency Economic Stabilization Act (aka the bailout bill) is remarkable in many respects, not the least of which is the apparent amazing turnabout by Congress regarding accountability in acquisition.
Throughout the 110th Congress, lawmakers and regulators have railed against “waste, fraud, and abuse” in contracting associated with the war in Iraq and Hurricanes Katrina and Rita. Congressional committees have held multiple hearings, proposed myriad amendments, and enacted major changes to the acquisition laws. Major new regulatory reforms have been undertaken. All this activity aims to increase competition and transparency, and reduce conflicts of interest in federal contracting.
Yet, despite this attention to acquisition reform elsewhere, Congress seemed to lack such concerns when it came to the bailout. The provisions creating the Troubled Asset Relief Program allow the Treasury Department to contract for hundreds of billions of dollars without using basic federal acquisition rules and without application of most, if not all, of the new legislation aimed at contracting abuses.
In Section 107 of the bailout legislation, Congress allowed the Treasury secretary to waive the Federal Acquisition Regulation by raising a claim of “urgent and compelling” circumstances (subject to a report to certain congressional committees). And under Section 101, Congress authorized Treasury to use its power to designate financial institutions as “financial agents” to perform services in support of the bailout. Treasury has taken the position that its financial-agent authority is exempt from all federal acquisition laws and regulations, including the FAR.
NEW MANDATES AVOIDED
Among the specific just-enacted provisions that Treasury will avoid are those in the National Defense Authorization Acts for fiscal years 2008 and 2009 that respond to congressional concerns about excessive use of “no-bid” contracts. The provisions set forth a government-wide mandate to increase competition through enhanced requirements for task and delivery orders under interagency contracts. Requirements include greater transparency regarding such orders, such as public notice of sole-source orders and debriefings.
A second significant category of newly enacted provisions that Treasury can sidestep address conflicts of interest for contractors. Personal conflicts of interest have come under particular scrutiny as a result of concern about the growing number of contractor personnel working in what are perceived to be sensitive areas of the government, including the acquisition function. Although they work in virtually all areas of government, contractors are not subject to the ethics rules that otherwise apply to government personnel.
Section 841 of the 2009 act directs the Office of Federal Procurement Policy to develop government-wide policies regarding personal conflicts of interest for contractors’ employees. The FAR must then be amended to provide mandatory contract clauses implementing these policies.
In the same statute, Congress ordered the Office of Federal Procurement Policy and the Office of Government Ethics to identify contracting methods, types, and services under the FAR that pose heightened risks for organizational conflicts of interest and to develop a “repository” of best practices for preventing and mitigating organizational and personal conflicts.
The FAR Council already had under way an advanced notice of proposed rulemaking with respect to organizational and personal conflicts of interest. And last year the council issued regulations requiring that most contractors have a code of ethics.
Significantly, in a rulemaking that is expected to be finalized very soon, the FAR Council (acting at the behest of the Justice Department) is expected to amend the FAR to require mandatory disclosure of any violation of federal criminal law in connection with the award or performance of a government contract or subcontract, as well as disclosure of any violation of the civil False Claims Act. The addition of the latter requirement to disclose False Claims Act violations has been especially controversial because a failure of strict compliance with a great many contracting regulations and clauses may trigger allegations of false claims.
Treasury also likely will avoid a third category of recent provisions aimed at bringing greater transparency to federal transactions. While Congress enacted the Federal Funding Accountability and Transparency Act to increase public access to information about federal contracts and grants in 2006, more transparency legislation has been under consideration and additional provisions were adopted in the 2009 defense legislation.
Of major significance, Section 872 provides that the General Services Administration will implement a new government-wide database that includes a detailed list of negative information about contractors such as criminal convictions; any finding of fault in a civil or administrative proceeding that results in payment of a fine, penalty, reimbursement, or damages of $5,000 or more (the threshold is $100,000 for damages in administrative actions); certain settlements of criminal and civil proceedings; terminations for default; suspensions; debarments; nonresponsibility determinations; and other information to be identified in the FAR. Contracting officers must consult this database when awarding contracts or grants and when making any responsibility determination.
But again, many of Treasury’s TARP transactions apparently will not be covered by these transparency requirements.
WHY SPECIAL TREATMENT?
The ostensible rationale for this special treatment is the concern that federal procurement rules will tie Treasury’s hands at a time when prompt action is critical. In fact, the acquisition system has plenty of flexibility—as experience since 9/11 has shown—and special exemptions are not necessary. Indeed, the Bush administration made exactly the point that sufficient flexibility existed after 9/11 and the 2005 hurricanes.
To facilitate procurement in times of crisis, Part 18 of the FAR, “Emergency Acquisitions,” was promulgated in 2006 to collect in one location the existing flexible authorities for the benefit of contracting officials faced with emergencies. It is important to recognize that while these provisions are flexible, they also continue to promote accountability by requiring justification for decisions to award without competition, for example, or to waive conflicts of interest.
Treasury’s acquisition and conflict-of-interest guidelines and its published agreements to date all indicate that the department is using some FAR concepts, but without invoking FAR rules. For example, the conflict-of-interest guidance draws heavily on FAR concepts. However, the standard against which compliance with this guidance will be judged is unclear.
Experience has taught that when the fundamentals of good acquisition practice are compromised, the results are painful for all parties involved—government institutions, taxpayers, and contractors. Lessons from the overuse of interagency contracts, abuse of purchase cards, and diminution of competition, all of which were exacerbated by the litany of Katrina and wartime contracting failures, should resonate here. Most puzzling is how Congress could succumb to pleas of exigency for TARP, while at the same time legislating to correct perceived abuses arising out of prior emergencies.
Marcia G. Madsen is a partner in the D.C. office of Mayer Brown and chair of the government contracts practice. She chaired the Acquisition Advisory Panel from 2005 to 2007. Madsen can be reached at
Reprinted with permission from the November 10, 2008 edition of Legal Times © 2008 ALM Properties, Inc. All rights reserved. Further duplication without permission is prohibited.