[Congressional Record (Bound Edition), Volume 154 (2008), Part 5]
[House]
[Pages 6691-6694]
[From the U.S. Government Publishing Office, www.gpo.gov]




                CLOSE THE CONTRACTOR FRAUD LOOPHOLE ACT

  Mr. TOWNS. Mr. Speaker, I move to suspend the rules and pass the bill 
(H.R. 5712) to require disclosure by Federal contractors of certain 
violations relating to the award or performance of Federal contracts, 
as amended.
  The Clerk read the title of the bill.
  The text of the bill is as follows:

                               H.R. 5712

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Close the Contractor Fraud 
     Loophole Act''.

     SEC. 2. REVISION OF THE FEDERAL ACQUISITION REGULATION.

        The Federal Acquisition Regulation shall be amended within 
     180 days after the date of the enactment of this Act pursuant 
     to FAR Case 2007-006 (as published at 72 Fed Reg. 64019, 
     November 14, 2007) or any follow-on FAR case to include 
     provisions that require timely notification by Federal 
     contractors of violations of Federal criminal law or 
     overpayments in connection

[[Page 6692]]

     with the award or performance of covered contracts or 
     subcontracts, including those performed outside the United 
     States and those for commercial items.

     SEC. 3. DEFINITION.

       In this Act, the term ``covered contract'' means any 
     contract in an amount greater than $5,000,000 and more than 
     120 days in duration.

  The SPEAKER pro tempore. Pursuant to the rule, the gentleman from New 
York (Mr. Towns) and the gentleman from Virginia (Mr. Davis) each will 
control 20 minutes.
  The Chair recognizes the gentleman from New York.


                             General Leave

  Mr. TOWNS. Mr. Speaker, I ask unanimous consent that all Members may 
have 5 legislative days in which to revise and extend their remarks.
  The SPEAKER pro tempore. Is there objection to the request of the 
gentleman from New York?
  There was no objection.
  Mr. TOWNS. Mr. Speaker, I yield myself such time as I may consume.
  H.R. 5712, the Close the Contractor Fraud Loophole Act, is a 
commonsense solution to a problem that we never should have had in the 
first place. When the administration wrote a new rule requiring Federal 
contractors to report fraud and over billing on government contracts, 
for some reason contracts performed overseas and commercial item 
contracts were exempted from that requirement.
  That didn't make sense to my colleague on the Subcommittee on 
Government Management, Congressman Welch, because so much contract 
fraud and waste has been seen on contracts in Iraq and Afghanistan. He 
introduced this bill which will close these loopholes, and I salute him 
for that.
  The Justice Department believes the new rule is necessary because few 
government contractors voluntarily disclose suspected instances of 
fraud. But the exemptions in the rule as written would leave out 
contractors like those in Iraq and Afghanistan, where we have spent 
billions on reconstruction contracts over the past 5 years. Over that 
period, the Justice Department has uncovered at least $14 million in 
contract bribes in those two countries alone. Contractors must be held 
to the same standards no matter where they perform their work.
  Since Congressman Welch brought attention to this loophole, 
introduced this bill, and called for the hearing our subcommittee held 
last week, the administration has said it is leaning toward including 
overseas and commercial item contracts in the final fraud reporting 
rule. I am happy to hear that, but we cannot get them to guarantee that 
these loopholes would be closed. That is why Mr. Welch's bill is 
necessary, to make sure that loopholes are closed for good. Another way 
to put it, this legislation will help them deal with a problem that 
should not have occurred.
  I want to thank Congressman Welch for bringing this problem to the 
attention of the subcommittee. I would also like to thank the chairman 
of our full committee, Congressman Waxman, and also thank the ranking 
member of the full committee, Congressman Davis. And I would like to 
thank the ranking member of the subcommittee, Congressman Bilbray, for 
helping us bring this bill to the floor.
  Mr. Speaker, at a time when our national security is of paramount 
concern, criminals who cheat the government must be identified, stopped 
and punished. H.R. 5712 will help make sure that taxpayer dollars are 
used for their intended purpose, and not to line the pockets of corrupt 
individuals or companies. So I urge my colleagues to support this bill.
  Mr. Speaker, I reserve the balance of my time.
  Mr. DAVIS of Virginia. Mr. Speaker, I reserve the balance of my time.
  Mr. TOWNS. Mr. Speaker, I yield 5 minutes to the Honorable Henry 
Waxman, the chairman of the full committee.
  Mr. WAXMAN. Mr. Speaker, I rise in strong support of H.R. 5712, the 
Close the Contractor Fraud Loophole Act. This bill would create a 
mandatory requirement for Federal contractors to disclose violations of 
Federal criminal law or significant overcharges discovered with 
relationship to a Federal contract. It would replace our current system 
of voluntary disclosure.
  Moving to mandatory disclosure has been recommended by the Justice 
Department for good reason, the voluntary disclosure system is simply 
not working. In fiscal year 2007, only three contractors participated 
in the Defense Department's voluntary disclosure program.

                              {time}  1215

  Congressman Welch introduced this bill after the administration 
exempted contracts performed in Iraq and Afghanistan from a proposal to 
make fraud reporting mandatory. This exemption made no sense. As this 
committee's oversight has shown, fraud and over-billing are widespread 
in Iraq.
  The administration testified at a hearing before the Government 
Management Subcommittee that these exemptions were included 
inadvertently, and they said they made a mistake. This is a mistake 
that needs to be corrected, and that's why I commend Congressman Welch 
for pressing this issue and introducing this legislation. If we pass 
this bill, the real winners will be the Federal taxpayers.
  Prior to our committee markup on the bill, we worked with Ranking 
Member Davis to address certain concerns he raised with the way the 
bill was originally drafted. And I want to thank Mr. Davis for working 
with us in a constructive manner to ensure passage of this bill.
  The bill before us, H.R. 5712, as amended, would preserve 
Representative Welch's original intent while at the same time 
preserving the legitimate role of the regulatory process. The bill 
requires that the Federal Acquisition Regulation be amended within 180 
days to require disclosure of fraud for both domestic and overseas 
contracts, and for commercial item contracts.
  I urge Members to support H.R. 5712, as amended. It has been approved 
by a bipartisan vote in our committee, and it ought to be 
overwhelmingly approved in the House as well.
  Mr. DAVIS of Virginia. I yield myself such time as I may consume.
  Mr. Speaker, I had serious concerns about this legislation when it 
was originally introduced. The original version would have required a 
Federal contractor to self-report to the agency's IG if the contractor 
had reasonable grounds to suspect a violation of criminal law or if a 
significant overpayment occurred on a contract held by the contractor. 
A knowing failure to make such a report would have been a cause for 
debarment or a suspension for all firms, including those holding 
contracts performed overseas and contracts for commercial items.
  This original version, in my judgment, was an ill-considered attempt 
to strengthen an ethics compliance program that's currently being 
developed by the administration.
  The concept of mandatory self-reporting by contractors of possible 
criminal violations, based on reasonable grounds, would have been 
unprecedented and obviously controversial. The rule proposed in the 
Federal Register was the subject of more than 70 comments. As expected, 
many of the firms subject to the rule expressed serious legitimate 
concerns about the proposal.
  In actuality, the bill as introduced didn't make as significant 
change as intended to the substance of the proposed revisions. The 
problem was the bill leapfrogged the statutorily designated process for 
writing acquisition regulations, and would have encased in statute 
draft language establishing a new reporting scheme yet to be thoroughly 
vetted.
  The subcommittee received testimony that the so-called loophole which 
was alleged to have been snuck in at the 11th hour, was really an 
inadvertent administrative error made by an overworked acquisition 
policy staff.
  None of the agencies providing testimony to the subcommittee, 
including the Department of Justice, nor the contractor community, 
supported this bill as it was introduced.
  But I will say this to the author of the legislation and the 
subcommittee chairman, we ended up working together, and the language 
before us today was offered in his amendment at

[[Page 6693]]

mark-up by Chairman Waxman and myself. This will ensure that the 
Federal acquisition regulation is revised to include a requirement that 
Federal contractors notify the government of violations of Federal, 
criminal law or overpayments in connection with the award or 
performance of contracts or subcontracts.
  In doing so, it will ensure the regulation is applicable to all 
contracts, including those performed overseas and those for commercial 
items.
  The stated purpose was ultimately accomplished by this language but 
accomplished through a more appropriate statutory acquisition 
rulemaking process.
  Again, as with the other contractor bills we're considering today, I 
think that we would be better served if we would address some of the 
underlying problems in the acquisition system, and that is getting in 
good acquisition officials; whether they're contract managers, 
contracting officers, contracting officers technical representatives, 
trying to get more into government, educating them, training them and 
making sure they have the tools appropriate to get the best value for 
the tax dollars. That's where the real waste of government lies with 
having good acquisition officials.
  I think this version of the bill today is an adequate solution. I 
want to thank again Chairman Waxman and Mr. Welch for working with us 
to revise the language. I urge its adoption.
  Mr. Speaker, today we rise to take up H.R. 5712, the Close the 
Contractor Fraud Loophole Act. This legislation would revise an 
administration-proposed contractor ethics and reporting program.
  I had serious concerns about this legislation as it was originally 
introduced. The original version of the bill would have required a 
Federal contractor to self-report to the agency's Inspector General if 
the contractor had ``reasonable grounds'' to suspect a violation of 
criminal law or if a significant overpayment occurred on a contract 
held by the contractor. A knowing failure to make such a report would 
have been a cause for debarment or suspension for all firms, including 
those holding contracts performed overseas and contracts for commercial 
items.
  This original version of the legislation was an ill-considered 
attempt to ``strengthen'' an ethics compliance program currently under 
development by the administration.
  The concept of mandatory self-reporting by contractors of possible 
criminal violations based on ``reasonable grounds'' is unprecedented 
and controversial. The rule proposed in the Federal Register was the 
subject of more than 70 comments. As expected, many of the firms 
subject to the rule expressed serious and legitimate concerns about the 
proposal.
  In actuality, the bill as introduced did not make as significant a 
change as intended to the substance of the proposed revisions to the 
acquisition regulations. The problem was the bill leapfrogged the 
statutorily designated process for writing acquisition regulations and 
would have encased in statute draft language establishing a new 
reporting scheme yet to be thoroughly vetted.
  The Subcommittee on Government Management, Organization and 
Procurement received testimony that the so-called ``loophole''--which 
was alleged to have been ``snuck in at the eleventh hour''--was really 
an inadvertent administrative error made by an overworked acquisition 
policy workforce.
  None of the agencies providing testimony to the Subcommittee, 
including the Department of Justice, nor the contractor community, 
supported H.R. 5712 as introduced. Instead, the stakeholders suggested 
the well-established regulatory drafting process should be allowed to 
continue to completion. They favored this rulemaking approach because 
it would allow all interested parties the opportunity to submit 
comments and have those comments considered in the deliberative 
process.
  Nevertheless, the Committee moved forward with the legislation. 
Fortunately, Chairman Waxman, the bill's sponsor and I were able to 
work out language which addressed some of the concerns raised at the 
one hearing on the bill.
  The language before us today, offered as an amendment at markup by 
Chairman Waxman and me, would ensure the Federal Acquisition Regulation 
is revised to include a requirement that Federal contractors notify the 
Government of violations of Federal criminal law or overpayments in 
connection with the award or performance of contracts or subcontracts. 
In doing so, it would ensure the regulation is applicable to all 
contracts, including those performed overseas and those for commercial 
items.
  The stated purposes of the introduced version of H.R. 5712 are 
ultimately accomplished by this language, but accomplished through the 
more appropriate statutory acquisition rulemaking process.
  Again, as with the other so-called ``contractor bills'' we are 
considering today, I continue to believe all would be better served if 
we had spent our time trying to improve the operation of our 
acquisition system--in order to better acquire the best value goods and 
services our Government so desperately needs.
  And in this case, I am certain we would have been be better off had 
we allowed the regulatory process to go forward without any 
interference at all from us.
  Nonetheless, under the circumstances, I believe this version of the 
bill we are considering today is an adequate solution, and I thank 
Chairman Waxman and Mr. Welch for working with me on the revised 
language.
  Mr. TOWNS. Mr. Speaker, I would like to yield 5 minutes to the author 
of this legislation, a person that has worked real hard and has done a 
magnificent job, the gentleman from Vermont, Congressman Welch.
  Mr. WELCH of Vermont. Mr. Speaker, one of the fundamental 
responsibilities that this Congress has is to protect taxpayer dollars. 
That has become an enormous challenge, as many of the taxpayer dollars 
that are appropriated are paid to private contractors.
  The growth in contracting in the past 6 or 7 years has exploded. 
Procurement spending in 2000 was $213 billion. Procurement spending is 
when we enter into a contract with a private company to deliver goods 
or services. That amount exploded last year to $412 billion. Much of 
that is going to Iraq and Afghanistan. Much of this is being subject to 
waste, fraud and abuse.
  The Oversight Committee under Mr. Waxman and Mr. Davis has done 
vigorous oversight and identified in 2006 that there were 118 contracts 
valued at $745 billion that were found by government auditors to 
include a significant component of fraud, abuse and mismanagement. And, 
in fact, it got worse.
  In 2008, that report identified 187 contracts valued at $1.1 
trillion, where they were plagued by waste, fraud and abuse.
  The bottom line is, will we, as a Congress, Republicans and 
Democrats, be vigilant in protecting taxpayer dollars? We have to do 
that, especially when there is documented evidence of rip-offs, wicked 
rip-offs that have occurred with taxpayer dollars in Afghanistan and in 
Iraq.
  There's two goals that we have. The first that we widely share is 
that every taxpayer dollar will be accounted for, and that the 
taxpayers who were working hard to support this government and our 
troops will see that their money is spent on proper things that are in 
the contract. We have to protect the taxpayer.
  The second is we've got to protect the troops. If we are spending 
money in Iraq and Afghanistan for the intended purpose of bringing our 
troops home and improving our national security, any dollar that's 
wasted that results in any additional injury, or one day prolonged in 
the conflicts, is a dollar that is improperly wasted. We cannot do 
that.
  So I believe that this loophole, however it got there, by mistake or 
by sleight of hand, however it got there, it's got to be closed. 
Obviously, if you have a regulation, as it was written, that says we 
will report fraud when it is a rip-off on a domestic contract, but we 
won't when it's on a foreign contract, we're sending a very unambiguous 
message. There's a green light to rip off taxpayers if the money is 
being spent abroad. That's not a defensible position. And that's why 
we're closing this loophole to make it absolutely clear that's 
unacceptable.
  Now I think it does make sense. What Congressman Davis proposed as a 
new way of proceeding is fine with me. And here's why. The bottom line 
is protecting the taxpayers and protecting our troops. And if we can 
accomplish that better by finding a way that has bipartisan support, we 
can all have more confidence that we'll be successful.
  So I'm glad to work with Chairman Davis in order to have this get 
done in

[[Page 6694]]

a bipartisan way. I want to thank very much Chairman Waxman and the 
great work of my chairman of the subcommittee, Mr. Towns, for bringing 
this forward so quickly and so effectively.
  Mr. DAVIS of Virginia. Well, let me thank my friend for calling me 
Chairman Davis. It's with nostalgia that I use the terminology, but I 
guess once a chairman, always a chairman. But I now recognize Mr. 
Waxman as my chairman and a counterpart in a number of these issues.
  I again enjoyed working with you on this legislation to bring it. I 
would urge its adoption.
  I yield back the balance of my time.
  Mr. TOWNS. Mr. Speaker, I want to thank Chairman Waxman; I want to 
thank Ranking Member Davis; and, of course, Ranking Member Bilbray for 
his work; and, of course, Congressman Welch. This legislation is really 
needed, and I was happy that we were able to move it to the floor very 
quickly, because any time we can save money, and I think that this is 
what this does, it saves the taxpayers money, and I just think we need 
to salute Congressman Welch for his insight in being able to do just 
that.
  Mr. THOMPSON of Mississippi. Mr. Speaker, I rise today in support of 
H.R. 5712, the ``Close the Contractor Fraud Loophole Act.''
  The name of this bill really says it all. Today, as I speak, there is 
a loophole in Government procurement regulations that allows some 
contractors to avoid reporting violations of Federal law or 
overpayments.
  The privilege--and, yes, it's a privilege--of earning Federal dollars 
carries with it certain responsibilities. One of those responsibilities 
is to do your utmost to avoid fraud, violations of law, and 
overpayments. Now, I understand that many large contractors have 
thousands of employees, and sometimes there can be a bad apple. But 
when a contractor learns of such a bad apple, it is its responsibility 
to report what it learns to the Government, and to make the Government 
whole for any loss.
  Today, most contractors working in the United States are required by 
regulation to do just this. But contractors working overseas, and a few 
here in the U.S., fall outside this simple, commonsense reporting 
requirement.
  This is not right--contractors accepting Federal dollars should be 
treated the same, whether they are performing the work in the United 
States or overseas, and regardless of whether they are selling 
``commercial items.''
  I want to commend Mr. Welch and Chairman Waxman for recognizing this 
problem, and for doing something about it. Now that they have acted, 
the administration says that this loophole was a ``bureaucratic 
mistake'' and should be closed. Yet, before Congress moved, the 
administration was curiously slow to do anything to address this 
``mistake.''
  My committee has devoted a lot of time and energy to examining the 
Department of Homeland Security's contracting practices. What we have 
found is not always pretty. The Department is young, and has made some 
poor contracting decisions. But poor decisionmaking and the occasional 
inexperienced contracting officer is not a license for abuse, and it is 
incumbent on any contractor who discovers such abuse to report it.
  I hope the administration makes good on its word and closes this 
loophole, but I'm mindful that it took congressional oversight and 
action to stir them into action. This is oversight at it best, and make 
no mistake, our oversight--of both the Government and the contractors 
themselves--will continue. I encourage all of my colleagues to support 
this legislation.
  Mr. TOWNS. Mr. Speaker, I yield back the balance of my time.
  The SPEAKER pro tempore. The question is on the motion offered by the 
gentleman from New York (Mr. Towns) that the House suspend the rules 
and pass the bill, H.R. 5712, as amended.
  The question was taken; and (two-thirds being in the affirmative) the 
rules were suspended and the bill, as amended, was passed.
  A motion to reconsider was laid on the table.

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