OMB Watch Testimony on the Repeal of the Contractor Responsibility Rule

The Bush administration has proposed to repeal common-sense standards that promote greater accountability for federal contractors -- to make sure they comply with important public protections. On June 18, 2001, the administration held a public meeting on the proposed repeal, and OMB Watch provided this testimony. Testimony of Reece Rushing OMB Watch on FAR Case 2001-014 June 18, 2001 ------------------------------------------------------------------------------------ Thank you for the opportunity to testify. My name is Reece Rushing. I am a policy analyst at OMB Watch, a public policy research and advocacy organization that specializes in budget, information, and regulatory issues. As part of our regulatory work, OMB Watch chairs a broad-based coalition called Citizens for Sensible Safeguards, comprised of hundreds of organizations dedicated to protecting public health, safety, the environment, and civil rights. On behalf of this coalition, we ask that you reconsider your proposal to revoke the contractor responsibility rule, which has never been allowed to take full effect. While we are supportive of the entire rule, our comments are focused on the clarification of the “integrity and business ethics” standard. This change would make clear that in determining whether a prospective contractor has a satisfactory record of “integrity and business ethics,” contracting officers may consider compliance with the law, including labor laws, employment laws, environmental laws, antitrust laws or consumer protection laws. This modest rule, which amends the Federal Acquisition Regulation (FAR), is plain common sense. Taking into account whether a prospective contractor is complying with the laws of the land would help ensure that the government and taxpayers are getting their money's worth (and are not subsidizing lawbreaking), while protecting federal contractors that comply with the law from unethical competitors. Unfortunately, some in the contracting community don’t see it this way. They say there is no evidence supporting the rule, that mere accusations could cause a business to lose a contract, and that it would be used to create a “blacklist.” We find these arguments puzzling and overheated, and have attempted to respond to them in this testimony. Need for the Rule Opponents of the contractor responsibility rule have made the claim that there is no data or evidence supporting the need for the proposed rule. But in fact there is ample evidence that contracting officers should take greater care in distributing federal dollars than they have in the past. According to the General Accounting Office, 80 firms that violated the National Labor Relations Act received more than $23 billion in contracts in FY 1993, or about 13 percent of the $182 billion in contracts awarded that year. In FY 1994, $38 billion (or about 22 percent of the $176 billion in contracts) was awarded to 261 federal contractors that were cited by OSHA for 5,121 violations, many of which were both serious and willful. But perhaps the most persuasive evidence supporting the need to move forward with this rule is the federal debarment list. Each year, the government, at great cost, debars thousands of individuals and companies from receiving federal contracts. A more careful examination of a contractor's record and an up-front determination on compliance with the law would save the government — and taxpayers — money by preventing problems that could eventually lead to debarment proceedings and litigation. In fact, this is a principle that is already embodied in the FAR, which insists that the government purchase goods or services only from “responsible contractors.” But even if you leave aside the GAO findings and the debarment figures, the argument that there is no data supporting the rule cannot be taken seriously. This implies that if very few federal contracts are going to those who repeatedly violate the law, which we hope is the case, then no action is needed. The numbers, however, are somewhat beside the point. There is a principle at stake, namely that repeated violations of law should be considered in rewarding government contracts. And this is the core reason we support the rule — government should not be funding lawbreakers. Whether there are many or none at all that would be affected, this is a principle that should be incorporated in contracting law. Moreover, if frequent lawbreakers are not currently receiving government contracts — as the calls for supporting evidence suggest — then very little would change and the opponents have nothing to worry about. The “Integrity and Business Ethics” Standard The contractor responsibility rule, which has been suspended pending its proposed repeal, is more specific than the current standard, which states that a prospective contractor must “have a satisfactory record of integrity and business ethics.” Opponents say this specificity represents something new and dangerous. But under the current standard, it is already possible for a contracting officer to consider everything in the parenthetical, which includes labor laws, employment laws, environmental laws, antitrust laws and consumer protection laws. And indeed, the Clinton Administration stated that even without the addition of the parenthetical this is the proper interpretation of the “integrity and business ethics” standard. Assuming this hasn’t changed, it seems better to inform contractors up front of the specific standard under which they are being judged. Opponents, on the other hand, say that contracting officers have almost never interpreted “integrity and business ethics” to include environmental, consumer, labor laws, etc., and that it has generally been applied only to cases of fraud. But in fact, law compliance has been considered under this standard, and prospective contractors have been denied on this basis. Even if this hasn't been common, it seems obvious to us that contracting officers should at least be able to consider frequent lawbreaking in awarding federal contracts. Say, for example, you have two contractors, equal in every way except that one has substantially violated environmental laws. The opponents seem to be saying that a contracting officer should not be able to use this information in deciding which one should get the contract. This is absurd on its face. Even more absurd, the U.S. Chamber of Commerce has claimed that as a result of the rule, “23 Million American Workers' Jobs Could be at Risk.” However, if you are not a substantial lawbreaker, you have nothing to worry about. We assume this includes most businesses. Thus, the claim that 23 million jobs (which represents the combined jobs of all federal contractors and subcontractors) are at risk is simply ludicrous. Perhaps some companies would lose out on contracts because of substantial lawbreaking, and they may have to lay off workers as a result, but someone else — a more responsible actor — would still get the contract, with little, if any, net effect on jobs. Opponents have also worried that contracting officers would “spend their time responding to a blizzard of accusations offered by competing companies and various interest groups.” But this does not seem likely given that it doesn't go on now; the contractor responsibility rule does not create any new opportunity that doesn't already exist under the “integrity and business ethics” standard. Standards for an Adverse Determination Opponents have stated that under the contractor responsibility rule, mere accusations could cost a business a contract. However, this seems more than a little far-fetched considering the very high bar that is set. The rule states that, in deciding on a contractor, contracting officers should consider all relevant, credible information bearing on contractor responsibility with the greatest weight given to adjudicated violations within the preceding three years. The rule makes clear that the focus is on “repeated, pervasive or significant” violations of the law. While pending complaints could be considered by a contracting officer, it is inconceivable that mere accusations would cost a business a contract under this high standard, especially if the determination is to survive likely appeals. In weighing the evidence, however, contracting officers should have access to the whole range of relevant information, including unsettled litigation. Of course, final adjudication would still receive greater credence. Indeed, the rule clearly states that in making a judgement, contracting officers should give the greatest weight to convictions or civil judgments rendered against the prospective contractor. But if a company was found to have a number of violations, a contracting officer should also be able to consider any recent cases brought against it, especially since litigation often takes years to complete. The idea is to obtain the fullest and clearest picture possible of the prospective contractor. Due Process Issues The contractor responsibility rule includes necessary allowances for due process. Specifically, it requires contracting officers to coordinate adverse determinations with agency legal counsel, to notify bidders if they are found non-responsible and to provide the basis for that determination. This will ensure accountability and openness in the decision-making process, which we strongly support. Moreover, the rule also makes clear that in making a judgement, contracting officers should give the greatest weight to convictions or civil judgments rendered against the prospective contractor in the preceding three years. This also makes sense and should put to rest concerns over due process. Yet opponents have falsely suggested that the contractor responsibility rule would be used to create a “blacklist” with no allowance for due process. To cut through the rhetoric, it is important to look at current practice. Already, contracting officers are to make determinations based on “integrity and business ethics.” This would not change under the rule; it simply clarifies what should be considered under this standard. Businesses that receive adverse determinations under the current standard are not now “blacklisted” and this too would not change. In fact, the Clinton Administration explicitly stated there were no plans for such a blacklist. We assume the same would be true for the Bush Administration. Rather, each determination is to be made on a case-by-case basis for the contract in question, and would not constitute “debarment” for all federal contracts. As for the issue of due process, the FAR already provides for an appeal process if a business feels that an agency's determination was wrong, as directed in Executive Order 12979, Agency Procurement Protests. In addition, the FAR also provides details on taking protests beyond the agency to GAO, and for small entities, to the Small Business Administration. And finally, businesses currently have, and will continue to have, the right to appeal an agency decision in federal district court under the Administrative Procedure Act. Although the contractor responsibility rule has no bearing on debarment and suspension from all contracts, it should also be noted that the FAR provides detailed procedures to protect due process when a debarment or suspension is pursued. In other words, there is no way that contractors could be “blacklisted” without being notified and given ample opportunity to present their position, including the chance to appeal. Verification To ensure that contracting officers are able to easily evaluate a prospective contractor's compliance with the law, the contractor responsibility rule appropriately requires those seeking government contracts to disclose whether they have been found to have violated any labor, employment, environmental, or consumer protection laws over the preceding three years. The current FAR certification process already requires such disclosure for fraud, antitrust, and tax laws. This makes perfect sense. If contracting officers are to make a determination of a prospective contractor’s “integrity and business ethics,” they need the information to do so. Likewise, the same logic holds true for evaluating compliance with labor, employment, environmental, or consumer protection laws. The final rule merely required prospective contractors to check a box “yes” or “no” to indicate any violations (additional information may be requested by the contracting officer, but this would likely only occur for a successful bidder). This minimal disclosure requirement – which is the only “burden” placed on contractors under the rule – makes it easy for a government contracting officer to make the necessary determination. It also appropriately places the burden on the one seeking the contract to demonstrate they are worthy of taxpayer dollars.
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