New Contractor Disclosure Requirements: Making a Necessity Out of Virtue

Among other significant changes published recently by the Federal Acquisition Regulation (FAR) Councils, effective December 12, 2008, most Federal contractors will be under a new obligation to tell the Government when their company is involved with procurement-related criminal violations and violations of civil False Claims Act, as well as in cases in which the company has received a significant contract overpayment. If a contractor fails to report such matters, the new rules provide that the contractor could be suspended or debarred from receiving further Federal contracts.

Contractors do have some leeway in the timing of reports however, because reports are required only if the contractor has “credible evidence” of the violation or overpayment. This permits the contractor to undertake a reasonable investigation to ascertain what actually happened — there is no need to run off to the Inspector General as soon as an anonymous hotline call comes in.

To make matters even more interesting, the new rules were published with additional guidance that indicates some firms may have some “catching up” to do. That is because the reporting requirement applies, not only to incidents occurring after the effective date of the new rule, but also to contracts that may have been fully performed years ago. The new rule should have many companies scrambling to decide what, if anything, they need to report right away.

This leads to the major collateral damage from the new reporting rule, which is: the demise of “voluntary disclosure” programs that have been with us for years at various agencies. Logically, how can a contractor claim the benefits of making a voluntary disclosure, if the disclosure is now mandatory? The FAR Councils responded to this concern by, in essence, pronouncing voluntary disclosure dead, saying that,

“[t]here is no doubt that mandatory disclosure is a “sea change” and “major departure” from voluntary disclosure, but DoJ and the OIGs point out that the policy of voluntary disclosure has been largely ignored by contractors for the past 10 years. In addition, in that same time period mandatory disclosure has been adopted for banks and public companies and stressed by the U.S. Sentencing Commission and DoJ … .”

If news of the death of the voluntary disclosure program was heretofore greatly exaggerated, this recent change appears to signal the absolute finale of the voluntary era.

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