"The Honest Leadership and Accountability in Contracting Act of 2006": What it would do and why it is necessary

Note: The bill applies to all federal contracts, not just those in Iraq and the Global War on Terror

Also see the one-page summary of the bill

1) The Act Would Make War Profiteering a Crime.

The bill establishes penalties of up to 20 years in prison and at least $1 million in fines for war profiteering.

Although the term has been in use for nearly a century, at least, there is currently no clear legal standard in U.S. federal law that defines war profiteering as a crime. The definition here was originally provided by Senator Patrick Leahy (D-VT) in a bill he introduced in the 108th Congress (S. 1813).

Numerous contractors have attempted to bilk or defrauded U.S. taxpayers in Iraq and elsewhere, including Custer Battles, which is being charged with devising a scheme using shell companies and fake invoices to defraud the U.S. government of millions of dollars in Iraq. The case is not yet concluded, and the company claims that the case does not belong in federal court because the firm is alleged to have defrauded the CPA, not the U.S. government, and because Iraqi, not U.S., money was at stake. The Justice Department said in two briefs this spring that U.S. anti-fraud law applies nonetheless.

Although funding for the Iraq reconstruction is winding down, the Special Inspector General for Iraq Reconstruction reports that 57 separate investigations are still ongoing, and that his office "continues to generate quality cases involving alleged contract fraud and malfeasance."

To avoid any confusion, the bill includes a clause that provides for extraterritorial jurisdiction. The provision is necessary because of the uncertainties involved in situations like Iraq. In July of 2005, a U.S. judge severely limited the applicability of a critical antifraud law (the False Claims Act) for Iraq contractors, holding that the False Claims Act did not apply to the many contractors who were paid by the American occupation authority using Iraqi oil money.

2) The Act Would Crack Down on Corporate Cheaters.

The Act would establish or even restore a Federal Acquisition Regulation concerning contractor responsibility, similar to one that the Bush administration revoked in December 2001. The proposal makes lawbreaking companies ineligible to receive taxpayer-funded contracts.

According to a related GAO Report prospective contractors are still required to be "responsible sources," but the FAR does not provide specific guidance to contracting officers on applying the standard, which the GAO said would not have been unduly burdensome under the policy that Bush revoked.

19 members of the Progressive Caucus called for Halliburton/KBR to be excluded from Katrina contracts based on the company's record in Iraq, but with no clear suspension/debarment standards, the GSA and other contracting agencies have not seen fit to respond. See our response. Learn more about Katrina Contracts and related legislation.

Federal Acquisition Regulations (FAR) are intended to establish standards of accountability for government contracting and procurement of goods and services from private companies. Under the FAR and specific regulations used to implement it, companies wishing to contract with the federal government are required to meet certain standards for “integrity and business ethics.” Explicit provisions related to suspension and debarment (e.g. bribery) are described in the regulations, while other standards are more general.

Nevertheless, contract watchdogs say the lack of a consistent standard has allowed politics to influence enforcement of acquisition regulations. The evidence for that, they say, is clear from the administration's debarment of a few small or more infamous companies (e.g. Enron) at the same time that other, highly-connected companies that have received less attention continue to receive federal contracts.

The Bush Administration's top procurement policy person, David Safavian, was recently arrested and charged obstructing an investigation into the activities of lobbyist Jack Abramoff.

To learn more about suspension and debarment go here and here.

3) The Act Would Require Full Disclosure of Contract Abuses.

The Act would also establish a public website identifying the performance record (including overcharges and other violations) of major contractors.

This provision is based in part upon the “Truth In Contracting” amendment introduced by Senator Lautenberg during the markup of the FY 2006 Defense authorization bill. (The amendment provision passed unanimously in the Senate before it was stripped out.)

4) The Act Would Bar Monopoly Contracts That Undermine Cost-Savings From Competitive Bidding

The Act would end the abusive use of "no-bid contracts" by requiring that contractors already meeting eligibility requirements be allowed to bid on task orders in excess of $10 million. This section would avoid situations like Halliburton in Iraq, where a single contractor ended up with a monopoly contract that by the end of 2004 was worth over $8 billion, and made oversight difficult through multiple subcontracting layers. See Rep. Henry Waxman's explanation.

Halliburton's large logistics (LOGCAP) contract was used by the Pentagon to circumvent competitive bidding rules before the war. The Restore Iraqi Oil contract was awarded to Halliburton as a task order of its LOGCAP, i.e. outside of the scope of the contract, and therefore (without a justification for the exemption) in violation of federal procurement rules. (To learn the history of the Halliburton contract go here and here and here and here.)

While it is important to recognize the need to have contractors be prepared for emergencies like Hurricane relief and other contingencies requiring the rapid delivery of specific services, rather than giving a monopoly on such work to one company, which in turn then subcontracts most of the work anyway, the federal government can retain the cost efficiencies that result from competitive bidding while still maintaining rapid delivery by predetermining a group of potential contractors who can then bid for each task order.

5) The Act Would Ban Conflicts of Interest in Contracting Oversight.

Federal agencies would be required to conduct contract oversight, rather than paying contractors with conflicts of interest to oversee one another.

This section is partly based on an amendment by Senators Dorgan and Wyden to the FY 2005 Defense authorization bill. To learn how such conflicts may have compromised contract over sight in Iraq see, “Contractors Overseeing Contractors: Conflicts of Interest Undermine Accountability in Iraq,” a joint report prepared for Senators Dorgan and Wyden and Representatives Waxman and Dingell.

6) The Act Would Close the Revolving Door

This section would close the perverse loophole that allows federal contracting officials to take jobs as lobbyists for companies to whom they awarded contracts.

The former head of FEMA, Joe Allbaugh is a registered lobbyist for Shaw and Halliburton, and co-founded a company called New Bridge Strategies to help companies acquire contracts in Iraq. Allbaugh is just one of the many "disaster profiteers" looking to use their contacts and knowledge of the federal contracting system works. Within days after Katrina landed, the Post reported that roughly 240 businesses and lobbyists were seeking to influence contracting and policies related to disaster relief. "Few of them, however, have Allbaugh's experience or can advertise their close connections to [President] Bush."

For more examples and information about the revolving door issue see the Revolving Door Working Group, Lobby Watch (Center for Public Integrity), LobbyingInfo.org (Public Citizen), and POGO's Revolving Door Page.

7) The Act Would Prohibit the Type of Cronyism Witnessed in Recent Federal Appointments

This section would prevent the appointment of unqualified individuals for key positions, preventing political operatives like David Safavian and Michael Brown from holding key jobs relating to federal contracting and public safety.

8) The Act Would Strengthen Whistleblower Protections

This section would make it more difficult for federal agencies to retaliate against whistleblowers, and gives courts wider discretion to consider cases of retaliation. The section is based on S. 494, the Federal Employee Protection of Disclosures Act, introduced by Senator Lautenberg.

The provision would protect whistleblowers like Bunnatine Greenhouse, the top civilian contracting expert who blew the whistle on the Army Corps of Engineers corrupt relationship with Halliburton.

Greenhouse was demoted in August after blowing the whistle on the Corps' improper dealings with Halliburton subsidiary KBR: "I can unequivocally state that the abuse related to contracts awarded to [Halliburton] represents the most blatant and improper contract abuse I have witnessed during the course of my professional career," Greenhouse told Congress.

Greenhouse complained when Defense Secretary Donald Rumsfeld's office took control of "every aspect" of KBR's $7 billion no-bid Iraqi oil infrastructure contract. "In reality, the OSD [Office of Secretary of Defense] ultimately controlled the award of the [oil] contract to KBR," she said, a violation of rules restricting political appointees from making contract-related decisions.

For more about whistleblower protection laws, see:
The National Security Whistleblowers Coalition
Project on Government Oversight
Government Accountability Project

For more on accountability in government contracting, go here.

Also be sure to see our additional suggestions contracting and corporate accountability

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