Profiteering legislation lacks real purpose

Buylines | War profiteering legislation is not needed

Stan Soloway

When I was a child, my parents repeatedly
reminded me to "think before
you act." That advice would serve
Congress well as it considers new legislation
to address war profiteering
and expansion of the False Claims Act.

Bills in both houses would
establish significant penalties
for profiteering and fraud associated
with contractors supporting
overseas missions of the
U.S. government. On the surface,
it is hard to argue with the
legislation. Clearly, any entity or
individual that engages in such
behavior must be held accountable.
But beneath the surface,
the legislation is so broadly
written that it raises more questions
? and potential problems
? than it answers.

Defrauding the U.S. government
on any contract has long been
prohibited, and the penalties, as
defined in the Federal False Claims
and False Statements Accountability
acts, are severe. Thus, it is unclear
what statutory gap needs to be filled.
Companies or individuals found
guilty of fraud should be punished to
the fullest extent of the law, and they
are. According to the Special
Inspector General for Iraq
Reconstruction (SIGIR), although
fraud has not been a significant component
of the U.S. contracting experience
in Iraq, it does happen. This is
why the SIGIR is pursuing several
dozen criminal cases under existing
civil and criminal laws.

In addition, the legislation fails to
define its key terms, such as "materially
over-valuing" and "excessively profit."
This lack of definitions is a critical
failure. What is excessive? How are
market realities, or variable business
and performance risks, to be accounted
for? After all, profits are largely
driven by risk.

Is a company that earns an 8 percent
profit on work performed in traditional
environments entitled to a
larger profit when that same work is
performed in a war zone where the
risks are orders of magnitude higher?
Who decides, and how do they
decide? Without objective criteria and
clear definitions, the legislation injects
far too much subjectivity and uncertainty
into an acquisition system in
which subjectivity, predictability and
objectivity must be carefully balanced.

The Senate also is considering
problematic legislation to significantly
expand the reach and scope of the
Federal False Claims Act. That bill
would give unique and remarkable
authority to the government to pursue
damages for false claims even when it
has not received such a claim or experienced
damages.

One of the basic requirements of
the False Claims Act is presentment,
in this case, the actual submission of a
false or fraudulent claim for payment.
By eliminating that requirement, this
bill enables the government's pursuit
of false claims against subcontractors
? with which the government has no
privity of contract to begin with ?
even in cases in which the prime contractor
has rejected a subcontractor's
bill and refused to present it to the
government. Thus, if there is no false
claim to the government, what's the
point?

The bill also would allow the
government to pursue damages for
false claims on contracts with quasigovernmental
entities in which the
U.S. government is merely one participant.
While driven by court rulings
under which the Coalition Provisional
Authority in Iraq was determined not
to be a U.S. government instrument
? thereby preventing the government
from pursuing false claims cases
involving CPA contracts ? the legislation
would also include sovereign
organizations such as the United
Nations and World Bank. They are,
and should be, responsible for their
own contracting and protecting their
own interests.

Sweeping legislation with such clear
precedents and complicated effects
merits much more substantial and
careful analysis before any action is
taken. Unfortunately, in the current
frenzy to find solutions, that vital step
too often is missed.

Stan Soloway is president of the
Professional Services Council. His e-mail is
soloway@pscouncil.org.

About the Author

Stan Soloway is president and chief executive officer of the Professional Services Council.

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