A Solution Worse Than the Problem

Richard Rector

By Richard Rector

The federal government recently issued a proposed rule that purports to clarify the long-standing requirement that federal contractors have a satisfactory record of integrity and business ethics. Unfortunately, the proposed rule, commonly known within industry as the blacklisting regulations, goes dangerously beyond that simple goal.

The proposed rule on "Contractor Responsibility, Labor Relations Costs, and Costs Relating to Legal and Other Proceedings" was published in June, with public comments due in late August. This is the second time around for this controversial rule, as it was first published for public comment in July 1999.

At that time, the government received almost 1,500 written comments on the rule, with many critics ? including numerous industry associations ? challenging both the rule's need and its implementation. The government has evaluated the public comments over the past year and has revised the rule to address certain concerns, but its principal thrust remains (although the proposed rule gets worse in some areas).

The rule essentially provides that in making a "responsibility" determination, contracting officers may consider any violation of environmental, antitrust, tax, labor and employment or consumer protection laws as a basis for finding a contractor non-responsible. In other words, if a contractor has violated the law in any of these areas, it can be denied a contract on the basis that it lacks a "satisfactory record of integrity and business ethics."

The proposed rule states that contracting officers should consider whether the contractor has had any convictions or civil judgments rendered against it in connection with the following:

? Commission of fraud or a criminal offense related to obtaining, attempting to obtain or performing a public (federal, state or local) contract or subcontract;

? Violation of federal or state antitrust statutes relating to the submission of offers;

? Commission of embezzlement, theft, forgery, bribery, falsification or destruction of records, making false statements, tax evasion or receiving stolen property.

In addition, a contracting officer is to consider whether the contractor has any other federal or state felony convictions or pending federal or state felony indictments, as well as any federal court judgments in civil cases brought by the United States against the contractor.

Finally, the contracting officer should consider whether there are any decisions by federal administrative law judges, or adjudicatory decisions, orders or complaints issued by any federal agency, board or commission indicating the contractor has violated federal tax, labor and employment, antitrust or consumer protection laws.

Industry officials are particularly concerned that the rule does not focus on a pattern of violations or severity of violations, but would allow any violation in these areas to be the basis for a non-responsibility determination.

Indeed, under the proposed rule, it appears that a single violation in any one of the identified areas, no matter how minor, could result in a non-responsibility determination.

For example, the proposed rule would appear to allow a contracting officer to find a contractor non-responsible based upon a regulatory violation of environmental law, without regard to whether there was any intent by the contractor to violate the law.

Industry representatives have rightly questioned how a violation that occurs without any intent on the part of a contractor could reflect adversely on its integrity and business ethics.

Critics also have noted that the proposed rule would give contracting officers expansive authority to withhold awards from a particular contractor (hence the blacklisting label), without establishing any link between the violation and potential performance. This is remarkable considering that not even a debarring official can suspend or debar a contractor simply for a violation of law, but would have to find the violation affected the contractor's integrity or its ability to perform a contract.

Although the proposed rule may not be applied as harshly or as frequently as industry representatives fear, such optimism is no excuse for creating bad law. If the rule's true purpose is merely to clarify existing responsibility principles, then this is a case where the solution is worse than the problem.

Richard Rector is a partner in the government contracts group of Piper Marbury Rudnick & Wolfe LLP
in Washington. His e-mail address is

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