On June 30, 2008, President Bush signed the Supplemental Appropriations Act, 2008, H.R. 2642. The act goes beyond providing additional monies to fund various defense initiatives in a number of respects. In particular, the act seeks to expand upon recent initiatives to require more formal contractor compliance and reporting mechanisms as well as greater transparency into government contractors. 

One such change of particular note is contained in Title VI of the act, "Accountability and Transparency In Government Contracting." That section titled, "Close The Contractor Fraud Loophole," states that "The [Federal Acquisition Regulations (FAR)] shall be amended within 180 days after the date of enactment of this Act pursuant to FAR Case 2007-006 or any follow-on FAR case to include provisions that require timely notification by Federal contractors of violations of Federal criminal law or overpayments in connection with the award or performance of covered contracts or subcontracts, including those performed outside the United States and those for commercial items." H.R. 2642 at Title VI, § 6102 (emphasis added). Contracts covered by Section 6102 are those greater than $5 million and more than 120 days in duration. Id. at § 6103.

Thus, Congress has now mandated that the FAR shall be amended to require covered federal contractors and subcontractors to timely notify the government of "violations of Federal criminal law or overpayment in connection with the award or performance of covered contracts and subcontracts." What remains unclear is exactly what impact this congressional directive will have on the rulemaking process for FAR Case 2007-006 and possible follow-on FAR cases to define what constitutes a "violation" or "overpayment," who is to be notified and how and when that is to be done. These are critical questions that must be answered for implementation of the new FAR rule. The current version of FAR Case 2007-006 was published for additional comment on May 16, 2008. 73 Fed. Reg. 28407. Comments may be received until July 15, 2008.

While it is possible that the proposed FAR rules in FAR Case 2007-006 may be issued as currently configured, it is also possible that they may be revised still further, or that FAR Case 2007-006 may never issue as a final rule and some other FAR case will be issued. Given the congressional directive of H.R. 2642, however, some rule requiring some level of mandatory reporting of something relating to criminal law violations and overpayments for government contracts and subcontracts must issue within 180 days of enactment of the June 30, 2008, Supplemental Appropriations Act. When that FAR rule does issue, not only prime contractors, but subcontractors, will have mandatory reporting obligations.

This impending rule requirement follows on other recent initiatives, notably FAR Case 2006-007. [See, e.g., "New FAR Rule Requires Contractors, Both Large And Small, To Establish Code of Business Ethics," Buchanan advisory dated December 11, 2007]. The FAR rules issued in the final form of FAR Case 2006-007 mandate that covered contractors and subcontractors establish a contractor code of business ethics and conduct, compliance program, audits and display hotline posters, for covered contracts and subcontracts issued on or after December 24, 2007 (FAR Case 2006-007, 72 Fed. Reg. 65 873ff). Given the impending requirement to affirmatively disclose under H.R. 2642 and the new FAR compliance program requirements mentioned above, it is important that covered contractors and subcontractors implement a working compliance program. Companies that obtain covered contracts and subcontracts will need to ensure their compliance with the rules within very tight timeframes. For example, one of the new rules, FAR 52.203-13, provides that covered contractors and subcontractors have a written code of business ethics and conduct in place and distributed to employees within 30 days of contract award and establish a compliance awareness program within 90 days. If you want to learn more about Congress' recent action, these new final and proposed FAR compliance rules, or need assistance with the revision or implementation of your compliance program, please contact us.