Corporate Governance

CONSTRUCTION FIRMS: Targets for Enforcement Initiatives (Part 2)


This article is a continuation of our most recent corporate governance series. If you missed part 1, you can read it online here: Construction Firms Part 1

Iraq, Katrina and the suspension of procurement rules

When awarding contracts, the government generally uses full-and-open competition procedures to protect taxpayers' interests and reduce the opportunity for fraud and abuse. This process generally involves the receipt of competitive bids for specific tasks, followed by a government evaluation of the bids and contract award based on defined criteria. Procurement regulations include limited exceptions where the government does not need to conduct full-and-open competition for contracts. One of these exceptions is for emergency situations.

When emergencies like Hurricane Katrina and reconstruction projects in Iraq arise, the government may not have, or may claim it doesn't have, sufficient time to conduct the normal full-and-open competitions for contracts. Although fraud, or errors of judgment or analysis may arise in the normal government contracting process, the possibility of mistakes or fraud are particularly high during emergencies. In these situations, stress is high and there is tremendous pressure to demonstrate that the government is doing something to address the crisis, even if, in hindsight, it could have been done better. Thus, to meet this pressure the government may suspend certain competition requirements to expedite awarding contracts for emergency goods and services. This is what happened with the Iraq war and Hurricane Katrina: Contracts were awarded without the usual safeguards. 4

As often happens in urgent situations, some unscrupulous contractors took advantage and padded bills, paid kickbacks to obtain work, provided shoddy goods or services, billed for goods and services that were never provided, and violated a host of other laws and regulations. In response, the government regulatory and enforcement agencies, in many cases spurred on by Congressional demands for scapegoats, have initiated investigations and enforcement actions. Some of these recent enforcement actions are described in this article.

Recent enforcement activities

There has been an increase in government contracting in recent years, including numerous contracts resulting from the war in Iraq and Hurricane Katrina. As typically found when contracting increases, the Government has also escalated its investigations into procurement fraud. Investigations generally include examining issues such as false claims, defective pricing or other irregularities in the pricing and formation of contracts, misuse of classified or other sensitive information, labor mischarges, accounting fraud, fraud involving foreign military sales and ethical and conflict of interest violations.

National procurement fraud initiative. Partially in response to Congressional inquiries and demands for anti-fraud activities, Deputy Attorney General Paul J. McNulty oversaw the creation of the National Procurement Fraud Task Force on October 10, 2006. The purpose of the Task Force is to strengthen the government's efforts to fight procurement fraud by identifying, investigating, and prosecuting "criminals who cheat the government." 5 The National Procurement Fraud Task Force includes the Offices of Inspectors General of the relevant agencies, working in tandem with the FBI, federal prosecutors, and other defense investigative agencies. The Task Force focuses on investigating potential fraud where it may have the greatest impact: defective pricing and other pricing irregularities, irregularities in forming contracts, product substitution, misuse of classified and procurement sensitive information, false claims, grants, labor mischarges, accounting errors, foreign military sales, ethics violations, conflicts of interest, and public corruption relating to procurement. 6

The Task Force is also focusing on developing effective strategies for preventing and detecting procurement fraud and sharing information on targets of investigations. For example, Task Force participants are using computer data-mining and other programs to uncover possible procurement fraud. They share techniques and information and, to a degree not seen before, are collaborating and coordinating investigations and prosecutions. Computer programs are being used to analyze all manner of data for trends and patterns.

Recently, the Task Force's efforts have resulted in a series of fraud and bribery cases against military and civilian personnel for their involvement in kickbacks using Iraqi reconstruction funds. Over 60 civil or criminal procurement fraud cases have been resolved or indicted since the Task Force was created. 7 Although all of these cases do not result directly from the Task Force's efforts, the Department of justice believes that "the creation of the Task Force has invigorated procurement fraud prosecutions." 8

IN NEXT WEEK'S ARTICLE, WE'LL CONTINUE THIS TOPIC BY DISCUSSING IRAQ, KATRINA AND THE SUSPENSION OF PROCUREMENT RULES...

Construction Firms - Part 3

Our thanks to this article's authors, Christopher Myers and Allison Feierabend of Holland & Knight.

Holland & Knight is a global law firm with more than 1,150 lawyers in 17 U.S. offices. Other offices around the world are located in Beijing and Mexico City, with representative offices in Caracas and Tel Aviv. Holland & Knight is among the world's 18 largest firms, providing representation in litigation, business, real estate and governmental law. Our interdisciplinary practice groups and industry-based teams ensure clients have access to attorneys throughout the firm, regardless of location. www.hklaw.com

Christopher A. Myers is chair of Holland & Knight's Compliance Services Team and a member of the firm's White Collar Defense Team. He is a former federal prosecutor and has experience in a broad range of complex matters affecting heavily regulated industries, including health care, government contracts, financial institutions, real estate, securities and other companies. He has represented clients with respect to matters involving civil and criminal fraud investigations, corporate governance, anti-money laundering, design and implementation of compliance programs, and administrative litigation. Mr. Myers is certified as an Anti-Money Laundering Specialist and as a Certified Compliance & Ethics Professional. chris.myers@hklaw.com

Allison V. Feierabend practices in the areas of government contracts and business litigation. Her government contracts experience includes bid protests, contract disputes, contractor claims, and counseling clients on diverse government contracts issues. Ms. Feierabend's protest experience includes a wide array of military and civilian agency procurements before the Government Accountability Office and United States Court of Federal Claims. Ms. Feierabend counsels large and small government prime contractors and subcontractors on a wide variety of procurement law issues including intellectual property and technical data rights, organizational conflicts of interest, Freedom of Information Act (FOIA) requests, the Berry Amendment, and flow-down clauses. allison.feierabend@hklaw.com

DISCLAIMER: This Corporate Governance article is provided as an informational resource and does not constitute legal advice. The information provided in this article is based on the laws in effect at the time the article was published. Laws related to this article's topics may change over the course of time. Visitors to this website should not rely upon or act upon this information without seeking professional legal counsel.

4 Testimony of David M. Walker, Comptroller General of the United States, before the Committee on Oversight and Government Reform, House of Representatives, February 15, 2007, page 10.
5 National Procurement Fraud Task Force website, available at http://www.usdoj.gov/criminal/npftf/http://www.usdoj.gov/criminal/npftf/
6 Id.
7 See id.
8 Statement of Barry M. Sabin, Deputy Assistant Attorney General, Criminal Division Department of Justice, before the Committee on the Judiciary, United States Senate (March 20, 2007), available at ;
http://judiciary.senate.gov/testimony.cfm?id=2598&wit_id=6179

 

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