DoD Seeks Enhanced Authority to Withhold Funds from Contractors

by Saul Ewing Arnstein & Lehr LLP
Contact

In Brief

  • The U.S. Department of Defense wants to step up its efforts to fight fraud by lowering the threshold for it to withhold payments to contractors who are suspected of bribery.
  • The proposed changes to federal law underscore the importance of a strong compliance and anti-fraud program for those contractors.

Maintaining a robust compliance program to avoid accusations of bribery is as important as ever for defense contractors as Congress considers granting the U.S. Department of Defense (“DoD”) greater authority to fight contract fraud.

The DoD has asked lawmakers to amend a law that governs its ability to withhold funds from contractors. The proposed changes to 10 U.S.C. § 2207 would give the DoD the authority to withhold contractual payments based on preliminary notice that a contractor improperly bribed or attempted to bribe a U.S. government official.

Current law may provide the DoD with an implied right to withhold funds upon preliminary notice of a bribe, but there is no federal court ruling explicitly confirming the existence of that right, the DoD contended. As such, the DoD pointed out, “the United States could be required to make contractual payments to a malfeasant contractor while the proceeding required by Section 2207 is underway, even if the United States knew that the contractor would immediately disburse all payments received on its government contract, potentially even to employees or owners personally responsible for an illegal gratuity.” If that were the case, the DoD stated, once the procedures established the occurrence of the bribe, there would be no funds left for the DoD to recoup.

Under the DoD’s proposal, contractors will be subject to withholding of funds due to possible bribes at an earlier stage than they currently are. And because the current system leaves open the possibility that the contractor could exhaust all funds before the DoD has the chance to recover them, the new system could result in greater recoveries from contractors.

The proposal also establishes that for the DoD to withhold funds based on the suspicion of a bribe, it must meet the standard of preponderance of the evidence. The DoD pointed out that it already applies this standard in such situations, and that incorporating it into the governing law will result in more consistent application of the law. Contractors also will gain “a clearer understanding of their rights” with this change, the DoD contended. In addition, the proposal establishes that the DoD must provide contractors notice before withholding funds on a contract.

Another change the DoD proposed is to establish a fraud-fighting fund within each military department. Under the proposal, all damages that the DoD collects under the provisions discussed above would be deposited in the fraud-fighting fund of each relevant department.

Currently, when the DoD collects those damages, they are deposited into the U.S. Treasury as “miscellaneous receipts” and are not then available for use by DoD departments until they are appropriated through the legislature.

Under the proposed system, the DoD would retain the funds and use them to strengthen and broaden its efforts to combat government fraud. The DoD proposal does not specify the concrete actions that it would take using the recovered funds, but any further anti-fraud efforts could impact the business of any government contractor.

The DoD made these proposals as part of a slate of requests to Congress in connection with Congress’ consideration of the 2014 National Defense Authorization Act (“NDAA”). The yearly NDAA provides funding for all DoD programs, but is also often used to make changes to DoD’s authority and procedures. The proposed NDAA was approved by the House Armed Services Committee on June 6 without the DoD’s proposed changes regarding contractor fraud, but it must still be passed by the full House of Representatives, and the Senate must consider and approve it as well. That process is expected to take months, and the DoD’s proposal may still be added to the legislation as lawmakers continue to work with it.

Written by:

Saul Ewing Arnstein & Lehr LLP
Contact
more
less

Saul Ewing Arnstein & Lehr LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.