Efforts to streamline the federal procurement process continue with H.R. 1038, the “Federal Acquisition Reform Act of 1995” (the Reform Act). If enacted, the Reform Act would make significant changes to the Procurement Integrity Act, 41 U.S.C. § 423, by eliminating current unwieldy certification requirements, removing duplicative restrictions on offering employment to federal procurement officials, and clarifying the prohibitions against disclosing procurement related information. For the most part, these changes are step in the right direction, since they reduce administrative burdens and simplify present complex restrictions.

The most significant change contemplated by the Reform Act is the elimination of the onerous certification requirements in the current law. 41 U.S.C. § 423 now requires contractors (and certain subcontractors) to certify that (i) either the contractor has no knowledge of any violations of the Act or has disclosed all information concerning any potential violations, and that (ii) all employees who participated personally and substantially in the preparation or submission of a proposal have certified to the contractor that they are familiar with and will comply with the Act, and will immediately report to the contractor any violations or potential violations.

The Reform Act would eliminate all of these certification requirements. As a result, all of the recordkeeping and other administrative burdens associated with the certification requirements would be eased.

The Reform Act would also remove the current prohibitions against offering employment or business opportunities, gratuities, or other things of value to federal acquisition personnel during the course of federal procurements. However, federal acquisition personnel would still be subject to similar restrictions that are contained in other laws and regulations. For example, the Disqualification Statute (18 U.S.C. § 208) and the Standards of Conduct applicable to all federal employees (5 C.F.R. part 2635) prohibit federal employees from participating in procurements that could affect the financial interests of any entity with whom they are negotiating employment. (The regulatory Standards of Conduct were explained in the last issue of Insights.) Also, the offer or acceptance of bribes and gratuities is prohibited by 18 U.S.C. § 201.

The Reform Act would delete current restrictions prohibiting former government personnel, for a period of two years, from participating, on behalf of prime contractors and first and second tier subcontractors, in negotiations or the performance of contracts related to procurements in which they acted as procurement officials.

Nevertheless, former government officials would still be subject to the “revolving door” restrictions of 18 U.S.C. § 207, which impose: (i) a lifetime bar against engaging in representational activities, which include negotiating contracts, in matters in which they were personally and substantially involved as government employees, and (ii) a similar two-year bar pertaining to matters that fell within the scope of their official duties. The revolving door restrictions, however, place no restrictions on former federal employees’ participating in the performance of a contract, so long as they do not submit claims, lobby or engage in other representational activities.

The Reform Act would repeal a number of laws specifically limiting the ability of military officers and Defense Department employees to obtain employment with contractors with whom they had contact while in government service. The Reform Act would repeal the following:

10 U.S.C. § 2397 which requires former military officers and Defense Department employees to submit to the Defense Department reports concerning their employment with defense contractors for two years after leaving government service;

10 U.S.C. § 2397a which requires certain defense officials and military officers to report employment related contacts with or by defense contractors as to which they performed procurement functions and to disqualify themselves from participating in matters relating to such defense contractors;

10 U.S.C. § 2397b which prohibits former defense officers and employees for two years from accepting compensation from contractors as to which they performed procurement functions or negotiated contracts or claims;

10 U.S.C. § 2397c which prohibits contractors from paying compensation to any person if the acceptance of such compensation would violate 10 U.S.C. § 2397b; and

18 U.S.C. § 281 which prohibits retired military officers for a period of two years from representing contractors in negotiating contracts or prosecuting claims against the military department in which such persons are retired.

As contemplated by the Reform Act, the revised Procurement Integrity Act would be limited to restricting the disclosure of procurement related information. Three limitations would be established:

1. Present or former federal employees and federal advisors with access to procurement information would be prohibited from knowingly and willfully disclosing contractor bid or proposal information or source selection information before the award of a federal contract.

2. All persons would be restricted against knowingly and willfully obtaining contractor bid or proposal information or source selection information before the award of a federal contract.

3. All persons would be forbidden to violate knowingly and willfully the terms of a GAO or GSBCA protective order by disclosing or obtaining contractor bid or proposal information or source selection information related to the procurement.

The prohibition against violating GAO or GSBCA protective orders is an entirely new restriction designed to put teeth into the enforcement of such orders. Protective orders currently are not effective deterrents against improper disclosure because they provide no practical sanctions against unscrupulous attorneys or contractors who violate them.

To enforce GAO or GSBCA protective orders, contractors whose proprietary information is improperly disclosed must now file lawsuits alleging misappropriation of trade secrets, but such suits are expensive, and contractors may have difficulty establishing anything but nominal damages. The Reform Act, as shown below, subjects violators to severe criminal and civil sanctions, without requiring any demonstration that the disclosed information resulted in measurable harm to the contractor. The possibility of going to prison or paying heavy fines should give pause to anyone considering disclosing information in violation of a protective order.

In addition, the Reform Act specifically recognizes that contractors may lodge a GAO or GSBCA protest based on a violation either of a protective order or of the other disclosure prohibitions. Contractors must report to the agency the information they believe constitutes evidence of an offense within 14 days after the contractor first discovers the possible offense in order to preserve their right to file such protests, however.

The other disclosure restrictions in the Reform Act are similar to those contained in the current law, although the proposed legislation differs from the present Procurement Integrity Act in several important respects.

First, the Reform Act would eliminate the present confusing and ambiguous phrase “during the conduct of a federal procurement,” which defines the period of time during which disclosures are prohibited. The Reform Act would replace this phrase with a bright line rule, simply prohibiting disclosures “before contract award.”

The current term, “during the conduct of a federal procurement,” is defined as ending with the award, modification, or extension of a contract. This phrase often complicates negotiations of contract modifications and extensions, since contracting personnel may be reluctant to discuss their agency’s needs out of fear they would improperly be revealing source selection information. In contrast, the disclosure prohibitions of the Reform Act would not apply at all to contract modifications or extensions, and this change should help to improve communications between the contracting officer and the contractor about the agency’s needs during performance.

This change would also bring the law more in line with the Federal Acquisition Streamlining Act of 1994 (FASA), which requires the disclosure in debriefings of some information that is not disclosable before contract award. For example, FASA requires losing competitors to be advised of the ranking of their proposal and the overall ranking of all offerors, which is information agencies have commonly refused to disclose, citing the restrictions of the Procurement Integrity Act.

The phrase, “during the conduct of a federal procurement,” also often leads to confusion because contractors may not be aware just when a federal procurement has started. FAR imposes a duty on contractors to inquire whether a procurement has started before seeking any procurement related information, but that requirement simply complicates matters. The Reform Act would eliminate the need to determine whether a procurement has started, since, as explained below, it would narrow the information that falls within its scope and identify such information with particularity.

Contractors and contracting officers would no longer have to be concerned about whether a procurement has started, since they would know that certain types of information could not be disclosed at any point before contract award. At the same time, they would know that other types of information, absent from the statutory list, could be released even if a procurement had started.

This change should help to improve the procurement process, since contracting personnel should feel freer to communicate with prospective contractors, especially during the critical time when specifications and solicitations are being drafted. Contracting officers, for example, could release draft specifications or solicitations at any time, since such information would not be listed as source selection information under the Reform Act. The current law prohibits disclosure of “source selection information,” which means information the disclosure of which the agency head or contracting officer determines would jeopardize the integrity or successful completion of the procurement and which is required by law to be secured in a source selection file. The Reform Act, however, would define “source selection information” with more specificity, as being:

• bid prices (before public opening);

• proposed costs or prices;

• source selection plans;

• technical evaluation plans;

• technical evaluations of proposals;

• cost or pricing evaluations of proposals;

• competitive range determinations;

• rankings of bids, proposals or competitors;

• reports of source selection panels; and

• other information the disclosure of which is determined, on a case by case basis by the agency head, his designee or the contracting officer as jeopardizing the integrity or success of the procurement and marked as source selection information.

This definition is consistent with the current definition contained in the FAR, with one difference. The present law does not require advance designation or marking of information, which, if disclosed, would jeopardize a procurement. However, the Reform Act appears to contemplate that contracting officers will determine in advance what information falls into this category, since they are required to mark such information as source selection information.

Such an approach is also suggested by the fact that the Reform Act states that source selection information does not include any information previously made available to the public or disclosed publicly. Such a provision precludes a retroactive determination that information already released constitutes source selection information.

The Reform Act also clarifies what contractor information is afforded protection. Under current law and regulations, disclosure prohibitions extend to “proprietary information,” which includes contractors’ cost or pricing data and all information submitted to the government that has been marked proprietary in accordance with law. The Reform Act would protect “bid or proposal information,” which it defines as follows:

cost or pricing data;

indirect costs and direct labor rates;

proprietary information about manufacturing processes, operations or techniques, properly marked as such; and

information marked as bid or proposal information.

The Reform Act does not define what information may properly be marked as “bid or proposal information,” but such information is likely to be essentially the same as that currently protected. Moreover, as is the case with source selection information, information that previously has been made available to the public or disclosed publicly would lose its character as non-disclosable bid or proposal information. Since the Reform Act specifically protects a contractor’s indirect costs and direct labor rates, it should preclude disclosure of the indirect costs and labor rates applicable to an incumbent’s contract. However, contractors should be aware that their unit prices which do not break out direct labor rates, indirect rates or profit rates may be considered releasable under the Freedom of Information Act.

The Reform Act would prohibit disclosures and violations of protective orders that are made “knowingly and willfully.” In contrast, the current law prohibits disclosures made “knowingly,” and renders disclosures criminal when they are also made “willfully.” The heightened intent requirement for any violation (whether or not criminal) should make agencies more cautious in determining administratively that violations actually or possibly have occurred.

The Reform Act does not define the term “willfully,” but as used in other statutes, such as the False Statements Act, that term likely would connote an intentional violation; that is, a disclosure made deliberately with knowledge that the information was bid or proposal information or source selection information.

Under the Reform Act, violations would be punishable by criminal penalties of one year in prison or a fine, or both. If the violation was done with the purpose of exchanging information for anything of value or to obtain or give a competitive advantage to a contractor, the maximum prison term would be increased to five years. Current provisions provide for imprisonment for five years for knowing and willful violations.

The Reform Act would substantially reduce the civil sanctions applicable under the current statute. Under the Reform Act, an individual would be subject to a $50,000 civil fine plus twice the amount of compensation received or offered for the prohibited conduct, and an organization would be subject to a civil fine of $500,000 plus twice the compensation received or offered. Presently, the Procurement Integrity Act permits civil sanctions of $100,000 for individuals and $1 million for contractors.

The Reform Act allows agencies to take appropriate administrative actions similar to those now available when they possess information suggesting a violation. As under the current law, if the violation occurs before award, the agency can cancel the procurement. If the contractor is convicted of a violation or the agency head determines, based on clear and convincing evidence, that there was an offense, the agency can rescind the contract and recover any amounts already expended under the contract. The current law does not allow the government to recover all amounts paid under the contract, but it does allow the government to default terminate the contract and deny the contractor any profit. The agency would also be able to initiate suspension and debarment actions, as it may under the present statute.

If enacted, the Reform Act will have an overall beneficial effect on the procurement process. By eliminating the complex certification requirements and overlapping restrictions on the employment of procurement officials, the Reform Act will greatly ease contractors’ administrative burdens. The Reform Act should also reduce some of the confusion inherent in the current restrictions of the Procurement Integrity Act. With clearer definitions of the information constituting bid/proposal and source selection information, contractors and government personnel can open more lines of communications without concern over running afoul of the disclosure restrictions.

It appears likely that Congress will take action this year to revise the Procurement Integrity Act along the lines set forth in the Reform Act. We will keep you informed as this bill moves through Congress.

Claude Goddard

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