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New rule: tax delinquents could face debarment.

Tax scofflaws could be suspended or debarred from federal contracting under a final rule to be issued this month.

Paul Denett, administrator of Federal Procurement Policy, said "tax delinquency" will be grounds for suspension or debarment. He testified Feb. 27 before the Government Management, Organization and Procurement Subcommittee of the House Oversight and Government Reform Committee.

Under current regulations contractors are required to report only indictments, convictions or civil court findings. A proposed rule published last year would also require reporting of delinquent taxes or unresolved tax liens over the past three years. (SAA, 4/6/07)

"The [final] rule will add conditions regarding violations of tax laws and delinquent taxes to standards of contractor responsibility, causes for debarment and suspension, and the certifications regarding debarment, suspension, proposed debarment, and other responsibility matters," Denett said.

He testified in opposition to the Contracting and Tax Accountability Act, H.R. 4881, which would make tax delinquency a ground for debarment. He urged Congress to wait and see how the rule works before enacting legislation.

The Government Accountability Office has reported that thousands of contractors owe billions of dollars in overdue taxes. (SAA, 6/24/05)

Denett said the Treasury Department collected $60 million in back taxes from contractors in 2006 by withholding portions of their contract payments.

He also urged Congress to repeal legislation that would withhold 3% of payments to contractors starting in 2011, as a way to insure tax compliance. He said any withholding provision should be "more carefully targeted on delinquent contractors." Industry groups have also called for repeal of the provision.

The procurement subcommittee is considering two other procurement bills, both touting "accountability," and both opposed by industry.

Government Contractor Accountability Act, H.R. 3928. The bill would require certain contractors to disclose the salaries of the company's five top executives. It would apply to companies that derived 80% or more of their revenue from federal contracts, and received $5 million or more in contracts during the previous year.

The sponsor, Rep. Christopher Murphy, D-CT, said publicly traded companies must file that information with the Securities and Exchange Commission, and privately held contractors should be subject to the same disclosure. He was incensed when the CEO of security contractor Blackwater USA refused to reveal his compensation.

Both the Bush administration and industry oppose the legislation.

Denett said the disclosure requirement "could have a chilling effect" on privately held small firms, and discourage them from entering the federal marketplace. "Those presidents of those private companies, they don't want their employees to know what they are making," he said.

He urged sponsors of the bill to raise the disclosure threshold to $25 million in contracts instead of $5 million.

He said companies receiving cost reimbursement contracts are already required to provide information about executive compensation, and he argued that the information is unnecessary for fixed-price contracts. "If it's a fixed-price one, we're just trying to make sure that the price is fair and reasonable, and we don't get involved with what the compensation is."

Murphy countered, "The thought behind this bill is that, in understanding what price is fair and reasonable, it would seem to be that the amount that is being taken off the top for ... compensation ... is a relevant piece of information."

Alan Chvotkin, executive vice president of the Professional Services Council, said, "A privately held company should not be punished for organizing itself in a manner that best suits its needs."

Contractors and Federal Spending Accountability Act, H.R. 3033. The bill would create a database of "information regarding civil, criminal, and administrative proceedings initiated or concluded by the Federal Government and State governments against Federal contractors." The sponsor, Rep. Carolyn Maloney, D-NY, said the database would help contracting officers determine whether a company is responsible.

Rep. Tom Davis, R-VA, objected to the inclusion of lawsuits or administrative actions that were still pending. "We're not talking about adjudications. We're talking about allegations," he said. "What we're talking about here really is the institutionalization of gossip."

Chvotkin said industry believes the information to be collected "is overly broad and unfairly links any proceeding against a company to an implication of bad behavior rather than solely for those where a judgment against, or admission of guilt, resulted."

Denett said he believes contracting officers already have sufficient information to determine whether a company is responsible. The government maintains a database of companies that are suspended or debarred; collects past-performance ratings; and maintains online representations and certifications.

Chvotkin said industry would not object to combining that information in a single database.
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Publication:Set-Aside Alert
Date:Mar 7, 2008
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