To Disclose, or Not to Disclose: When Does Evidence Become �Credible?�
The Federal Acquisition Regulation�s mandatory disclosure provisions require contractors to timely disclose �credible evidence that a principal, employee, agent, or subcontractor of the Contractor� has committed either (i) �[a] violation of Federal criminal law involving fraud, conflict of interest, bribery, or gratuity violations,� or (ii) �[a] violation of the civil False Claims Act.� (Emphasis added).
In theory, this language appears straightforward and easy to follow. In practice, however, it can be difficult to determine whether a violation has occurred and whether the evidence of such violation is �credible.� The fact that neither the FAR councils nor the Courts or Boards have defined �credible evidence,� further complicates this inquiry.
Thus, when faced with evidence of potential wrongdoing, the prudent contractor is forced to walk the line between disclosing what could be nothing more than an unfounded allegation (and potentially subjecting the company to a costly and unnecessary Government investigation) or withholding the information and risk facing the very serious consequences of violating federal mandatory disclosure provisions and the many laws � such as the False Claims Act and the Anti-Kickback Act � enforced through the disclosure provisions.
The ways in which such evidence might present itself are as numerous as the ways in which the underlying laws can be violated and, sometimes, the disclosure decision is not that difficult. For example, a member of management might come across documents confirming that a rogue employee has engaged in a scheme of paying subcontractor employees less than the mandatory minimum Davis-Bacon wage rate, manipulating the certified payrolls to reflect the appropriate higher rate, and pocketing the difference. In such cases, the course is clear: a fraud has been uncovered, a disclosure is required, the problem must be corrected and the contractor must work with the Government to identify an appropriate penalty for the indiscretion.
But what if a member of management overhears a conversation between two project managers in which it appears that a subcontractor, despite mediocre past performance and the presence of local competition, is awarded significant follow-on, repeat work, suggesting a potential kickback? Or, perhaps, during routine contract closeout procedures, that manager comes across an invoice for the purchase of significant quantities of construction material manufactured in China, suggesting a potential violation of the Buy American Act? Or, perhaps, while attending a federal contracting seminar, what if that manager learns that the prime contractor is responsible for insuring that the Employment Eligibility and Verification regulation is included in qualifying subcontracts � and suspects that many of the company�s larger subcontractors have never enrolled in the E-Verify program? In such circumstances, the presence of a violation is unclear because the evidence of the violation is not necessarily �credible,� even though this �evidence� may be, and should be, worrisome.
If confronted with such facts, the most important first step is to act, and act swiftly. Unfortunately, for many of us, there is a stronger urge to avoid rather than confront such problems. Indeed, our optimistic tendencies would prefer such problems dissipate quietly and on their own, without anyone noticing. But despite how �un�credible (or incredible, for that matter) such evidence may be, it should not be ignored. An investigation should be commenced immediately for the purpose of assessing the credibility of the evidence and determining whether a violation of law requiring disclosure has in fact or potentially occurred.
If, at the end of this initial inquiry, the facts and circumstances suggest an impropriety of significant and/or unknown scope and magnitude, outside counsel experienced in conducting internal investigations should be engaged for the purpose of completing the investigation, documenting the results of the investigation and, ultimately, recommending to management whether the facts and circumstances require a disclosure.
This is not to say that outside counsel should be engaged immediately to conduct a companywide, top-down investigation based on a stray remark regarding potential preferences afforded to an underperforming subcontractor that may have been misunderstood or taken out of context. But in the present enforcement climate, the prudent contractor should hope for the best and prepare for the worst. This means, at a minimum, the contractor should confirm the context in which the remark was made with sufficient certainty to conclude there has been no violation of law, and document its efforts in reaching that conclusion. To do any less is to subject one�s company to significantly greater liability in the event that the stray remark turns out to be something more. Without a doubt, the expense and unpleasantness of a thorough internal investigation is far outweighed by the distress, anxiety and high cost to the company that would certainly result from Government investigators exploring why potentially credible evidence was swept under the proverbial rug.
On a related point: It is important to remember there is a significant distinction between evidence lacking in credibility and evidence one might consider to indicate � for lack of a better phrase � a �less serious� violation of law because it does not appear to result in direct financial harm to the Government. Compare, for example, the circumstance in which the manager overhears the mutterings of a disgruntled employee relating to alleged inefficiency on a Government contract, with clear evidence of carelessness resulting in an improper certification, such as those required by the Buy American Act, Davis-Bacon Act, or Prompt Payment Act.
For the former, the contractor might correctly conclude there is no need for a disclosure after an appropriate investigation and assessment of the facts and circumstances, notwithstanding the gravity of the allegation. For the latter, even if one might reasonably believe that the conduct in question did not result in direct financial harm to the Government, the language of the FAR�s mandatory disclosure provision leave the contractor little discretion in deciding whether to disclose a knowing violation of law. At that point, it is best to consult counsel, balance the options and, if appropriate, set upon a course of full cooperation and compliance.