Administration says contracting fraud loophole was mistake

By: AP
By: AP

WASHINGTON (AP) -- Bush administration officials acknowledged Tuesday they mistakenly added a multibillion-dollar loophole to a planned crackdown on contract fraud, then urged Congress not to get involved in fixing it.

Instead, the officials said, they have removed the loophole - an exemption for overseas projects - from proposed rules that would force contractors to report misuse of taxpayer dollars to the Justice Department.

The loophole "was a drafting error, and we now have a draft proposed rule without that language in it," said David Drabkin, acting chief acquisition officer for the General Services Administration.

Testifying before a House Oversight and Government Reform subcommittee, Drabkin added: "We did not knowingly, thinkingly put in the exception. We have taken that exception out in the proposed rule. It got no real thought, it wasn't examined, it wasn't raised and it never went anywhere."

Democrats on the panel sounded dubious that the administration could ensure similar mistakes aren't made in the future.

"We cannot just sit back and ignore the problems," said Rep. Edolphus Towns, D-N.Y., who chaired the hearing. "To say legislation is not necessary, I can't quite accept that with the kind of money that's being spent."

At issue was a proposed rule that is aimed at curbing fraud in government contracts that cost taxpayers more than $400 billion annually. The government has spent more than $102 billion since 2003 on contracts in Iraq and Afghanistan alone.

The rule would penalize businesses that fail to report internal evidence of fraud in contract work.

The Justice Department said Tuesday it has charged 46 people in investigations over the past several years into kickbacks, bribes and other abuses of government-funded contracts in Iraq, Afghanistan and Kuwait.

The loophole, first reported by The Associated Press, was quietly added months after the Justice Department signed off on the proposal. It exempted overseas contracts from complying with the crackdown, alarming prosecutors, inspectors general and Democrats and Republicans alike in Congress.

On Monday, a new proposal surfaced that stripped the loophole from the rule.

Paul Denett, procurement policy administrator for the White House Office of Management and Budget, said he is "inclined to favor the elimination of exemptions for overseas contracts."

"We won't drop the ball," Denett told the subcommittee. "We do not need this legislation. Give us a turn at bat - you'll be pleased with the outcome."

"We'll be watching you," Towns responded.

Democrats have questioned whether the loophole was intentionally slipped into the rule at the behest of lobbyists representing major global contracting companies that make billions of dollars doing government work. At the hearing, Drabkin heatedly denied that.

"What you've said is that the fix wasn't in, this wasn't a conspiracy, it was a mistake," said Rep. Peter Welch, D-Vt. He introduced legislation earlier this month to eliminate the overseas exemption whether or not the Bush administration does so on its own.

"Yes, sir," Drabkin replied.

"Well, that's not reassuring to taxpayers," Welch said. "And we need a remedy."

Republicans on the panel appeared hesitant to meddle with the administration's policymaking. Rep. Tom Davis, R-Va., said the Welch bill "applies a blunt instrument to a process that requires delicate surgery."

As to the loophole, Davis said: "Once in a while you make a mistake. As we do, I might add, up here."

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