New Defense Contractor Self Reporting Requirement Working Too Well

As one of the reforms passed in the last year of defense contracting was a requirement that a company self report themselves to the Department of Defense’s Inspector General (DOD IG). Previously any person could report a possible violation protected by whistle blower law as well as sub and prime contractors could report on each other. This new requirement is for a company to report themselves if they feel there is an issue.

According to the program manager at the DODIG there have been over fifty reports since the rule went into affect. The majority of these concern issues with billing and have been handled administratively. Several have been turned over to various investigative agencies for review. There are lot of different ways for a company to get into trouble.

The DODIG points out the program is working but has required an expansion of their staff to handle the case load. It seems that companies are erring on the side of caution using their lawyers to handle reporting rather then doing it directly themselves. They are also including rather piddling things like mis-billing that was not corrected properly or an employee not charging their time correctly. These are normally done administratively by the company after self detection or through an audit by the Defense Contract Audit Agency (DCAA).

The cost of complying with this new rule has yet to be calculated but it is an additional one. This will increase overhead and reduce the profits of companies. Obviously though a major violation may lead to a ban from working or a fine which is a significant detriment to business, but it is clear companies are spending money to identify small faults and report them to the IG. The more that are reported the more the Government needs to spend to process and investigate them. The DODIG says it is already hiring more staff and DCAA and the Justice Department as well as the Services may also have to do this.

Another problem that companies face is that if they fail to report and the Government finds out then they could face serious penalties. This alone will motivate corporations to report issues. This is an added cost to them in legal fees alone as well as in other personnel costs in accounting and HR. For companies that rely on services alone the possible problems with charging to the right contract or line number becomes even more important.

In the end the real test will be how much money this saves the Government or improves the contracting process. If it does end up costing companies a great deal and it seems if they are going to report every possible violation then it will then it might drive some from the defense business due to the burdens of rules like these. It also might add just enough cost to make doing this kind of work not profitable.

As with all of these major changes it will take some time to see the effect to the industry and whether it is one that works when properly and fully implemented. Unfortunately like many of these rules it is something that a company has to do in order to get any work from the Government and really has no choice but err on the side of caution. It highlights yet another difference in this and the commercial sector.