Procurement Fraud: An Unused Keapm
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The statute at 18 U.S.C. 5 218* pmvides in Wrtinent part that:
. . . The President or, under regulations pEscribed by him, the head af any depmment .. . may declare void and rewind any contract . . . in relation to which there has been a ha1 conviction for any violation of this chapter, and the Umted States shall be entitled to recover in addition to any penalty prescribed by law or in a contract the mount expended. . . .3
Under this statute, once there has been a bribery or conflictd interest conviction in which a particular government contract has been identified as tainted by the criminal %heme, the Mesident or. if he delegates this poaer, any head of any executive department or agency could by an administrative declaration void the contract tainted with the bribery or conflict of interest. Once the contract has been declared void and has been reseinded, the Government "shall be entitled to rec o ~ r . .
. the amount expended."4 11. THE POWER TO VOID AND RESCIND A CONTRACT
This statutory pmvision gives tremendous power to the Executive Branch, in that through its application, the Government is authorized, by carrying out an administrative act, full recovery on a contract that is tainted by bribery or conflict of interest. There would not be a need to expend time and effort in costly and uncertain litigation in order M gain ajudgment fuing the measure of damages in a procurement fraud scheme.i Such a concept of fuing damages without resort to the eout system IS extraordinay Congress was aware that this statute was an innovative measure, but considered it necessaly to deter bribery and corruption in the government contracting pmcess. Congress stated in
.IdsComplex prwurement fraud ma- usuall) involve yean of litigation Far an example. QIO the Alre~Haruard Fraud Litigation (eanrohdated mabj), CinI No. W-71 (D D.C 1 This ease eoneerni fraud m the ~ranvemenf of roeket launchera for the Naiv The eom-
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it8 Senate Repn that "this Section , . , has no statutory counterpart at present tune.''B
Additionally, this power to void a contract gives nen possibilities to federal departments or agencies to combat fraud. Under 18 U.S.C. 5 218, the executive depanment or agency which receives this delegated power from the President can control the timing and amount of the contract recovery. The Section 218 proeeaa is purely administrative. This means that the agency or department involved is not dependent upon the Department of Justice or one of its United States Attorneys to institute or successfdly prosecute a civil suit to recover damages on the contract.' The agency controls the decision to void the contract and the amount of the recovery through its administrative process. This process would be far quicker than reliance on litigation and would be more responsive to the priority, direction of emphasis, and needs of the agency involved.
111. THE ADMINISTRATIVE PROCESS
The administrative process contemplated in the operation of Section 218 is quick and simple. If there has been a final criminal eonvietion of bribery or conflict of interest' rvith regard ta a govement contract, then the head of the department or agency possessing the delegated Section 218 power may declare the contract void and rescind it. The statute states that, at the time of the voiding of the contract, the Gar-ernment "shall be entitled to recover" the amount expended on the contract.g Therefore, the contractor's liability to refund all sums paid on the contract is fixed by the administratire operation of the statutelo
BS. Rep. No 2113. 81th Cong , 2d Sess at 16 (1962). repnnted at [18621 C S Code 'There could. however. still be the need for reeourie to the court witem to edoree Cong. & Admm Sers 3863
nesa to Institute a &rll suit ag&it the contractor I" the judicial district where the contractor could be rerred u?Ch pmeas.
IS 8mply the miding of the eontram by the agency head
and not by a judicial determination after lenghy litigation. .4a discussed above, the court system may be used for enforcement purposes if the contractor refuses to return "all amounts expended" after demand by the agency head.
The issue of due process for the contractor and the feasibility of a hedng a8 part of the administrative process will undoubtedly arise. The process includes the rights to notice and a hearing for the cantractor caught in the bribery or conflict-of-interest situatm that may lead ta the operation of Section 218. In many instances where Section 218 may be applied, the contractor involved may have already furnished acceptable goods or sewices under the contract that is being considered for voiding under Section 218. If the contract is Yoided and the department or agency head demands back from the contractor all manies expended on the contract, what is the legal effect of this action upon the oumership of the goods or services already delivered to the Government? Tne answer is unclear. However, this ownership issue does make it clear that the requirements of due process &e., proper notice of a hearing) should be satisfied in the administrative process pnor to a final Seetion 218 decision by the department or agency head.
AE a basic pnneiple, the Constitution provides that ". ..private property shall not be taken for public use, without just compensation."ll In the instance of the voiding of a procurement contract by a federal department or agency head, the contract (with its liabilities and nghts) ceases to exist by the operation of a statute.'l Upon the appiopnate administrative decision and demand, the Goxzernment is entitled to recover all monies the Garernment paid an the contract. The Government, however, may have custody or posaesaion of goods, or may have received services as a result of contract performance. Should the Government also declare that these goods and services shall be forfeited free of charge to the Gorernment, in a manner similar to the sei-zure and forfeiture penalties currently in force in the cu8toms cantra-band confiscation area? The pre8ent writer thinks not.
4 better approach would be to include m the admmistrative process proper notice and opportunity for a hearing prior to the final decision of the department or agency head in the exercise of his Section 218 power. At this heanng the contractor could argue not only the appropriateness of the invocation of Section 218 against his contract, but
I'U S Cansr amend 5 j218 C.S C 3 118 11976)
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also for reduction of the amount he must return to the Government by the fair and reasonable value of the goods and sewices rendered, on the theory of panhLm meruit.
Such a hearing could head off possible due process claims arising out of a Section 218 voiding. Further, it would satisfy the dictates of the Fifth Amendment by affording the contractor an appropriate administrative forum in which he could seek recovery for the value of the goods and services the Government received from contract performance prior to voiding. In such a hearing, evidence of the value of the goods and services would be presented by the contractor for inclusion wlth the Section 218 recommendation of the responsible &aff office prior to the fonvarding of the entire file to the department or agency head. Additionally, other factors could be introduced at the due proc- es8 healing to further reduce the amount to be recovered from the Co"tractor.'3
Under such a procedure it would be possible for the departmental or agency head to determine administratively not only whether to void and rescind the contract at issue, but also, based upon a full record, to determine on an equitable basis the amount that the Government should demand back from the contractor. The amount demanded may be "all amounts expended' on the contract by the Government, minusthe value of goods or services that the department or agency...
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