PRINCIPAL CONCERNS REGARDING H.R. 2554

Mr. Chairman, you asked the Department of Defense to review H.R. 2554 and to identify specific problems. Before doing so, I emphasize the Department's concern with the general approach. We doubt that the bill would achieve its purposes. It would be a large administrative burden to manage, it would impose substantial additional costs on the already expensive procurement process, and it would deter qualified persons from entering service with the Department of Defense.

The comments that follow are keyed to specific provisions of the bill. In light of our view that recently enacted legislation (DOD Authorization Act, 1986, PL 99-145) obviates the need for additional legislation at this time, I will not suggest any specific language revision for this bill.

Section 2. CONFLICT-OF-INTEREST IN DEFENSE PROCUREMENT.

(a)

This

or

LIMITATIONS ON ACCEPTANCE OF COMPENSATION. section would forbid any government contractor from employing a "former officer or employee of the Department of Defense a former or retired member of the Armed Forces" who had "significant responsibilities for a procurement function" related to that contractor within a two year period before departure from the government. The employment bar would run two years after separation from DoD service.

The bill does not define the term "significant

responsibilities for a procurement function." Even routine and menial tasks may come within its scope if they are necessary contract administration procedures. For example, approval of each individual voucher would be "significant" if this step must be completed before the government may forward payment to a contractor. In the complex world of government procurement it may not be possible to draft a definition that would adequately and objectively identify those persons barred from receiving compensation from each of the thousands of DOD contractors.

(b) LIMITATIONS ON CONTRACTORS. A contractor providing compensation to a former DoD officer or employee in violation of this provision would face a minimum fine of $100,000. The risk

of inadvertent violation of the Act would deter contractors from employing departing DoD personnel.

(c) REPORTING OF EMPLOYMENT CONTACTS.

This provision is very similar to one found in the Department of Defense Authorization Act, 1986 (Sec. 923, PL 99-145). We are in the process of implementing the requirements of that Act.

(d)

NOTICE TO OFFICERS AND EMPLOYEES LEAVING DOD SERVICE. It may not be possible to give each departing DoD officer and employee a list of all of the contractors from whom they are prohibited from accepting compensation. While some persons performing procurement functions may deal with only a handful of contractors, the vast majority, during any two year period, will be involved with hundreds of contractors.

Contract files, contract administration files, audit files and similar procurement-related records ordinarily reveal the identities of some of the government employees performing a related "procurement function," but current government record retention rules provide for their destruction soon after the conclusion of final contract close-out and postperformance audit periods. Because these documents would provide the major source of the government's necessary enforcement information, however, under H.R. 2554 large amounts of bulky records would have to be stored.

Even this vast expansion of the record retention system would not reliably document the participation of a large segment of affected employees. Unless an entirely new bureaucracy were established specifically to record the name of every contractor as to which each DoD officer and employee performed a proscribed "procurement function," and unless such records were maintained on each employee for the full period of his or her disqualification, there are no present means available to make all of the necessary determinations called for by the bill. Records that currently are kept by contractor name or contract number would have to be duplicated in a parallel system under the names of DOD officers and employees. Instead of improving the procurement process, as intended, implementation of the legislative proposal would add a huge, costly, paperwork burden.

Individuals who are conscientious in their desire to avoid any possibility of violating the letter or spirit of this bill may need to keep voluminous and varied personal records concerning contracts that passed through their offices. For most persons handling acquisition duties for the government, the paperwork burden would be enormous. In addition, notwithstanding the two year pre-departure rule, the records would have to be kept for the current two year period during an entire career of

twenty or more years. While some people may know when they have begun the last two years of their employment, most cannot be certain of that date. Programs are subject to cancellation. Employees may lose their jobs through reductions in force or because of changes in personal circumstances. Thus, the recordkeeping would be a continuing requirement throughout the

entire career.

(d) CONTRACTOR REPORTS. This annual reporting requirement for contractors would be an expensive addition to overhead costs. The time and effort required to compile the report will be reflected in costs to the government. There are also limitations on the value of the reports themselves. Contractors will be able to identify those persons who came from government service. However, the individual job applicant or employee will be the source of all of the other information required for the annual reports. Contractors may be reluctant to risk liability when the information can only come from parties in interest. The burdens imposed by this requirement may give those contractors additional reasons to avoid hiring former DoD personnel.

The information included in these reports will largely duplicate that required from individual contractor employees by the Authorization Act requirement (Sec. 923).

(f) REVIEW BY DIRECTOR OF OFFICE OF GOVERNMENT ETHICS. We defer to the Director, Office of Government Ethics, for analysis of the merits of this provision.

(g) COVERED POSITIONS. This bill includes within its ambit an extremely broad class of positions. It would be an extensive and complicated administrative burden to identify all of those positions each year. If the authority given to the Secretary of Defense permits the annual publication of criteria for selection, rather than the individual positions themselves, the statutory requirement will be somewhat less onerous.

(i)

ADVISORY OPINIONS FROM OFFICE OF GOVERNMENT ETHICS. This provision would impose a significant workload on this Department. The ability of the Director of the Office of Government Ethics to respond adequately to requests for opinions will be affected by the quality and timeliness of data he requests from this Department. Compilation of such data, in many cases, will involve significant commitment of time and resources. With respect to other aspects of this provision, as applicable to the Office of Government Ethics, we again defer to the Director.

(k) DEFINITIONS. Several of the definitions, when read in connection with the substantive provisions of the bill, result in coverage that may be wider even than that contemplated by its sponsors. Before enactment of this bill it would be imperative that the terms be defined with more precision or, if the interpretations suggested below are not consistent with the intent of the drafters, that appropriate statements of the purpose be added to the bill or be explained in a committee report or statement on the floor.

Two examples will illustrate problems with the definitions:

(1) "Compensation." This term includes money "provided directly, indirectly, or through a third party. This would appear to preclude a former DoD official who is subject to the limitations from selling to the contractor. For example, he could not sell gasoline to the contractor for use in its trucks. He could not sell goods to a third party that might be resold to the contractor.

(2) "Contractor." The outer limits of this term are vague inasmuch as it includes "any parent, subsidiary, or affiliate thereof." The definition would appear to preclude employment with second or third tier subcontractors. A violation would

appear to arise if a former DoD official subject to a postemployment bar was employed by a firm that became a subsidiary or affiliate of the contractor subsequent to his employment.

CONCLUSIONS

It is the position of the Department of Defense that H.R. 2554 is unnecessarily broad and should not be enacted. Provisions recently enacted in the DOD Authorization Act were directed toward elimination of abuse in the acceptance of postgovernment employment. The elaborate safeguards and reporting procedures developed in that legislation should be tested for a reasonable period of time before additional postgovernment employment impediments are added. The unnecessary multiplication of remedies may so encumber the system as to interfere with sound management practices. There are reasons to believe that substantial costs associated with the implementation of this proposal would more than offset any savings in procurement dollars.

Mr. GLICKMAN. Thank you very much.

Our next witness is Mr. David Martin, Director of the Office of Government Ethics.

I might mention for our witnesses we may have a rollcall right at 11 o'clock. We may have to adjourn for a few minutes.

Mr. Martin, it is a pleasure to have you here. As I told the previous witness, your entire statement will appear in the record, if you want to summarize.

TESTIMONY OF DAVID H. MARTIN, DIRECTOR, OFFICE OF GOVERNMENT ETHICS, OFFICE OF PERSONNEL MANAGEMENT Mr. MARTIN. Thank you, Mr. Chairman.

It is a pleasure to be here. I hope I can assist you in your deliberations regarding this very important part of Government, which I have been dealing with for almost 3 years, conflicts of interest and standards of conduct and problems associated with the ethics programs throughout the executive branch. In particular, I would like to say that this proposed legislation is, I think, ill-advised at this time in terms of the definitions contained in the proposed legislation, the administrative process that would be involved in carrying it out, and in view of the fact that there is a defense authorization act that has addressed some of the problems.

We just do not know the extent of the problem, the actual problem regarding conflicts of interest, post-employment conflicts of interest. Our reviews based on interviews with many defense installations do not reveal that present laws, that is, the administration of the present laws, to be a significant problem.

The problem that I think that Congressman Bennett and Congresswoman Boxer are concerned about-and it's well-meaning and a valid concern, and that is the appearance that is created when someone crosses sides. Under present law, that is not criminal, you don't have a criminal violation when you switch sides; it's only when you come back and try to do representational activity in various forms. There are certain bars from lifetime to 1 year. The problem is when someone crosses sides and everyone in an installation or at a military base knows that that person is intimately familiar with the procedures and the technical requirements of a contractual program, that that kind of thing can affect morale. We have found in isolated instances, as shown in my statement, that that has occurred.

In fact, the ethics programs, not at headquarters in the Department of Defense but in the various uniform services and various military installations throughout the country, the procedures and the processes for preventing conflicts of interest, for education and training are in place and effective. In fact, they were in place, I would say, even before the Ethics Act was passed in 1976. You had ethics counselors in the Department of Defense.

So, I really think that we are concerned here with appearances. Isolated instances have dramatically, especially at high levels, have focused your attention and the attention of the public on those apparent conflicts.

We have been, in my office, concerned about education and training ever since I became Director, and before me. We have carried