Since the big rigging investigations of the '70s, the integrity of highway contractors has been an important issue for government officials. In the post-Enron era corporate integrity and business dealings are coming under even greater scrutiny. The federal government in general, and the U.S. Department of Transportation in particular, are focusing on contractor compliance with applicable laws and standards for performance. For example:
In May 2002, the second National Fraud Conference on Highway Construction and Public Transportation was held in Missouri. Sessions included discussions on kickbacks, DBE violations, organized crime, product substitution on federal-aid highway projects, procurement fraud, false claims and cost mischarging. Various officials from the U.S. DOT made presentations.
On July 22, 2003, the U.S. DOT inspector general testified before Congress on "Controlling Costs and Improving the Effectiveness of Federal Highway Administration and Federal Transit Administration Programs."
Neither the National Fraud Conference nor the inspector general's testimony were in response to the Enron and Worldcom scandals. However, those scandals certainly caused some government officials to believe corporations (contractors) are not trustworthy. As a result, I believe contractors are at greater risk today than in the last several years.
What you need to know
Contractor integrity in the public construction process is critically important. The government will only do business with contractors who are "presently responsible." Responsibility is a government contract law term of art that includes not only the ability to complete a contract successfully, but also with honesty and integrity. The government assesses honesty and integrity through, among other things, the contractor's certifications and representations.
Fraud on public construction projects can involve false statements, false claims, corruption-bribery, gratuities, bid rigging and conflicts of interest. Major fraud schemes on contracts include product substitution, accounting frauds and DBE fraud. A contractor found guilty or liable for contract fraud faces criminal, civil, contractual and/or administrative penalties. Administrative penalties can include suspension and debarment.
What you need to do
I have found many highway contractors have run themselves into problems not out of dishonesty, but rather out of ignorance of their obligations.
Contractors should consider adopting a formalized corporate compliance program. An effective program should address the following elements:
* An analysis of the risk of noncompliance;
* The structure for the compliance program;
* Standards of conduct;
* Train/educate employees; and
* How performance will be monitored.
What are the areas of specific concern for highway contractors? I believe the following are most important:
* False claims;
* Antitrust;
* EEO;
* OSHA/safety and health;
* DOT (trucking permits);
* DBE; and
* Environmental.
A detailed review of the law in all of the areas of the compliance program is necessary in order to achieve actual compliance with the current state of the law. Keeping current is obviously the chief concern.
How you should structure
There are no strict rules governing how your program should be set up. Each contractor is unique. However, irrespective of the size of your organization, an effective structure must include: (1) education and training; and (2) management and monitoring performance.
It is worse to have a compliance program that is ignored than to have none at all. As a result, contractors need to have executives make clear to all employees why the compliance program is an important part of the company's culture. Hopefully, making compliance a part of the company's culture will help avoid investigations and sanctions.
