Overzealous criminal investigations abound
- By Stephen M. Ryan
- May 13, 1996
Everyone supports prosecution of a crook in the public contracting community--whether
it is a corporate official who offers envelopes of cash or a public official who, while
making big decisions about a contract, asks a would-be contractor for a job.
But I see too many inappropriate and overzealous criminal investigations of government
and industry people involving investigative tools and power more suited to busting La Cosa
Nostra than your local software buyer or seller.
Often a services contract may expire before completion of an extension. During an
interregnum between the contracts, contractors may continue writing software code, for
example, with the knowledge and acquiescence of government officials. When the second
contract is signed, the contractor bills the agency for the labor and other costs incurred
during the hiaitus.
An auditor may spot the unusually large invoice and call in the investigators. I know
of at least two cases where the result was a multiyear criminal investigation of the
contractor's "false claim" and a conspiracy investigation directed at the
government officials who processed the invoice. Neither case resulted in an indictment,
but they cost the public and private officials involved their reputations and attorneys
Another of my favorites is the criminal investigation related to obscure
"pull-in" Federal Acquisition Regulation clauses. Recently, government
investigators have discovered FAR 52.216-7, a clause incorporated only by reference in
most contracts. It requires prime contractors to pay their subcontractors on time. Then
and only then can primes bill the government, it says, contrary to commercial practice.
In one case, an overworked accounting department at a growing company got sloppy and
paid a quarter of its subcontractor invoices late, ranging from a few hours to several
days. The department was in the wrong, of course. Primes should pay subs on time, and we
should punish the few who deliberately put the float on the backs of the government in
contravention of the pull-in clause.
But in this case there was no evidence that payments were deliberately delayed to avert
a cash flow problem. It was simply sloppy procedure. The result was an investigation that
damaged the career of the chief financial officer whose overworked staff screwed up.
The government demanded treble damages, if not criminal pleas. The company settled for
the imputed interest owed and a small fine, but the government is pressing harder in more
recent cases. There is a question of judgment and proportionality here. In truth, the
behavior involved was not criminal. It was a contract violation.
Let's switch gears and look at investigative techniques--specifically, search warrants.
To prevent government contractors from destroying evidence concerning contracts, as many
as 60 criminal agents have descended at dawn with a moving van, taking all of the tons of
corporate records, computers, disks and so on that support business operations. Sometimes
the local TV stations are tipped off so that the pre-dawn drama can be replayed at 5, 6
and 11 p.m.
The use of search warrants in government contracts cases, in the absence of product
substitution concerns or a basis for believing evidence will be destroyed, is a waste of
resources and an abuse of authority.
Once such a search warrant is executed, investigators and prosecutors seem unusually
vested in seeking a criminal plea. Also, the defendants may find it hard to reconstruct
any complex financial transactions because their records and their computers are in some
In this age of photocopiers, backups and databases, you couldn't destroy all the
records if you tried. Ask Ollie North. He tried to get rid of his paper and e-mail at the
White House but failed dismally. Handing a corporation a subpoena is punishment enough,
and attorneys representing such companies do everything possible to make sure there's no
obstruction of justice. Let's save the search warrants for the Norths of the world.
Another technique subject to abuse is sending government agents to visit government or
contractor employees at their homes in the evening. Imagine you are a GS-13 by day and at
home helping with your children's homework when the FBI or agents of the inspector general
come to the door and want to ask you some questions.
The agents will tell you they do this because people are more forthcoming away from
their workplace. Baloney. They do it because it rattles people's cages and because no
lawyer is around to be consulted. Afterwards, your spouse and children may never look at
you the same. No one, government or industry employee, should agree to an interview under
these circumstances. Let it take place in the office during business hours.
Some of the imbalances in the criminal investigative process are structural and even
Criminal investigations are a necessary part of ensuring Uncle Sam isn't ripped off.
But government authorities should use discretion in deciding whether a contract issue
deserves criminal investigation or prosecution.
In my next column, I'll suggest what to do if you find yourself in a contracting
situation that could involve criminal charges, and I'll discuss the policy issues it
Stephen M. Ryan is a partner in the Washington law firm of Brand, Lowell &
Ryan. He has long experience in federal information technology issues.