WASHINGTON - The Bush administration inadvertently exempted foreign contracts in Iraq from fraud oversight, a top administration official said Tuesday, resulting in a loophole that Rep. Peter Welch, D-Vt., said could have protected private firms that steal taxpayer money. The admission follows weeks of controversy surrounding the exemption's mysterious appearance in a new rule guiding contractors being paid billions for government work in the U.S. and in foreign countries around the globe.
The administration removed the single paragraph exemption on Monday, hours before a House panel convened a hearing to question officials about its origin and to debate legislation introduced by Welch to close the loophole and punish fraudulent contractors.
"We did not knowingly, thinkingly put in the exemption," said David Drabkin, the top acquisition officer at the General Services Administration. "The exemption language was a drafting error."
That didn't comfort Welch.
"What you're saying is this wasn't a conspiracy," Welch told Drabkin. "It was a mistake. Well, that's not reassuring to taxpayers."
The U.S. has spent about $102 billion on rebuilding Iraq and Afghanistan over the last five years. Federal investigators have uncovered about $14 million in fraud.
Welch publicized the exemption earlier this year after his office received a confidential tip.
Leading lawmakers concerned by the freshman Democrat's discovery quickly joined him in questioning the administration and scheduling the hearing Tuesday by the Subcommittee on Government Management, Organization and Procurement.
Drabkin said Welch and other lawmakers made a "horrible" allegation that the exemption was intentionally included. He said civil service employees made the mistake by copying language from another federal rule that included the exemption.
"I'm offended that the suggestion was made without a scintilla of evidence," Drabkin said. "The truth of the matter is they made a drafting error. They were in a hurry."
Welch, however, is skeptical of the timing surrounding the exemption's removal one day before the panel convened the hearing. He suggested the administration might have ignored the error to please private industry without congressional interference.
"I don't trust the Bush administration on this," Welch said after the hearing.
The Committee on Oversight and Government Reform could vote on Welch's loophole legislation as early as today, but administration officials and Republican lawmakers say it's unnecessary now the exemption has been removed.
The bill would require contractors aware of fraud, waste or abuse to report it to the Justice Department. Their companies could be barred from government contracts if they failed to do so.
The White House opposes the measure, saying proposed regulations would implement the same requirements as the legislation.
The Professional Services Council, a trade association that represents more than 300 contractors, like Blackwater Worldwide and KBR, for the former subsidiary of Halliburton, strongly opposes Welch's legislation.
The group also urged Congress to replace the exemption for foreign contracts, saying it threatens American companies working overseas with costly self-investigations for fraud.
Colleen Preston, an executive vice president for the group, said American contractors could be punished for fraud being committed by the foreign subcontractors they hire abroad.
"It is unreasonable and impractical to expect a company in Africa or the Middle East to understand and be able to comply with the procedural requirements we impose on U.S. government contractors," she said.
The group says companies can voluntarily report fraud. That won't work, said Barry Sabin, principal deputy attorney general for the Justice Department's Criminal Division.
The agency has prosecuted 46 contractors for fraud in Iraq, Afghanistan and Kuwait. A recent case involves a KBR fuel technician who allegedly accepted bribes to divert more than $2 million worth of fuel to the black market in Afghanistan.
© 2008 The Brattleboro Reformer