Government Procurement: Civil Fraud and Debarment for Non-Disclosure of [Offshore] “Outsourcing”
Posted September 14, 2010 by Bierce & Kenerson, P.C. · 
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Many companies provide services to the U.S. government. Directly and indirectly, government contractors must disclose extensive information in their bid documents. Under a draft U.S. law, such bids would need to disclose whether the bidder has a history of “the laying off of a United States worker from a job, and the hiring or contracting for the same job to be performed in a foreign country.”
Under the draft “Stop Outsourcing and Create American Jobs Act of 2010”, introduced by Rep. Jerry Cranwell (D., Calif.) on June 29, 2010, all Federal government departments and agencies would be required to request each bidder for a Federal contract to provide information regarding whether the offeror engaged in “outsourcing” during the fiscal year preceding the fiscal year in which the contract is to be awarded. The bill attacks the restructuring of government suppliers who terminate the employment of a United States worker from a job and hire (or contract for) the same job to be performed in a foreign country.
The bill would punish bidders by debarment from future Federal government contracts and impose criminal fraud penalties under 18 U.S.C. 1001 (false statements to the Government).
Analysis. This bill requires disclosure and imposes civil debarment and criminal liability for non-disclosure. The disclosure relates to a lawful act of laying off a U.S. worker followed by a lawful act of hiring a foreign worker.
Comity and Reciprocity. Public International Law is built upon reciprocity and “comity.” “Comity” represents a respect in one country for the reasonable internal actions in another country for matters that have potential dual impact in both countries. This draft legislation is patently nationalistic, protectionist and xenophobic. On a reciprocal basis, an American worker would have no chance of replacing a foreign worker employed by a foreign employer where the foreign employer provides goods or services to a foreign government. Such legislation risks serious harm to American workers by foreign adoption of similar laws where foreign labor is replaced by American labor.
Multilateral and Bilateral Commitments. As a legal matter, a law that violates U.S. international commitments may be valid under local law but engage the international responsibility of the United States under a prior binding international convention. This law would punish American government contractors for practices that are protected under the WTO General Agreement on Trade in Services (“GATS”) and possibly the WTO Agreement on Trade-Related Investment Measures. Similarly, the U.S. would be in breach of its bilateral duties under NAFTA.
Bill of Attainder. This faces U.S. Constitutional challenge as a Bill of Attainder under Article I, Section 9. A “bill of attainder” was a law that banned a person because of some inherent status or the exercise of some freedom, right or privilege that is generally available to all citizens. It is a legislative declaration that a person or group of persons is guilty of some crime and punishing them without benefit of a trial. In such, the draft law would have the same effect as debarring contractors who fire U.S. workers for any lawful reason, such as a shortage of work, or such as the employee’s abuse of the employer’s computer system or use of office equipment for conducting a sideline business during off-hours.
Business Process Transformation. The draft legislation does not define what is the “same work” that is being done offshore. In many cases, globalization occurs because the functions and roles are changing to use new technologies, to access new markets and to obtain new skills. As in other cases of “follow the work,” the question is not just work, but organizational design, workforce planning (such as for knowledge workers) and marketing (getting closer to the customers). The draft law invites artificial determinations that offshored work is the “same” and omits any definition of “sameness.”
Hidden Agenda: Compiling a Little List. Since public procurement procedures are accessible to the public in the United States, the draft legislation invites inquiry into its effects. If enacted, the draft law would allow the Government to compile a list of all Government contractors and subcontractors (to the infinite level) who had done any “outsourcing” in the prior 12 months. Such a list would then be used for political purposes to harangue any enterprise “guilty” of such lawful behavior. Companies that are indirect subcontractors would face the same reporting, compliance, perjury and debarment risks.
Instead of outlawing “outsourcing,” the draft legislation would outlaw those who wrongfully deny that they outsource (under 18 USC 1001) and create a political stigma for actions that are not illegal. This is reminiscent of the frenzy and abuses of the anti-Communist witch-hunt of Senator Joe McCarthy in the 1950’s.
A simpler legislative solution would be to ban “outsourcing.” Of course, such a ban would be so offensive (and contrary to national commitments under NAFTA, WTO and bilateral treaties) that it would never pass. But, certainly, no offense could be taken by an innocuous bill to prevent frauds and plan a smear campaign.
Strengthening American Employability. It is regrettable that such defective and ill-conceived legislation does not address the core issues of American employability, such as education, language skills, competitiveness and use of technology to improve the human touch. In fact, in the tax-haven segment of this same draft bill, the test of whether a foreign jurisdiction is a tax haven (justifying anti-deferral and other retaliatory treatment) includes some factors that the Congress should consider for promotion of American employability, such as ”Incentives which may encourage a United States corporation to invest abroad rather than domestically.” H.R. 5622, Sec. 2 (111th Cong., 1st Sess.).
There are other methods of aiding job losses from outsourcing. A legally valid solution would require re-examination of American global commitments and a balancing of benefits and burdens, including enforcement of WTO violations. Such enforcement actions are at the discretion ofthe President and not congressional legislation.