Feds pick up legal bills for contractors

By Pete Yost, Associated Press Writer, 12/29/2003

WASHINGTON -- The Energy Department spent $330 million in taxpayer money to reimburse its private contractors for legal bills over a 5 1/2-year span, including for lawsuits they lost and settlements of sexual harassment and whistleblower allegations, congressional investigators reported Monday.

The department said the reimbursements were legal and that it scrutinizes each legal bill before deciding to pay. But a key congressman said the reimbursements amount to a "get-out-of-court free" card for contractors who engage in wrongdoing.

"When a contractor for the DOE gets sued, 95 percent of the time its legal fees and settlement costs get reimbursed by the federal government," said Rep. Edward Markey, D-Mass., a member of the House Energy and Commerce Committee.

The Energy Department is somewhat unique among federal agencies because private contractors run so many of its facilities, including national defense labs and former sites where nuclear weapons production activity took place.

The department's reimbursements came in 1,895 cases from late 1997 through March of this year, according to a report released by the General Accounting Office, the investigatory arm of Congress.

There were 814 cases involving workers compensation, 268 on equal employment opportunity, 100 from whistleblowers, 99 stemming from personal injury, 50 on wrongful termination of employment, 40 on radiation and different types of toxicity and 524 on other matters, the GAO said.

Of those, 563 cases are pending, including 290 on workers compensation and 56 on equal employment opportunity, the investigators reported.

The University of California is one of the department's contractors, operating three labs including the one at Los Alamos, N.M. Drawing fire from Markey, UC has in some cases invoked the 11th Amendment providing for state immunity from lawsuit by a private party in federal court.

"UC identified eight out of about 35 federal cases where it invoked immunity," the GAO report stated. "Two were dismissed without further litigation because of this argument."

"Officials at the University of California estimated that the university, in its role as a DOE contractor, has asserted other immunity-related defenses in at least 62 of about 137 cases, predominantly to defend against punitive damages," the GAO said.

Markey said that underwriting the costs of defending against lawsuits provides little incentive for Energy Department contractors to act within the law.

Markey said that one case of contractor reimbursement involved a $1 million jury award to a woman who sued Lawrence Livermore National Laboratory for wrongful termination. She had testified in a sexual harassment case on behalf of other lab workers.

One expert disagreed with Markey.

"You would expect in any large-scale operation like this to find a fair number of personnel actions, workers comp claims and the like," said Steve Schooner, co-director of the government procurement law program at George Washington University law school.

Schooner said the Energy Department's rules on reimbursing contractors' legal bills are actually more stringent than those at the Pentagon and at the National Aeronautics and Space Administration.

The Defense Department and NASA do not have specific criteria prohibiting payments involving willful misconduct by management, lack of good faith or failure to exercise prudent business judgment, according to the GAO report.

And Markey said DOE's criteria that prohibit payments apply only to "senior managers," a term he says the department defines so narrowly that it excludes all but a tiny handful of contractor employees.

Another procurement expert, Charles Tiefer, a professor of government contracting at the University of Baltimore law school, said it's time for the government to revise its requirements on reimbursing company legal costs.

"While you'd expect all corporate managements to spend lavishly on their legal self-defense, only a few have the privilege of using a key to the Treasury, namely generous 100 percent cost-reimbursement contracts, to make the taxpayer foot the bill," said Tiefer.

Schooner says "there's a certain zero-sum game aspect to all of this. If one of these contractors performs only government work and we refuse to reimburse them for a legitimate cost of doing business -- which many legal costs are -- then we've put them in an untenable position where they're operating at a loss."

The Energy Department pays all reasonable litigation costs in most cases. It does not pay when the contractor is liable under the False Claims Act. Even when the contractors prevail, the department pays a maximum of 80 percent of reasonable litigation costs in a False Claims Act case.

"Where DOE contractors are found liable for their activities, we make sure that our contracts are properly written to reflect what current regulations are," department spokesman Joe Davis said.