Mon, Mar 24, 2008 (2:06 a.m.)

Last year the Justice Department issued new rules requiring government contractors to notify federal officials of any evidence that contract abuse or fraud worth $5 million or more might be occurring.

Reporting potential fraud or abuse was voluntary until the Justice Department’s new rules made such reporting mandatory. But just before the rules went into effect, Bush administration officials quietly slipped in a provision that specifically exempts from that requirement companies with contracts for work to be performed outside the United States, the Associated Press reports.

Democrats on the House Oversight and Government Reform Committee have given the White House until April 4 to explain how and why the exemption came to exist. If Bush administration officials refuse, the committee may subpoena the information.

The federal government has spent more than $102 billion on rebuilding projects in Iraq and Afghanistan over the past five years — a period in which the Justice Department has uncovered at least $14 million in contract bribes in those efforts, the AP reports.

Those criminal acts don’t include the hundreds of millions that have been wasted by contractors who rendered poor services or failed to provide the services for which they were handsomely paid. One company actually billed the government $110 million for providing housing, food and other services at U.S. military installations that had been closed.

Not surprisingly, the exemption has the support of trade association officials and lobbyists who work on behalf of the companies that have overseas contracts with the U.S. government. These supporters include KBR and Blackwater USA — two companies whose multibillion-dollar federal contracts for failed or shoddy rebuilding efforts in Iraq have become almost synonymous with contractor abuses.

The White House should be forced to reveal how the very contractors whose criminal behavior prompted the Justice Department to issue the new rules ended up being exempted from them. But knowing how and why this loophole came into being doesn’t close it, and Congress should do that as well.