B-221099 February 18, 1986

B-221099: Feb 18, 1986

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Bills similar to S.1658 have been introduced. The agencies are generally required by statute to request that the Department of Justice bring legal action to collect claims not recoverable through normal administrative debt collection procedures. /2/ For a variety of reasons. Several of the provisions of S.1658 are similar to those of S.209 and other related bills introduced during this and the previous Congress. Competition in the selection of law firms. (3) It should address the compensation to be paid to the law firms. at least by establishing a general standard that will assure that the Government pays no more for these services than private sector creditors pay. (4) It should require that the United States retain Ultimate decision- making authority with respect to dispute resolution.

B-221099 February 18, 1986

The Honorable William V. Roth, Jr. Chairman, Committee on Governmental Affairs United States Senate

Dear Mr. Chairman:

This responds to your letter of October 21, 1985, which requested our comments on S.1658, 99th Congress, the administration's bill to authorize Government agencies to refer debts owed to the United States to private legal counsel for the institution of legal action.

During this Congress, as well as during the previous Congress, bills similar to S.1658 have been introduced, and GAO has commented on several of them. Most recently, we responded to your request for comments on S.209, 99th Congress. In those comments B-212528.2, Sept. 23, 1985), we noted that during the 98th Congress, the Department of Justice endorsed the basic concept of the legislation. /1/ We stated that we generally agreed with the comments that Justice Department made at that time, and that we supported implementation of such legislation along the lines originally suggested in the Justice Department's testimony. In addition, we included a number of specific suggestions.

As we observed in our previous comments, we of course favor improving the Government's ability to collect its debts. At the present time, most agencies cannot bring legal action on their own, or retain outside counsel to do it for them. Instead, the agencies are generally required by statute to request that the Department of Justice bring legal action to collect claims not recoverable through normal administrative debt collection procedures. /2/ For a variety of reasons, this process has not proved as efficient or effective as might be hoped for. /3/ We believe that, properly supervised, the use of private counsel, paid on a contingency fee basis, can be a useful and profitable complement to the collection tools currently available to the United States under the Federal Claims Collection Act of 1966, as amended by the Debt Collection Act of 1982. For this reason, we support enactment of this type of legislation.

Several of the provisions of S.1658 are similar to those of S.209 and other related bills introduced during this and the previous Congress. With respect to the similarities, we reiterate the comments we recently provided to you on S.209, and enclose a copy of those comments for convenience of reference. However, S.1658 differs from S.209 in several important respects which, in our opinion, make it a less desirable alternative.

In our view, legislation designed to authorize the retention of private counsel to litigate debt collection cases for the Government should include the following elements:

(1) It should clearly distinguish between the litigative services to be provided by the law firms under the proposed legislation, and other collection services which may presently be obtained from debt collection contractors under 31 U.S.C. Sec. 3718(a).

(2) Consistent with the policy of the United States in the procurement of goods and services generally, it should provide for, or at least encourage, competition in the selection of law firms.

(3) It should address the compensation to be paid to the law firms. at least by establishing a general standard that will assure that the Government pays no more for these services than private sector creditors pay.

(4) It should require that the United States retain Ultimate decision- making authority with respect to dispute resolution, compromise, termination of collection action, and the initiation of legal action. This authority can be lodged in the agency to which the debt is owed, in the Department of Justice, or perhaps be apportioned between the two based on the amount of the debt, as is the case for administrative collection under the Federal Claims Collection Act. It should also make clear that resort to private counsel is to supplement, not replace, the agencies' overall debt collection programs .

(5) It should address how and when counterclaims against the united States may be filed if private counsel bring legal actions in state courts.

(6) It should include reporting requirements sufficient to enable the Congress to meaningfully evaluate the program's operation.

The remainder of this letter discusses the above elements in greater detail.

DETAILED COMMENTS

1. Services to be Obtained

The bill would amend 31 U.S.C. Sec.(s) 3718 and 3719 by adding the new substantive authority to those sections as subsections (e) and (a)(1)(G), respectively.

The proposed new 31 U.S.C. Sec. 3718 18(e)(1) would authorize the Attorney General to enter into' contracts with "private counsel" in order to obtain "collection services, including representation in negotiation, compromise, settlement, and litigation." Use of the term "collection services" rather than "legal services" suggests a potential overlap with 31 U.S.C. Sec. 3 718(a), which we think is undesirable and is at variance with the language of S.209. The services to be provided by private counsel under this proposed legislation are, by definition, different from those to be provided by debt collection contractors under 31 U.S.C. Sec. 3718(a). The examples given "negotiation compromise, settlement, and litigation.)' as well as the nature of the contractor (that is, "private counsel. as opposed to "debt collectors.) show that the term "legal services. is more appropriate. (We note that subsections (e)(3) and (e)(5) also use the term "collection services.")

While only attorneys and law firms would be authorized to provide "legal services. under this new authority, we point out that nothing would preclude agencies from also contracting with attorneys and law firms to obtain debt collection services under the existing provisions of 31 U.S.C. Sec. 3718(a). An agency could, for example, award a single attorney or law firm contracts to provide both kinds of services. The reason that non- lawyer debt collectors may not also be awarded both kinds of contracts is that under the laws, court decisions, and bar association rulings of many states, debt collection contractors may not provide legal services to creditors, act as intermediaries between lawyers and their clients, or split fees with attorneys located for the creditor, without engaging in the "unauthorized practice of law.. (See, e.g., 15A Am. Jur. 2d Collection and Credit Agencies Sec.(s) 5-9 (1976); Annot., 27 A.L.R. 3d 1152 (1969); Annot., 151 A.L.R. 781 (1944); Annot., 125 A.L.R. 1173 (1940); Annot., 111 A.L.R. 19 (1937)). Unless Congress wishes to explicitly override state law in this area, we recommend that this distinction be preserved.

2. Competition

Unlike S.209, S.1658 makes no provision for competition in the selection of private counsel. On the contrary, proposed subsection (e)(1) of S.1658 would provide that the selection of private counsel pursuant to this legislation is to be committed solely and completely to the discretion of the Attorney General. To do this, the bill exempts the selection process from the provisions of the Federal/Property and Administrative Services Act of 1949 (40 U.S.C. Sec. 471 et seq.), the Contract Disputes Act of 1978 (41 U.S.C. Sec. 601 et seq.), and the Federal Acquisition Regulation (48 C.F.R. Sec. 1.000 et seq.). /4/ It also precludes review of the Attorney General's selection process by any court or administrative body.

When S.1658 was introduced, this provision was justified, in part, on the need for "prompt implementation of this new authority, ensuring that the choice of counsel is not delayed by litigation brought by disappointed bidders." 131 Cong. Rec. S1170 (daily ed. Sept. 18, 1985) (Section-by- Section Analysis"). We certainly favor prompt implementation of the legislation upon enactment. However, we are not convinced that total exemption from competition and from administrative and judicial review is an appropriate means to accomplish this, and in any event think this is too high a price to pay to avoid a relatively slight potential delay in implementation. More importantly, the exemptions would apply not just through the initial implementation period, but also through the full life of the law. Thus, the remedy clearly exceeds the "ill" which this provision would cure.

Just as subsection (e)(1) would commit the selection of private counsel to the Attorney General's sole discretion, subsection (e)(4)(A) would commit the termination of contracts to his sole discretion, and expressly preclude judicial review of those actions. In the same vein, proposed subsection (e)(4)(D) would commit the resolution of disputes between the agencies and private counsel to the unreviewable discretion of the Attorney General. We do not view contractual relationships between private attorneys and the Department of Justice being essentially different than any other contracts for professional services. Accordingly, in our view, the same procedures, including administrative and/or judicial review, ordinarily utilized for procurements of professional services should be used here.

3. Compensation

Unlike S.209, S.1658 does not contain a provision limiting fees payable to private counsel to the prevailing rates in the private sector for similar types of legal services in that geographic area. A provision of this nature is essential to assure that resort to private counsel will be both a productive and a cost-effective supplement to the administrative collection process.

4. Decision-Making Authority

Unlike S.209, S.1658 does not contain a provision addressing the authority of agencies to delegate to contractors the power to resolve disputes concerning the amount or existence of the claim, compromise the claim, terminate collection action, or initiate legal action. In our opinion, any legislation to authorize the use of private counsel should specify that the contracts with private counsel require the agency heads to retain this authority. This requirement is necessary in order to assure that the Government retains ultimate control over the handling and disposition of its claims, as well as control over the private counsel who would represent it. Of course, a requirement to retain this authority does not mean that the agency must always exercise it on a case-by-case basis. An agency could, for example, refer a claim, or perhaps a group of claims, to private counsel with instructions that it may accept a compromise offer above some stated minimum. Our concern is that agencies be ultimately responsible for setting the criteria which govern the disposition of the Government's claims. Agencies should not be able to simply delegate this type of authority across the board.

Proposed section (e)(2) would also provide that the heads of agencies, "subject to the approval of the Attorney General, " may refer claims to private counsel who have contracted with the Attorney General. When S.1658 was introduced, this provision was characterized as intended to allow agencies to refer claims to private counsel directly, without the participation of the Attorney General. 131 Cong. Rec. S1170 (daily ed. Sept. 18, 1985) (Section-by-Section Analysis.). Nevertheless, the language of the bill itself is unclear, and could be read to require the Attorney General's approval for the referral for litigation by private counsel of each and every claim. Moreover, the bill states in its opening clause that it is to "permit" the Attorney General to retain Counsel for the litigation of select debt collection cases. " Such a reading would largely defeat the reason for the legislation. It is our view that legislation to authorize the use of private counsel should clearly provide that once the Attorney General has entered into contracts, actual case referrals normally will be made directly by the various agencies. We thus agree with the intent as stated in the Congressional Record. What ever form the legislation may take should reflect this intent explicitly.

Along similar lines, in our previous comments we stated our assumption that the use of private counsel would be an additional element of the agency's overall debt collection program, not a substitute for timely administrative collection efforts; and that referrals would be made in accordance with guidance to be provided in the Federal Claims Collection Standards' 4 C.F.R. ch./II (1985) (which are the regulations jointly promulgated by GAO and Justice to implement the Federal Claims Collection Act of 1966, as amended). We have also suggested previously that it might be desirable for the legislative history to point this out.

5. Counterclaims

Normally, the United States would not sue or be sued in State courts. However, legislation of this type suggests the prospect that private counsel might bring suit in state courts. We think this may be a desirable result. However, the bill does not address a significant set of issues that would immediately arise were that to occur. We recommend that any legislation concerning the use of private counsel include a provision concerning whether and how counterclaims against the united States may be filed and adjudicated in actions brought by private counsel before non- Federal tribunals. Language for such a provision (as well as a detailed discussion of the legal basis for it) was proposed to you in our enclosed comments on S.209.

Our suggested provision concerning the filing of counterclaims would make clear that when suit is brought in a state court, both private counsel and the Justice Department must be served with counterclaims filed in those actions. In addition, it would assure that the proper Federal officials are served in a manner which conforms to modern Federal practice, and resolves a number of relatively small but essential details. These include service by mail versus personal delivery; service on Federal officials, agencies, and corporations named as parties; and service of counterclaims attacking the validity of actions or orders by agencies or persons not named as parties, etc.

6. Reporting Requirements

This bill would amend 31 U.S.C. Sec. 3719 by adding a new subsection (a)(1)(G) that would require the agencies to transmit an annual report to OMB and the Treasury which in turn would report to the Congress concerning the "number and total amount of claims [for each program or activity] referred to private lawyers under contract to furnish collection services and the total number of claims and the total amount collected " We do not believe that this very brief provision will provide the Congress with information sufficient to enable it to meaningfully evaluate the effectiveness of the use of private counsel, or its implementation by Justice and the various agencies. Subject to the changes that we proposed in our recent comments to you, we prefer the much more comprehensive reporting provisions set out in S.209.

CONCLUSION

In conclusion, we find that S.1658 does not adequately address many of the issues that we think should be addressed in legislation of this type. Meeting these concerns would require revising S.1658 to incorporate many provisions which are already included in S.209. We therefore believe that S.209, as refined by our proposed changes, offers a superior and simpler means to this end.

We appreciate the opportunity to comment on this proposed legislation and are available should you need further information or assistance.

Sincerely yours,

Milton J. Socolar Comptroller General of the United States

Enclosure

1. Dept. of Justice, Statement of Assistant Attorney General J. Paul McGrath on Amendments to the Debt Collection Act [of 1982], before Senate Comm. on Governmental Affairs, Subcomm. on Energy, Nuclear Proliferation, and Governmental Processes (July 21, 1983).

2. The Department of Justice presently does have the discretion to permit the retention of outside counsel to represent the United States in the collection of claims. See 28 U.S.C. Sec. 543 (1982). However, it has not done so, despite the 'problems indicated in investigations by OMB and the Congress. See OMB Debt Collection Project, Report on Strengthening Federal Credit Management at 76-84 (Jan. 1981); 129 Cong. Rec. S10616 (daily ed. July 21, 1983) (statement of Senator D'Amato).

3. For a more detailed discussion of the background and need for legislation of this type, see our recent comments on S.209 B-212528.2, Sept. 23, 1985), a copy of which is enclosed.

4. We assume that the word "only. on line 13 of page 2 of the "Star Print" of the bill is a typographical error.