As Washington focuses on Barack Obama’s other troubles, the president is on the brink of committing a significant good deed for working people and taxpayers. He intends to change the rules for a very privileged business sector–the scofflaw federal contractors who live off public money yet routinely flout laws and social standards. They do so by abusing their workers and violating wage-and-hour laws, trashing environmental standards, failing to pay their federal taxes–cheating their best customer, the government, in obvious ways.

Punishing federal contractors may sound like inside baseball, but it speaks to the larger outrages in government and private enterprise. POGO, the Project on Government Oversight, has kept score on contractor misconduct for many years and campaigned for serious reform. Some very big names–and huge sums of money–are involved. Military contractor Lockheed Martin tops POGO’s list of "worst 100 contractors," with $34.2 billion in government business and a record of fifty instances of civil, criminal and administrative misconduct. ExxonMobil, General Electric, Boeing, Honeywell and others are close behind.

Government tolerates the misbehavior and looks the other way. The worst that might happen is a trivial fine. Confronting companies with the risk of losing federal contracts because of their misconduct has real potential, beyond the arms manufacturers. Over time, it could alter the pattern of destructive corporate behavior across many sectors. The construction industry is notorious for violating workers’ rights and labor laws. So are the firms that manage vast federal real estate and exploit the underpaid workers who clean office buildings. That’s why the service workers union, SEIU, joined POGO and other reform groups like the Center for American Progress to push the issue.

Banking is also vulnerable because it needs federal approval to hold the vast deposits of the government–trillions in cash flow from taxation and spending programs. (Years ago, when banks were first told to obey equal opportunity requirements, the sudden increase in black tellers was remarkable.) Universities are major federal contractors too. The University of California is on POGO’s worst 100 list, with twenty-five instances of misconduct. So is the University of Chicago.

Obama’s serious intentions are confirmed by the fierce lobbying opposition mounted by industry front groups (a battle first reported by Steven Greenhouse in the New York Times). The White House is preparing a new set of procurement regulations that will require government agencies to push back against contractor misconduct in two ways.

First, reform would create the basis to kick out the worst actors–repeat offenders who regularly cheat the system and get away with it. Their low-road behavior often wins the bidding for contracts, but this ultimately dumps greater costs on taxpayers because the low-wage workers typically wind up on food stamps or Medicaid.

Second, Obama wants to alter the terms of competition for government contracts by awarding points to high-road companies for their exemplary behavior–paying decent wages and faithfully observing the law. Procurement officers would be required to weigh the overall behavior of bidders in determining who gets the contract, assuming there is no significant difference in cost.

This approach has enormous potential to undo many of the destructive strategies that corporate managers have adopted during the last generation, such as boosting profits by cutting corners on quality and squeezing workers. Many cities reacted by adopting living-wage standards for public employment and found this did not drive up contract costs appreciably. Maryland enacted a statewide living-wage law and found that it opened the way for higher-quality companies to join the bidding. They drove away the low-wage bottom dwellers. In the best-case scenario, the Obama reforms could turn out to be a first step toward establishing a living-wage requirement for some $500 billion in federal contracts.

But hold the celebration. Making federal contractors responsible for broader obligations, like obeying the law, has great long-term possibilities, but the outcome is not yet secure. The business lobbying is intense. Like so many battles in Washington, this one will be resolved in the fine print of the new regulation, which, as we go to press, is still being drafted by White House gnomes in collaboration with federal agencies like the General Services Administration.

Congress has chewed on this issue for some years but never found the nerve to act. Last year, it came closer when many politicians were determined to punish ACORN for alleged transgressions. Because the allegations were unproven, Congress had to word the measure broadly. But this would have nailed corporate miscreants too, so the sponsors hastily retreated.

In any case, Obama does not need Congressional approval. As president, he has the authority to set new procurement standards by executive order. Contractors who claim otherwise will have to sue. So Obama will be tested again by this question: is he willing to use the government’s powers to advance an important reform, or will he settle again for expressing vague good intentions? We will not know until we read the fine print.