June 12, 2013 Articles

Federal Contractors Face Increased Risk of Suspension and Debarment

What suspension and debarment are, why you should be concerned, and what to do about it.

By Jason M. Silverman and Felicia C. Quentzel

Suspension and debarment are two tools that allow federal agencies to exclude certain companies or individuals from receiving federal contracts, subcontracts, loans, grants, and other types of federal assistance. Suspension is a summary process that can be imposed during the pendency of an investigation. Prior notice is not required to suspend a contractor as long as the contractor is promptly advised of the suspension and afforded an opportunity to oppose the suspension within thirty days. Debarment renders the contractor ineligible for federal contracts for a specified period of time not to exceed three years. It may be imposed after a contractor has been issued a notice of proposed debarment and afforded an opportunity to oppose it.

Exclusion is a risk in any procurement-fraud-related matter, as agencies have broad discretion with respect to their suspension and debarment authority. Suspension and debarment are possible consequences of both civil and criminal matters and can be imposed on both individuals and corporate entities. Grounds for suspension and debarment, however, go beyond procurement-related matters, and may be imposed even where the individual or company has not been found criminally or civilly liable.

Suspension and debarment are authorized whenever an agency official determines that the contractor’s conduct affects its “present responsibility.” See, e.g.,48 C.F.R. § 9.406-2(c). To be considered responsible, federal contractors must: (1) have adequate financial resources; (2) be able to comply with the delivery or performance schedule; (3) have a satisfactory performance record; (4) have a satisfactory record of integrity and business ethics; (5) have the necessary accounting and operational controls; (6) have the necessary equipment and facilities; and (7) be otherwise qualified and eligible. See 48 C.F.R. § 9.104-1. Any allegations of fraud, noncompliance, or that otherwise call into question a contractor’s ethics or compliance could lead to suspension or debarment. Contractors may oppose exclusion by demonstrating that they are presently responsible.

Each federal agency has its own suspension and debarment office. Suspension and debarment are, however, reciprocal: Either action by any agency has government-wide effect. In addition, virtually all agencies with responsibility for federal procurement and non-procurement transactions participate in the Interagency Suspension and Debarment Committee (ISDC), through which they share information and collaborate on suspension and debarment matters. Each agency involved in the ISDC has an individual responsible for overseeing that agency’s suspension and debarment program.

The consequences of suspension and debarment can be severe for a government contractor. However, these remedies are not intended to be punitive. Rather, their intent is to protect the public by safeguarding against “irresponsible” contractors doing business with the government. In addition, the specter of suspension and debarment is intended to have a strong deterrent effect against contractor misconduct and fraud.

Why Government Contractors Should Be Concerned
Increased political pressure, better collaboration, and more powerful debarment tools have spurred an increase in federal agencies’ use of suspension and debarment. As reported by the ISDC, the numbers of contractors suspended, debarred, or proposed for debarment has increased markedly over recent years. In August 2011, the Government Accountability Office (GAO) published a report criticizing several agencies’ suspension and debarment programs and calling for greater government oversight. Around the same time, agencies’ suspension and debarment practices were examined in House and Senate committee hearings. Subsequently, in December 2011, Congress enacted the Consolidated Appropriations Act of 2012 (Pub. L. No. 112-74, 125 Stat. 785), which provided for automatic debarment in certain instances. Pursuant to this act, designated agencies were prohibited from using their 2012 appropriated funds to enter into a contract or provide a grant or loan to any corporation that had been convicted of a felony within the preceding 24 months. Importantly, corporations were exempt from this provision if a designated agency had considered suspending or debarring them, but determined that such measures were not justified.

There is, therefore, an increased likelihood that a contractor will face suspension and debarment issues at some point. Moreover, those issues may arise sooner rather than later (i.e., during the pendency of an investigation rather than after its conclusion), as agencies push back against the “conventional wisdom” that agency suspension or debarment actions should await the conclusion of a civil or criminal proceeding.

What You Can Do About It
In responding to a civil or criminal investigation, government contractors must be mindful of the fact that the agencies with which the contractor does business might contemporaneously be seeking suspension or debarment. To the extent that they do not already possess it, those companies and their counsel may wish to seek additional guidance from practitioners who have expertise in these areas. At a minimum, as with other enforcement matters, the contractor’s existing compliance programs should be carefully reviewed and, where appropriate, improved. This is particularly important in suspension and debarment matters. While compliance improvements can mitigate a contractor’s risk in enforcement matters relating to past conduct, they can never fully eliminate that risk because they do not nullify the past wrongdoing. When assessing the contractor’s present responsibility, however, they are very important.

Contractors or their counsel should also consider when and how to engage with agency suspension and debarment officials to address allegations and demonstrate the contractor’s present responsibility. As agencies become more adept at collaborating and sharing information, the proper timing for this conversation may turn out to be sooner rather than later. Early engagement with suspension and debarment officials can provide contractors an important opportunity to tell their side of the story, ideally before agency officials have formed their own opinion of the company’s responsibility (which may or may not be accurate). It can also itself demonstrate a degree of responsibility by showing that the contractor recognizes and shares the agency’s concerns and is committed to remediating the problems that led to them.

Attorneys experienced in enforcement matters are accustomed to having multiple balls in the air at once with parallel civil and criminal proceedings. Suspension and debarment are hardly new, but increased emphasis by agencies on those remedies more reliably adds another ball to the mix. Increased willingness to take steps to impose these remedies while civil or criminal proceedings are pending accelerates the timeline on which they must be considered in the course of defending a government contractor. Anticipating suspension and debarment issues and taking early steps to address them are a key aspect of defending clients in procurement-fraud-related matters.

 

Keywords: criminal litigation, suspension, debarment, exclusion, federal contracts, present responsibility, 48 C.F.R. § 9.406-2(c)

 

Jason M. Silverman is a partner and Felicia C. Quentzel is an associate at McKenna Long & Aldridge LLP in Washington, D.C.


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