Defense Bill Shows Importance of Ethics and Compliance Programs

By Joseph Corrigan and Caitlin Kaprove
On May 24, the Senate Armed Services Committee finalized its version of the National Defense Authorization Act for fiscal year 2013. The SASC version of the bill, which authorizes funding for the Defense Department and the defense programs in the Department of Energy, includes several key policy changes that will affect government contractors.

One change revises the Defense Department’s process for suspending or debarring contractors deemed not presently responsible to participate in government contracting.

The committee markup comes on the heels of multiple congressional hearings on perceived problems with government contractor performance. At one hearing held by the Senate Homeland Security and Governmental Affairs Committee in November, Committee Chairman Sen. Joe Lieberman, I-Conn., criticized agencies for using suspension and debarment “all too rarely,” and thereby permitting millions of dollars of waste, fraud or abuse.

Many SASC changes were influenced by the final report of the Commission on Wartime Contracting, an independent congressional body created to study wartime contracting in Iraq and Afghanistan. In its final report the commission advocated increased use of suspension and debarment for contractors and stated, “suspension and debarment can be powerful tools to protect the government’s interest in doing business only with contractors capable of performing their contractual obligations and maintaining acceptable standards of behavior.”

In this latest iteration of the act, the committee strengthened the Defense offices responsible for suspension and debarment. The suspension and debarment officials of the departments of the Army, Navy and Air Force as well as the Defense Logistics Agency now must be independent of acquisition officials and the Inspectors General. They must limit engagement to suspension, debarment and other fraud-remedies activities. They must document final decisions, and develop written policies to administer suspension and debarment.

The act also requires automatic referral to suspension and debarment officials of any person — including a corporation — charged with a crime related to a government contract, accused of committing civil or criminal fraud, or who has failed to pay or refund money owed to the government.

This automatic referral requirement tracks Sen. Claire McCaskill’s, D-Mo., and Sen. James Webb’s, D-Va., Comprehensive Contingency Contracting Reform Act of 2012 (S. 2139), which has passed neither the Senate nor the House. This bill requires automatic suspension of Defense Department, Department of State or United States Agency for International Development contractors supporting contingency operations charged with a crime related to a government contract, charged with civil or criminal fraud, or that have failed to pay or refund money owed to the government.

During an April hearing, Defense and State Department representatives testified against an automatic suspension provision as inimical to the government’s best interest.

These new SASC provisions, while providing more discretion to the suspension and debarment officials, cover all defense contractors, not just those supporting overseas contingency operations. These provisions — coupled with an increase in federal suspension and debarment over the past several years — confirm heightened interest in the use of suspension and debarment to exclude businesses from federal contracting.

So far, the 2013 NDAA omits a version of the Consolidated Appropriations Act of 2012 (Pub. L. 112-74), which barred certain agencies from using appropriated funds for any contract with a corporation that had been convicted of a felony criminal violation under any federal law within the preceding 24 months, unless the agency considered suspension or debarment and determined this further action to be unnecessary. This confusing prohibition sought to establish different standards and exclusion provisions for the various agencies.

Over time, the pendulum has swung from lesser to greater oversight of government contractors. This time, however, many new restrictions are being committed to law. If the new 2013 NDAA is enacted as written, contractors charged with a government contract-related crime, accused of engaging in civil or criminal fraud, or that have failed to pay or refund money owed to the government should expect to deal with an agency suspension and debarment official.

The best preparation is to develop, maintain, and administer a robust ethics and compliance program with dedicated personnel, adequate internal controls and mechanisms to handle mandatory disclosure of credible evidence of crimes involving fraud, false claims, conflicts of interests, bribery or gratuities. Contractors facing charges must be prepared to affirmatively demonstrate the company’s culture and present responsibility to the suspension and debarment official. The best defense to suspension and debarment is an unqualified commitment to sound ethics and compliance — which will protect both the government and a company.

Joseph Corrigan is a senior director ( and Caitlin Kaprove is an associate ( at Greenberg Traurig LLP. The views expressed are solely those of the authors.

Topics: Procurement, Defense Department

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