Hallmarks of a Meaningful Suspension and Debarment Program
Recent congressional action suggests a desire for more suspension and debarment actions to “punish” contractors, notwithstanding the stated regulatory purpose expressly excluding punishment as a basis for exclusion.
Congress may do what it likes in terms of establishing exclusions. The question is whether more and mandatory exclusions serve desired policy objectives, including protecting the government’s business interests, promoting competition, preserving and expanding employment and growing the tax base.
Suspension and debarment practitioners both in the government and in the private bar wonder whether all this attention on a formerly sleepy section of federal contract law is the “new normal.”
While recent attention has helped agencies view and use suspension and debarment as useful remedies to protect the government’s interest, the “exclude more” mentality has its own dangers as we begin to approach a “one-strike-and-you’re-out” expectation.
Under the procurement rules, suspension and debarment are discretionary actions that are among the tools available to agencies as they seek to comply with the requirement to solicit offers from, award contracts to and consent to subcontracts with responsible contractors only.
Suspension and debarment are a means to exclude non-responsible contractors. According to the Federal Acquisition Regulation, or FAR, it is the federal agency’s suspending and debarring official’s responsibility to determine whether an exclusion is in the government’s interest.
If a cause for suspension or debarment exists, the contractor has the burden of demonstrating its present responsibility and that an exclusion is not necessary.
But what is a “presently responsible” contractor? Present responsibility is a term that is summarized as a contractor’s ability to be trusted to deal fairly and honestly with the government, though it is not defined in law or regulation. The FAR provides minimal guidance.
The practice of suspension and debarment has evolved. Before reaching a debarment decision, the FAR lists several factors the suspending and debarring official must consider: whether the contractor had effective standards of conduct or internal controls in place at the time of the activity forming the basis for the suspension or debarment, whether the contractor timely disclosed the activity forming the basis for the action to the government, whether the contractor has fully investigated the matter and made the results available to the debarring official and whether the contractor has cooperated with the government during the investigation and legal proceedings.
The official should also consider whether the contractor has paid or agreed to pay all criminal, civil or administrative liability for the improper activity; whether the contractor has taken appropriate disciplinary action against the individuals responsible for the misconduct; whether the contractor has taken or agreed to take appropriate remedial measures; whether the contractor has implemented or agreed to implement new control procedures and ethics training programs; whether the contractor has had sufficient time to eliminate the circumstances in the organization that lead to the cause for debarment; and whether the contractor’s management recognizes and understands the seriousness of the misconduct and has implemented programs to prevent recurrence.
As it relates to present responsibility, these factors put the spotlight on three general areas: What did the contractor do to prevent the missteps before the misconduct occurred? What controls did the contractor have in place to identify the misconduct? And how did the contractor respond once the problem was discovered?
For many contractors it will be impossible to prevent every act of misconduct within their enterprise. Therefore, the focus of an inquiry frequently is on the robustness of the compliance and ethics programs in place at the time of the misconduct, and on how the contractor responded once the problem was discovered.
But the regulatory statement that is becoming increasingly overlooked in the current debate surrounding suspension and debarment is that the serious nature of debarment and suspension requires that these sanctions be imposed only in the public interest for the government’s protection and not for the purposes of punishment.
Under this mandate, the result cannot be an automatic exclusion following every business misstep. Anyone who has ever run a business, started any venture, or even parented a child knows that mistakes happen.
The suspension and debarment system is not designed, organized, staffed or intended to exclude every contractor and grant recipient for every mistake ever made. Under existing legal authorities, there is a substantial discretionary component that requires an analysis of the misconduct, the current state of the contractor’s business operations and an analysis of potential future risk to the government’s interests.
The current march to contractor punishment had its roots in a genuine congressional interest in pushing more federal agencies to consider suspension and debarment as a viable remedy to address misconduct and poor performance. That push generally is considered to have begun in 2009 and 2010. Before that time, Government Accountability Office audits and reviews focusing on suspension/debarment matters were infrequent and, while numbers of actions mattered, the reports focused on process improvements.
GAO changed its tone with a 2011 report that sounded the alarm over numbers of exclusions and called for six civilian agencies to adopt the characteristics of more active suspension and debarment programs so they might exclude with greater frequency.
GAO likely intended the 2011 report to serve as a wake-up call for agencies without suspension and debarment programs to take their obligation seriously. But it appears that the unintended consequence was to put an undue emphasis on increasing numbers of actions.
There is no question the “do more” mentality is sinking in. But the drumbeat for exclusion and punishment continues. Congressional hearings in 2011 questioned why the government did not debar more contractors. Seemingly every year more and more mandatory debarment or contracting preclusion measures are making their way into legislation.
Troublingly, the exclusion-related bills passing at least one chamber of Congress each year contain fewer and fewer opportunities for agency discretion. They evidence a march toward one-strike-and-you-are-out, as if the world of government contracts and grants is evaluated on a playing field where only perfection is permitted. That does not square with the reality that employees and companies can and do make mistakes.
Vigilance is the key. Some missteps are so egregious that trust is extremely hard to rebuild. But in many cases, sanctions and remedies short of exclusion can help mend the relationship, improve contractor operations and reestablish trust.
Perspective is important. Before the march to punishment gains further traction, it would be useful to reframe the debate about what an effective response to contractor misconduct is, and how to calibrate and measure successful suspension and debarment programs to incentivize appropriate responses.
As the world’s largest consumer of products and services, the U.S. government expects that its contractors and subcontractors will conduct themselves responsibly in their business practices.
It is well recognized that suspension and debarment serve as backstops to protect the government from entering into business relationships with non-responsible contractors. Less recognized, but perhaps more important, is that a well-executed, discretionary suspension and debarment program offers many tools other than the contracting exclusion for promoting contractor integrity and protecting the government’s interests.
Some of those tools can be used before it becomes necessary to resort to suspension and debarment. These include agency engagement with industry to promote best practices to advance contractor responsibility, and a greater use of “Requests for Information” and “Show Cause” letters to develop records before resorting to an exclusion.
Contractors tend to take these requests and letters as seriously as they do a proposed debarment, in terms of their willingness to engage with the agency official and provide useful information.
The challenge is shifting from a focus on the numbers of suspensions and debarments as the prevailing metric of success, and focusing instead on promoting the larger objective of contractor responsibility. This shift will require a change in the traditional metrics applied to suspension and debarment.
It is useful to consider an example that illustrates many of the points discussed above.
A company submits to the Department of Defense Inspector General, and copies the appropriate agency suspension and debarment officer, an initial disclosure under the Mandatory Disclosure Rule identifying preliminary evidence of a kickback scheme and intentional cost mischarging at one of its small, remotely located business units. The company submitted the disclosure within days of determining that there was credible evidence of misconduct.
The suspension and debarment officer was aware of the company’s compliance and ethics efforts because, in recent years, the company regularly had senior company officials meet with the officer to review the company’s compliance and ethics programs.
Based on this ongoing exchange of information, the suspension and debarment officer was satisfied that the company had robust internal controls, and excellent compliance and ethics programs.
Within days after the company made its initial disclosure, the company’s chief compliance officer and one of its senior lawyers called the suspension and debarment officer to discuss in greater detail the misconduct involving the kickbacks and cost mischarging, as well as Company A’s response to the misconduct.
The misconduct was significant, including a long-term scheme to solicit and accept kickbacks and gratuities from various subcontractors, as well as evidence of intentional cost mischarging. However, it was balanced by years of detail about the robustness of the company’s compliance and ethics program and the efforts and resources expended by the company to “do the right thing.”
Accordingly, the suspension and debarment officer initiated a present responsibility review of the company through a Show Cause letter, asking for more details from the company about the relevant facts and its ethics and compliance programs. The letter advised the company’s senior officials of the specific concerns and provided an opportunity for the company to submit responsive and relevant information.
In response to the letter, the company provided an unredacted version of its internal investigation, along with other relevant materials. The company was open and candid. Ultimately, the government concluded that the company had demonstrated its responsibility by having in place, at the time the misconduct occurred, appropriate programs to prevent and identify misconduct within the enterprise. The fact that those programs failed to stop the misconduct was more a testament to the cleverness of the individuals set on taking advantage of their employer and customers, than it was on any failure by the contractor. Moreover, the suspension and debarment officer also was satisfied the company had acted appropriately in responding to the misconduct. Accordingly, the officer determined the company was presently responsible and there was no need to exclude any business entity within the company or otherwise exclude the entity from federal contracting, although the individuals engaging in the misconduct were proposed for debarment.
In this and other cases, misconduct need not result in a party’s exclusion from federal contracting to protect the government’s interest. Agencies should continue to be given the discretion to use these other tools to promote contractor responsibility.
Under traditional metrics, the foregoing example would not count as a “success.” It would not even be counted. And yet, the government’s interests were protected, the government decision not to exclude was supported by the relevant facts, jobs were preserved, competition was enhanced, local tax revenue was preserved, and a manufacturing expertise was saved.