Suspensions and Debarments in Fiscal Year 2018

The suspension and debarment (S&D) process is one of the tools used to protect the federal government from fraud, waste and abuse by preventing non-responsible contractors from doing business with the Government. Suspensions, proposals for debarment, and debarments are visible to the public (through SAM) as well as terminations of such actions.

Both suspension and debarment have the same effect - no more Government contracts (or subcontracts, for that matter). A debarment is considered more serious than a suspension because of its duration. A suspension is a temporary measure that doesn't usually exceed 12 months and is used pending the completion of an investigation or legal proceeding. Debarment usually lasts three years and is usually based upon a conviction.

Causes for suspension or debarment include such things as fraud, embezzlement, theft, falsification of records, false statements, violating Federal criminal laws, violation of antitrust statutes, willful, or a history of, failure to perform, knowingly failure to disclose violation or criminal law, or any other cause that affects 'responsibility'.

The Inter-agency Suspension and Debarment Committee (ISDC), among its various responsibilities, compiles annual statistics of each agency's suspension and debarment activities. The Committee just published stats for fiscal year 2018. The tally included 480 suspensions and 1,334 debarments. The Defense Department accounted for about a quarter of the suspensions about a third of the debarments - unsurprising given that significance of the Department's contracting dollars. Two agencies had no debarments or suspensions during the fiscal year; Nuclear Regulatory Commission and the Social Security Administration. Of course, this doesn't mean there were no contractors worthy of suspension and debarment, as the Committee pointed out in its report. It could mean that the contracting community was not adequately trained to utilize such tools.

The number of debarments has more than doubled since 2009 when the Committee first began tracking the numbers. The number of suspensions, on the other hand, has not changed significantly.

The full report is available here.

DHS' Suspension and Debarment Procedures Need Improvement

Last January, the Office of Inspector General (OIG) for the Department of Homeland Security (DHS) issued a report entitled "DHS Needs to Strengthen Its Suspension and Debarment Program". The report was requested by Congressman Bennie Thompson (Mississippi) in 2016. Here's what the OIG found.

We've discussed the Government's suspension and debarment processes several times on these pages. Essentially, suspensions and debarments are used to exclude individuals, companies, and organizations from receiving future contracts, subcontracts, grants, loans, and other Federal assistance. The Government does not like to refer to suspensions and debarments as punishments (though they are) but as tools to ensure that the Federal Government only does business with responsible entities.

Suspensions are temporary exclusions usually limited to 12 months while debarment can go on for up to three years. Debarment is used when an investigation or legal proceedings have concluded and there has been a civil judgment or a conviction, or, in the absence of a court decision, evidence leading a person to believe it is more probably  than not that the wrongdoing actually occurred. See FAR Subpart 9.4 for detailed information on the Government's suspension and debarment procedures.

Here is what the DHS OIG found in its audit:

• DHS suspension and debarment instruction is outdated and is missing needed definitions, as well as detailed requirements and procedures for documenting decisions on administrative agreements, which mandate improvements rather than suspending or debarring companies and organizations.
• DHS did not adequately document five of seven administrative agreements approved from fiscal years 2012 to 2017.
• DHS does not have a centralized system to track suspension and debarment activities, which may have contributed to DHS' innacurate reporting of suspension and debarments
• For an 8-month period Federal Emergency Management Agency (FEMA) suspension and debarment staff did not promptly update government-wide systems to reflect debarments and administrative agreements.
• Department-level staffing issues may have hindered efficient and effective handling of suspensions and debarments.

The OIG made several obvious recommendations (e.g."do better") to which DHS concurred and by all accounts, has already begun to implement corrective action.

But that's not the end of the story.

Last week (March 16, 2018), Senator McCaskill under her position as the ranking member of the  Committee on Homeland Security and Governmental Affairs wrote a letter to DHS taking them to task for neglecting the suspension and debarment process thereby allowing the Government to enter into contracts with non-responsible contractors. Specifically noted in her letter was the situation we've discussed before where a one-person company was awarded a $156 million contract to provide 30 million emergency meals to victims of the recent Puerto Rico hurricane and the contract was terminated for default after providing only 50 thousand meals.

The Senate Committee found it "troubling" that DHS appears to neglect the suspension and debarment process. "The absence of coordination between components and headquarters to provide accurate information to contracting officials and other government agencies puts the government at serious risk for waste, fraud, and abuse." The Committee has requested DHS to provide it a report addressing the same deficiencies identified in the OIG's report including:

1. A list of companies that have been suspended and debarred by DHS and how long it took DHS to initiate those actions
2. Why DHS has not updated its procedures since 2012.
3. The DHS officials responsible for ensuring that suspended and debarred contractors are not awarded new contracts (Senator McCaskill wants names).
4. The reason why DHS declined to adopt a recommendation by TSA to debar a company.

That report is due back to the committee by April 4th.

Government Contractor Suspensions and Debarments on the Decline

The Inter-agency Suspension and Debarment Committee (ISDC) recently issued its annual report summarizing agencys' suspension and debarment activities from fiscal year 2015. The purpose of the ISDC is to help agencies build and maintain the expertise necessary to consider suspension and debarment as necessary to protect contract and program integrity. The annual report is mandated by the 2009 National Defense Authorization Act (NDAA).

From 2009, when the ISDC began collecting suspension and debarment data until 2014, the number of suspensions and debarments increased. In fiscal year 2015, however, the data shows slight reductions in suspensions and debarments.

Is this a positive trend or are agencies becoming lax in maintaining systems to flag incidents of improper business conduct? The report doesn't provide such analysis. However, the committee reported that the use of administrative agreements increased by 25 percent from 2014 to 2015. This, the report suggests, results from an emphasis on the use of proactive engagement tools, such as pre-notice engagement letters, which give contractors an opportunity to discuss the steps they are taking to address issues, that, if left unremediated, would likely result in suspension and/or debarment.

The agency with the most suspensions and debarments, unsurprisingly since they issue the most contracts, is the Defense Department. Housing and Urban Development (HUD) and Homeland Security (DHS) come in second and third, respectively. Four agencies didn't issue any suspensions or debarments in fiscal year 2015; Labor, National Geospatial Intelligence Agency, Nuclear Regulatory Commission, and Social Security.

You can read the entire committee report here.

Toughening Up Suspension and Debarment Procedures

House Oversight and Government Reform Committee Chairman Darrell Issa, has begun circulating a discussion draft of legislation that would consolidate more than 42 civilian agency and government corporations S&D (Suspension and Debarment) offices and functions into one centralized board.

According to Rep Issa's press release, the proposed legislation is designed to protect taxpayers in over $1 trillion in contracts and grants awarded by the federal government each year to companies and individuals that are or should be banned from receiving taxpayer funds. He states: "In the 21st century, we must have zero tolerance for fraudsters, criminals, or tax cheats receiving taxpayer money through grants or contracts.

To prevent fraud and abuse, federal agencies are supposed to conduct aggressive suspension and debarment (S&D) programs to ban unscrupulous business and individuals from receiving federal funds. However, despite intense Congressional oversight, administrative action, and public scrutiny in recent years, GAO still reports that most agencies lacked effective S&D programs, meaning that businesses and individuals who should be listed on the System or Awards Management (SAM) may still be receiving federal contracts and grants (SAM replaced the Excluded Parties List System (EPLS) last year).

Along with consolidating the S&M offices and functions into a centralized board, the legislation would

• strengthen debarment of contractors and grantees that repeatedly fail to perform
• consolidate regulations government suspension and debarment procedures
• ensure transparency in suspension and debarment proceedings, and consistent standards to treat all parties fairly and expeditiously, including small businesses with limited legal resources
• provide an expedited review process to handle contract or grant fraud in a contingency environment (e.g. Iraq or Afghanistan).

You can vies a copy of the discussion draft here.

Too Big to Fail (or Too Big to be Suspended or Debarred)

Most of you remember 2010 when the President declared there were certain banks that were too big to fail and as a result, the Government stepped in and made costly bailouts to prevent a wreck of the entire economy. A similar thing happens in Government contracting. Normally, a suspended or debarred contractor cannot receive contracts. However, there are very large contractors who have been suspended or debarred but continue to be awarded Government contracts. All you need is for the head of some Agency to write up a "compelling reason" (see FAR 9.405).

FAR contains examples of "compelling reasons" but broadens the list be stating it is not all inclusive. Examples include:

• Only a debarred or suspended contractor can provide the supplies or services;
• Urgency requires contracting with a debarred or suspended contractor;
• The contractor and a department or agency have an agreement covering the same events that resulted in the debarment or suspension and the agreement includes the department or agency decision not to debar or suspend the contractor; or
• The national defense requires continued business dealings with the debarred or suspended contractor. 

These compelling reasons are broad enough so that the Government can pretty much do what it wants or needs to do, irrespective of whether a particular contractor has been suspended or debarred. Sometimes these compelling reasons are legitimate (how many companies can build ships, or planes, or tanks?). Other times, the justification seems contrived.

Information concerning suspended or debarred contractors is difficult to obtain. You can find the information in the Government's Excluded Party List System (EPLS) if you have the time and fortitude. Trying to find the Government's justification to override a suspension/debarment penalty however, is nearly impossible, although there is a DoD requirement to submit all compelling reason determinations to the General Services Administration (GSA).

Federal Government Wants to Improve Suspension and Debarment Procedures

The Federal Government pays over a trillion dollars a year to contractors and grantees, and has an ongoing fiduciary responsibility to protect American taxpayer resources and the integrity of the processes for Federal acquisition and for discretionary assistance, loan, and benefit programs.

The suspension and debarment remedy is one of the tools available for protecting taxpayer resources and the integrity of these processes from those contractors and recipients who are "non-responsible" (i.e. who lack business integrity because they have engaged in dishonest or illegal conduct or are otherwise unable to satisfactorily perform their responsibilities. The basic policies and procedures governing suspension and debarment in FAR 9.4 and are well-established and generally sound.

Suspension and debarment are similar but the time periods during which contractors are not eligible to contract with the Government differ. Suspension typically lasts twelve to 18 months. Debarment lasts up to three years. For more information on suspension and debarment, read our 4-part series from last July (Part I, Part II, Part III, and Part IV).

Some Federal agencies have long-standing and robust suspension and debarment programs. However, according to the Office of Management and Budget (OMB), many have failed to adequately use the suspension and debarment tools at their disposal or have failed even to maintain the most basic program capabilities required to suspend or debar non-responsible parties. A recent report by GAO found that fifty percent of agencies reviewed lacked the characteristics common among active and effective suspension and debarment programs; dedicated staff resources, well developed internal guidance, and processes for referring cases to officials for action. The OMB believes these deficiencies have put taxpayer resources at unnecessary risk of waste, fraud, and abuse.

To remedy this situation, OMB, this month, directed every Federal agency to take a series of actions including the appointment of a senior official to oversee the program, beef up internal policies and procedures, make sure contracting officers are reviewing relevant suspension and debarment databases before making awards, and fixing the things that don't work.

Suspension and Debarment - Part V

We've come to the last part of our short series on suspension and debarment. The Government's decision to suspension or debarment depends primarily on the sufficiency of the evidence. Suspension requires adequate evidence while debarment requires the preponderance of evidence. A suspension lasts up to 18 months while debarment lasts up to three years. Either one can be extended if litigation is going on that is related to the activity causing the action. Both suspension and debarment actions can be mitigated if a contractor takes remedial action and seems contrite.

The most effective steps a contractor can take to avoid or protect against suspension and debarment are actions that demonstrate they are responsible contractors. Here are a few rules for guarding against a future suspension or debarment.

• Develop and maintain effective standards of conduct and an effective internal control system.
• Take appropriate disciplinary action against individuals in your organization that are responsible for wrongdoing.
• Implement correct actions following the discovery of wrongdoing.
• Continuously review internal control procedures and revise when necessary.
• Implement an ethics training program (now contractually required in many contracts).
• Develop an internal program that illustrates management's commitment to ethical behavior. Set the proper tone at the top.

Establishing these rules is no guarantee that a contractor can avoid a suspension or debarment. Because of this fact and because the financial effect of either action can be devastating, contractors should involve legal counsel in any matter that could lead to a suspension or debarment.

Suspension and Debarment - Part IV

We're working our way through a couple of "effective" tools the Government has at its disposal to exclude or preclude certain firms from doing business with the Government. In Parts I and II, we discussed "suspensions" where the Government can suspend a company for up to 18 months, In Part III, we discussed the causes that can lead to "debarment" for up to three years. In this part, we will discuss the procedures set forth in the Federal Acquisition Regulations that the Government must follow when debarring or contemplating debarment and some other aspects. We will conclude this series on Monday with ways that contractors can avoid suspension and debarment (its not that hard).

Each Federal agency has established procedures governing the debarment decision making process that are as informal as is practicable, consistent with principles of fundamental fairness. These procedures must afford the contractor an opportunity to submit, in person, in writing, or through a representative, information and argument in opposition to the proposed debarment.

If the Government decides to proceed with the debarment action, it sends a notice of proposed debarment to the contractor giving the reasons for the proposed debarment in terms sufficient to put the contractor on notice of the conduct or transactions upon which it is based. The contractor has 30 days  to submit information and argument in opposition to the proposed debarment, including any additional specific information that raises a genuine dispute over the material facts. The debarring official will consider this information and also the remedial and the same mitigating factors we discussed earlier when we discussed "suspensions". At this point, the debarring official can call the whole thing off or proceed with the final notice.

FAR gives some latitude over how long a debarment period should last. It must be for a period commensurate with the seriousness of the causes. Generally it should not be for a period exceeding three years. If the debarment is based on violations of the Drug Free Workplace Act, the period is extended to five years. The debarring official can extend the period for an additional period if that official determines that an extension is necessary to protect the Government's interest.

A debarred contractor cannot receive a contract from any executive agency and, based on reciprocity agreements, with many states as well. Debarred contractors are identified in the Government's "Excluded Parties" list that all contracting officers must refer to prior to awarding contracts.

Suspension and Debarment - Part III

Today we continue this short series on suspension and debarment. For the past two days, we've been dealing with "suspensions". A "suspension" is bad enough but being "debarred" is much worse. Debarment is sometimes referred to as the "kiss of death" - it excludes a contractor from Government contracting and Government-approved subcontracting for a specified period - for up to three years.

Contractor actions that can lead to debarment are similar to those that lead to suspension. The Government debarring official may debar a contractor for a conviction of or civil judgment for

• Commission of fraud or a criminal offense in connection with
• Obtaining
• Attempting to obtain; or
• Performing a public contract or subcontract.
• Violation of Federal or State antitrust statutes relating to the submission of offers;
• Commission of embezzlement, theft, forgery, bribery, falsification or destruction of records, making false statements, tax evasion, violating Federal criminal tax laws, or receiving stolen property;
• Intentionally affixing a label bearing a “Made in America” inscription (or any inscription having the same meaning) to a product sold in or shipped to the United States or its outlying areas, when the product was not made in the United States or its outlying areas (see Section 202 of the Defense Production Act (Pub. L. 102-558)); (note the word "intentionally" is in the cause for debarment but not for suspension) or
• Commission of any other offense indicating a lack of business integrity or business honesty that seriously and directly affects the present responsibility of a Government contractor or subcontractor.

Additionally, the debarring official may debar a contractor based on a preponderance of the evidence for any of the following:

• Violation of the terms of a Government contract or subcontract so serious as to justify debarment, such as
• Willful failure to perform in accordance with the terms of one or more contracts; or
• A history of failure to perform, or of unsatisfactory performance of, one or more contracts.
• Violations of the Drug-Free Workplace Act of 1988 (Pub. L. 100-690), as indicated by
• Failure to comply with the requirements of the Drug-Free Workplace clause; or
• Such a number of contractor employees convicted of violations of criminal drug statutes occurring in the workplace, as to indicate that the contractor has failed to make a good faith effort to provide a drug-free workplace. 
• Intentionally affixing a label bearing a “Made in America” inscription (or any inscription having the same meaning) to a product sold in or shipped to the United States or its outlying areas, when the product was not made in the United States or its outlying areas (see Section 202 of the Defense Production Act (Pub. L. 102-558)).
• Commission of an unfair trade practice.
• Delinquent Federal taxes in an amount that exceeds $3,000.
• Knowing failure by a principal, until 3 years after final payment on any Government contract awarded to the contractor, to timely disclose to the Government, in connection with the award, performance, or closeout of the contract or a subcontract there-under, credible evidence of—
• Violation of Federal criminal law involving fraud, conflict of interest, bribery, or gratuity violations found in Title 18 of the United States Code;
• Violation of the civil False Claims Act (31 U.S.C. 3729-3733); or
• Significant overpayment(s) on the contract, other than overpayments resulting from contract financing payments.

Finally, a contractor can be debarred based on a determination by Homeland Security or the Attorney General for failing to comply with the Immigration and Nationally Act employment provisions and for any other cause of so serious or compelling a nature that it affects the present responsibility of the contractor or subcontractor.

Tomorrow we will look at procedures and period of debarment.

Suspension and Debarment - Part II

Suspension and debarment are two classifications that contractors never want to have associated with themselves. To be suspended or debarred from Government contracting affects profitability and in some cases, even the continued existence of a going concern.

Yesterday, we listed the events and criteria that could eventually lead to a suspension as well as some of the circumstances that could stave off such a determination. The burden of proof is quite low. In some situations, an indictment is sufficient to suspend a contractor from further work with the Government. Today we will discuss the administrative procedures that must precede a suspension determination and opportunities for contractors to wage a defense. Tomorrow we will discuss "debarment".

Every agency has its own internal procedures governing the suspension decision making process. FAR only requires that these procedures be as informal as is practicable, consistent with principles of fundamental fairness. These procedures must afford the contractor an opportunity following the imposition of a suspension, to submit, in person, in writing, or through a representative, information and argument in opposition to the suspension.

If the Government decides to suspend a contractor, it sends written notification stating the basis for the suspension (e.g. an indictment or other adequate evidence that the contractor has committed irregularities of a serious nature in business dealings with the Government or serious reflecting on the propriety of further Government dealings with the contractor). While this notice may not be comprehensive, it must be sufficient to put the contractor on notice without disclosing the Government's evidence. Subsequent to official notice, the contractor has 30 days to respond and provide any information that raises a genuine dispute over the material facts described in the Government's suspension letter.

As a practical matter, if the suspension is based on an indictment or on the basis of the Department of Justice advice, or if the contractor's submission does not raise a genuine dispute over material facts, the notice of suspension becomes final - the "Suspending Official" makes a decision to suspend. For situations where additional proceedings are necessary as to disputed material facts, the suspending official will base his/her decision on the facts as found, together with any information and argument submitted by the contractor and any other information in the administrative record.

Based on review of all the data, the suspending official may modify or terminate the suspension or leave it in force. In no case may a suspension extend beyond 18 months unless legal proceedings have been initiated within that period. If so, the suspension continues until the proceedings are completed.

Suspension and Debarment

Two of the most dreaded words in Government contracting are "suspension" and debarment". Suspensions and debarment are invoked to preclude contractors that are not "responsible", from continuing to contract with the Government. The action to suspend or debar a contractor from performing work for the Government can be a fatal blow to the "going concern", especially for companies that relay primarily on Government business.

Suspension and debarment are two separate actions. A suspension is a temporary matter while a debarment is usually permanent. A suspension, under certain circumstances, can lead to a debarment. The consequences however are similar. Agencies are prohibited from doing business with suspended or debarred contractors. Additionally, agencies cannot place additional orders under previously awarded contracts (for example ID/IQ contracts) unless there is a compelling reason for doing so.

The regulations concerning suspensions and debarment are found primarily in FAR 9.406 and 9.407. Beginning today and continuing for the next few days, we will look at the Government's suspension and debarment processes.

A suspension is an action taken by "suspending official". A "suspending official" is defined as an agency head or a designee authorized by the agency head to impose suspension. A suspending official may, in the public interest, suspend a contractor (or subcontractor) for any of the following activities:

1. Commission of fraud or criminal offense in connection with obtaining, attempting to obtain, or performing a public contract or subcontract,
2. Violation of federal or state antitrust statutes relating to the submission of offers,
3. Commission of embezzlement, theft, forgery, bribery, falsification or destruction of records, making false statements, tax evasion, or receiving of stolen property,
4. Violations of the Drug-Free Workplace Act of 1988,
5. Intentionally affixing a label bearing a "Made in America" inscription (or any inscription having the same meaning) to a product sol in or shipped to the United States when the product was not made in the United States
6. Commission of unfair trade practices (as defined in FAR 9.403),
7. Delinquent federal taxes greater than $3 thousand,
8. Knowing failure by a principal, until 3 years after final payment on any Government contract, to timely disclose to the Government, in connection with the award, performance, or closeout of the contract, credible evidence of
• Violation of Federal criminal law involving fraud, conflict of interest, bribery, or gratuity violations,
• Violation of the civil False Claims Act
• Significant over-payment(s) on the contract, other than over payments resulting from contract financing payments
9. Commission of any other offense indicating a lack of business integrity or business honesty that seriously and directly affects the present responsibility of a Government contractor or subcontractor

Due to the severe consequences of a suspension, Government agencies may only impose a suspension on the basis of adequate evidence. An indictment for any of the preceding causes constitutes adequate evidence for suspension purposes. A suspension applies to a contractor's entire business, not just the division involved in the activity leading to a suspension.

The existence of a cause for suspension does not necessarily require that the contractor be suspended. The suspending official should consider the seriousness of the contractor's acts or omissions and may, but is not required to, consider the following remedial measures or mitigating factors:

1. Whether the contractor had effective standards of conduct and internal controls or implemented such standards prior to the investigation of the activity cited for debarment,
2. Whether the contractor cooperated fully with government agencies during the investigation and any court or administrative action,
3. Whether the contractor has taken appropriate disciplinary action against the individuals responsible for the activity,
4. Whether the contractor has implemented or agreed to implement remedial measures,
5. Whether the contractor has conducted a full investigation and made the results available to the debarring official,
6. Whether the contractor has paid or agreed to pay all criminal, civil, and administrative liability associated with the incidents,
7. Whether the contractor has instituted or agreed to institute new or revised controls and/or procedures,
8. whether the contractor has  had adequate time to eliminate the circumstances within the organization that led to the debarment proceedings,
9. Whether the contractor's management comprehends the seriousness of the situation and has implemented programs to prevent recurrence,
10. Whether the contractor brought the debarring activity to the attention of the government in a timely manner

Government Continues to Award Contracts to Poor Performing Contractors

Yesterday, the House Committee on Oversight and Government Reform held a hearing to examine the Government's suspension and debarment process. The impetus for the hearing was recently published audits of AID, DOT and DHS that showed the Government continued to award contracts to companies who were ineligible to receive them because those companies had been suspended, debarred or had otherwise engaged in misconduct.

In his opening statement Committee Chairman Edolphus Towns noted that the suspension and debarment rules are intended to prevent "the incompetent and the unproductive, the con men and the frauds" from receiving Government contracts and grants until they "clean up their act". The problem that Towns noted was that the Government was not using the tools at its disposal, allowing poor performers to "rake in millions".

In one case, it took the Department of Transportation 300 days to reach a suspension decision and 415 days to process the decision when it should have taken 45 days total. During that time, the company received $24 million in new contracts. Another contractor admitted to filing more than 100 false claims and eventually paid back $1.3 million to USAID while continuing to receive additional contracts.

The testimony by managers from DOT, USAID, and DHS were the typical "mea culpa, didn't happen on my watch, we'll do better in the future" blather you would expect to hear in these kinds of hearings. Their words were certainly not inspiring nor were there any tangible suggestions for ensuring future compliance with existing rules and regulations.

To read more about this hearing or to watch it, go here.