Suspension and Debarment

According to Shakespeare, “What’s done cannot be undone.” This may not be true with respect to many of the regulations implementing President Obama’s Executive Orders.

Let’s look at the fate of the rules implementing Executive Order 13673 (July 2014), formally called “Fair Pay and Safe Workplaces.” The DOL guidance and the FAR provisions implementing this Order were commonly referred to as “the blacklisting rules.”

The final blacklisting rules were published on August 25, 2016. Industry moved quickly to challenge them. An October 24, 2016 preliminary injunction issued by United States District Judge Marcia Crone stopped most of them from going into effect. Judge Crone’s order cites two constitutional problems with the blacklisting rules. First, they likely violate contractors’ due process rights because they require contractors to report mere allegations of labor law violations without the benefit of judicial or quasi-judicial safeguards to contest them. Second, they likely violate contractors’ First Amendment rights because they require contractors to “to report that they have violated one or more labor laws and to identify publicly the ‘labor law violated’ along with the case number and agency that has allegedly so found” even when there had been no adjudication. Continue Reading The fate of “Fair Pay and Safe Workplaces” under President Trump

[UPDATE: The Supreme Court resolved the Escobar case in a unanimous decision published on June 16, 2015. A link to our discussion of the Court’s opinion is available here.]

In some courts in the United States today, a government contractor or a healthcare provider seeking reimbursement from a federal program can violate the False Claims Act even when its work is satisfactory and its invoices are correct. Under the theory of “implied certification,” a minor instance of non-compliance with one of the thousands of applicable statutes, regulations, and contract provisions can be the basis for a federal investigation, years of litigation, as well as fines, penalties, suspension and debarment, even imprisonment of company personnel.

This week, the Supreme Court heard oral arguments in Universal Health Services, Inc. v. United States ex rel. Escobar, Docket No. 15-7, a case involving the viability of the implied certification theory. Here, we look at the questions posed during oral argument to see if we can infer how the Court might resolve the case.

The Supreme Court agreed to consider two questions posed in Escobar. First, the Court agreed to address the current split in the circuits as to the viability of the implied certification theory. The First Circuit’s decision in United States ex rel. Escobar v. Universal Health Services, Inc., 780 F.3d 504 (1st Cir. 2015), broadly adopts implied certification. The Seventh Circuit’s decision in United States v. Sanford-Brown, Ltd., 788 F.3d 696 (7th Cir. 2015), firmly rejects it.

Continue Reading How the Supreme Court will limit False Claims Act liability for implied certification

On February 25, 2016, the Department of Labor proposed regulations requiring many government contractors to provide up to seven days of paid sick leave to employees. The proposal seeks to implement Executive Order 13706, which was
issued by President Obama on Labor Day last year. DOL estimates that the new regulatImage: www.flickr.com/photos/pyxopotamusions will provide paid sick leave to nearly 437,000 government contractor employees who had none before.

Here is a look at DOL’s proposal—

The basics

Application:  Government contractors and subcontractors working under covered contracts.

Covered Contracts:  (1) Davis-Bacon Act contracts; (2) Service Contract Act contracts; (3) concessions contracts; and (4) contracts offering services under leases and licenses associated with Federal property.

Affected Employees:  Employees performing work on covered contracts whose wages are governed by the DBA, SCA, or FLSA, as well as exempt employees.

Absences Covered:  Those absences resulting from:

  • Their own illnesses or other physical or mental health care needs, including preventive care.
  • The care of a family member or loved one who is ill or needs healthcare, including preventive care.
  • Purposes resulting from being the victim of domestic violence, sexual assault or stalking, or to assist a family member or loved one who is such a victim.

No Credit:  Paid sick leave under the proposed regulations would not count towards meeting prevailing wage or fringe benefit obligations under the DBA or SCA.

Enforcement:  Complaints of non-compliance would be filed with the DOL’s Wage and Hour Division. There is an investigatory process and an administrative process for resolving disputed questions of fact and law. Contractors found to have violated the regulations may be subject to the withholding of funds, damages, and debarment.

Effective Date:  New or replacement contracts solicited by or otherwise awarded on or after January 1, 2017. Continue Reading Mandatory paid sick leave for contractor employees

In its May 2014 report [pdf], the GAO found that the total number of contractor suspension and debarment actions continues to rise, more than doubling from 1,836 in FY 2009 to 4,812 in FY 2013. At a high level, the increase in suspension and debarments tracks the dramatic rise in federal contract spending. Looking at the data more closely suggests that all is not doom and gloom. Between 2012 and 2013, suspension actions increased by less than six percent. There were fewer debarments in 2013 than there were in 2012, and the decrease in some agencies is significant.

The 2014 annual report published by the Interagency Suspension and Debarment Committee [pdf] reflects these figures. According to this report, there were 836 suspensions and 1,722 debarments in FY 2012. There were 883 suspensions and 1,715 debarments in FY 2013. The number of suspension actions increased by less than six percent and the number of debarments decreased slightly from 2012 to 2013. The percentage of proposed debarments that became actual debarments also decreased.

Continue Reading The favorable trends in suspension and debarment

Read the press about Judge James Gwin’s decision in United States ex rel. Barko v. Halliburton Co., No. 1:05-cv-1276 (D.D.C. Mar. 6, 2014), and you might see it as the beginning of the end for the attorney-client privilege in internal investigations. While the ultimate implications of the decision remain to be seen, that’s not how we see it.

The attorney-client privilege and the work product doctrine are alive and well, as is their application to internal investigations. The FAR clause implementing the requirement for a Code of Business Ethics and Conduct preserves the contractor’s right to conduct an internal investigation subject to the protections of the attorney-client privilege and the work product doctrine. See FAR 52.203-13. The Justice Department’s Principles of Federal Prosecution of Business Organizations explicitly states that a company is not required to waive privilege in order to get credit for cooperating with a government investigation. “[W]aiving the attorney-client and work product protections has never been a prerequisite under the Department’s prosecution guidelines for a corporation to be viewed as cooperative.”

For federal contractors, publicly-traded companies, and others in highly-regulated industries, the real question presented by Barko is more granular: How can my company avoid the same result?

Continue Reading Preserving attorney-client privilege in internal investigations after Barko v. Halliburton

The FAR permits the government to suspend or debar a contractor based solely on its affiliation with another contractor that has been suspended. See FAR 9.406-1(c) & FAR  9.407-1(c). The Eleventh Circuit’s decision in Agility Defense & Government Services v. U.S. Dept. of Defense, No. 13-10757 (11th Cir. Dec. 31, 2013), significantly expands the impact of a suspension due to affiliation. The court held that the initiation of legal proceedings (such as an indictment) permits the indefinite suspension of the contractor’s affiliates, even if the affiliates have not been accused of any wrongdoing. The decision overturned a 2012 Alabama district court decision that was a limitation on suspension due solely to corporate affiliation. We discuss the district court case in an earlier blog post.

http://farm3.staticflickr.com/2754/4439643419_aeb436ba10_n.jpgPublic Warehousing Company was indicted for fraud related to a government contract in November 2009 and was suspended as a result of the indictment. The Defense Logistics Agency then suspended Agility Defense & Government Services and Agility International, Inc., subsidiaries of Public Warehousing. The affiliates submitted written requests for reinstatement because they were not implicated in the indictment. After the agency’s refusal to reinstate them, the affiliates undertook several actions attempting to end their suspension, including a proposed management buyout that would have resulted in Public Warehousing retaining only an indirect 40-percent ownership in one of the affiliates.

As their suspension approached three years, the affiliates filed suit in the United States District Court for the Northern District of Alabama. The court found in their favor, ending the suspension. The district court reasoned that the applicable regulation limited the automatic suspension to 18 months. In the district court’s view, suspension beyond 18 months required the agency to initiate legal proceedings directed to the affiliates’ involvement. The Eleventh Circuit Court of Appeals reversed.

Continue Reading Indefinite suspension of affiliates under Agility Defense & Government Services

BP’s November 2012 settlement [pdf] of the federal criminal charges stemming from the Deepwater Horizon spill left some important issues unresolved. It left open claims for billions in civil penalties and natural resource damages, which go to trial on February 25, 2013. And even though the Gulf of Mexico spill had no connection to BP’s government contracts, the criminal settlement led to BP’s formal suspension [pdf] from federal contracting. The suspension means that BP will be unable to obtain new oil supply or lease contracts with the United States government until the EPA Suspension and Debarment Official finds it to be “presently responsible.”

BP is by no means the only company to have been suspended or debarred as a result of environmental violations. EPA has authority to suspend or debar companies for violating the Clean Air Act, the Clean Water Act, the Comprehensive Environmental Response, Compensation and Liability Act, and the Resource Conservation and Recovery Act. Indeed it is common for the EPA to seek suspension or debarment in environmental crimes cases. A company convicted of violating the Clean Air Act or Clean Water Act may even be automatically suspended or debarred. Although such a mandatory suspension or debarment applies only to the facility where the violation occurred, EPA can expand the sanction to the entire company. That is precisely the approach that EPA took with BP after the Deepwater Horizon spill.

Continue Reading BP suspension offers a lesson on the additional consequences of environmental enforcement

Federal agencies have closely guarded their authority to suspend and debar contractors that they determine are not “presently responsible.” Beyond the procedural safeguards set forth in FAR Subpart 9.4, the only practical limit on agency discretion in making suspension and debarment determinations can be found in the Interagency Committee on Debarment and Suspension, which provides a method for determining which agency should take the lead in a particular suspension or debarment matter.

This system may be headed for a fundamental change. Representative Darrell Issa, Chair of the House Oversight and Government Reform Committee, has circulated draft legislation entitled the “Stop Unworthy Spending Act”—the “SUSPEND Act [pdf].” As written, the SUSPEND Act would terminate the authority of all civilian agencies to make their own suspension and debarment determinations.  Instead, this authority would be consolidated into a single entity—the Board of Civilian Suspension and Debarment—which would reside in the General Services Administration.

Continue Reading Tightening the belt on agency discretion in suspension and debarment

Does an unproven allegation of fraud or an improper termination for default limit a contractor’s ability to seek and obtain new contracts? Not automatically. According to the decision in Afghan American Army Services Corp. v. United States, No. 11-520C (Fed. Cl. Oct. 15, 2012) [pdf], contracting officials are required to conduct their own investigation and get the facts right before determining that a contractor is not responsible. Relying on unsupported conclusions of other government officials to justify a determination of non-responsibility is arbitrary and capricious.

The Army disqualified AAA from receiving a contract for trucking services in Afghanistan because AAA was deemed non-responsible. The determinative factor in the decision was a proposed debarment containing allegations that AAA had forged documents relating to an earlier trucking services contract. AAA had not previously been notified of the allegations and was not given an opportunity to rebut them. Rather than investigating the facts herself, the contracting officer simply assumed that AAA had violated criminal forgery statutes and had failed to take any corrective action.

Continue Reading Unsupported fraud allegations don’t support a determination of nonresponsibility

The trend over the last several years has been a dramatic increase in the number of suspensions and debarments by the Federal government. The September 18, 2012 report by the Interagency Suspension and Debarment Committee (ISDC) indicates that there were 928 suspensions and 2,398 debarments in FY 2011. Even though debarments are generally restricted to three years, two agencies issued permanent or indefinite debarments and thirteen reported debarments of longer than three years. The increase in suspensions and debarments from FY 2009 to FY 2011 was over 50 percent.

Suspensions 2009-2011 picture.jpg

We can certainly expect the trend to continue. In a November 15, 2011 Memo, the Office of Management and Budget required agencies to appoint a senior official to be responsible for assessing the agency’s suspension and debarment program. At this point, 28 federal agencies responsible for 98 percent of federal contracting expenditures have assigned individuals to the position. We doubt that any agency officials will find their own suspension and debarment programs too harsh.