We’ve all heard the expression that those who deal with the Government must turn square corners. This is because the Government has a broad array of tools at its disposal to motivate, coax, and cajole contractors and federal grant recipients to play by the rules. Those tools include harsh measures such as criminal prosecution and civil false claims act enforcement on the one hand and poor CPARS ratings on the other. A seemingly less severe administrative option available to the Government is suspension and debarment. However, any entity that has been suspended or debarred knows that these measures can prove harsh and disruptive. While the numbers of suspensions and debarments have declined from the all-time high in 2011, there is still significant activity. In its FY 2018 report, the Interagency Suspension and Debarment Committee reported 2444 referrals, 480 suspensions, 1542 proposed debarments, and 1334 debarments. The number of referrals for suspension and debarment in FY 2018 is almost exactly the same as the number of GAO bid protests filed that year.
What is Suspension and Debarment?
Like any consumer, the Government has inherent authority to pick with whom it will do business. Not everyone makes the cut. Suspension and debarment are the Government’s tool to avoid entities it views as a high risk for poor performance, fraud, waste, and abuse. Suspension and debarment preclude a business entity or individual from contracting with the Government or from receiving grants, loans, loan guarantees or other forms of assistance from the Government. A suspension is a temporary exclusion when the Government determines immediate action is necessary pending the completion of an investigation or legal proceeding. A debarment is an exclusion for a defined, reasonable period of time—often three years.
Entities suspended, debarred, or proposed for debarment appear in the “Exclusions” database in the System for Award Management (SAM). While suspension and debarment are almost always imposed because of some past bad conduct, the purpose of suspension and debarment is not to punish the excluded entity but rather to protect the Government from potential future misconduct or poor performance.
Suspensions and debarment commence with a referral to an executive agency suspension officer—the Suspending and Debarring Official (SDO). Which agency takes the lead often depends on the circumstances resulting in the referral. In many cases, the lead agency will be the one with which the entity does the most business. However, if the basis for suspension and debarment is the result of a statutory or regulatory violation, the federal agency responsible for administering and enforcing those statutes and regulations will take the lead. For example, Immigration and Custom Enforcement will adjudicate a suspension or debarment action for violations of the Immigration and Nationality Act and the Department of Labor (DOL) will adjudicate suspensions and debarments based on violations of labor laws such as the Davis-Bacon Act or the Service Contract Act (SCA).
An entity will first learn it has been suspended or proposed for debarment when it receives a notice from the SDO via certified mail. In the case of a notice of proposed debarment, the notice will contain the following information:
- debarment is being considered
- reason for the debarment
- the entity may submit information and argument in opposition within 30 days
- the agency’s procedures governing its decision-making
- the effect of the notice of proposed debarment and the potential effect of an actual debarment
An entity that is being suspended will receive a notice with largely similar information, except it will be advised the suspension is for a temporary period pending the completion of an investigation and/or legal proceedings.
What are grounds for Suspension and Debarment?
The list of conduct that can result in debarment is long. FAR 9.406-2 and OMB’s Governmentwide Guidance for Grants, 2 CFR § 180.800, detail all manner of bad acts that provide agency debarring officials with discretion to debar. These include criminal convictions or civil judgments relating to fraud, antitrust violations, theft, bribery, and tax evasion. Both sections have a catch-all for “other offences indicating a lack of business integrity or business honesty” that seriously and directly affects an entity’s “present responsibility.”
A unique basis for debarment for federal contractors and subcontractor is the mandatory disclosure rule in FAR 9.406-2(b)(1)(vi) and FAR 52.203-13. These provisions provide the Government grounds to debar based on a knowing failure to disclose to the Government credible evidence of violations of criminal law involving fraud, conflicts of interest, bribery or gratuity, violations of the civil False Claims Act, or significant overpayments in connection with the award, performance, or closeout of a federal contract or subcontract.
The EPA and the DOL enforce laws that are fertile areas for debarment. Some of these laws make violations a basis for statutory (i.e. mandatory) debarment. For example, both the Clean Water Act and the Clear Air Act contain provisions which make any criminal conviction under those laws a basis for debarment by operation of law. Similarly, the SCA requires the Secretary of Labor to debar for three years any person or firm that violates the SCA unless the Secretary finds “unusual circumstances.” The decisions of DOL’s Office of Administrative Law Judges and Administrative Appeals Board show that it is virtually impossible to satisfy the “unusual circumstances” standard and avoid debarment. In many situations, the conduct that results in debarment may have nothing to do with performance of a Government contract, subcontract or participation in a federal grant program.
Suspension is a temporary exclusion from Government contracts and participation in Government programs. It is used in extraordinary circumstances when the Government determines immediate action is necessary pending the completion of an investigation or legal proceeding. The bases for suspension generally track with the bases for debarment.
What are the effects of Suspension and Debarment?
Entities that are debarred, suspended or proposed for debarment are excluded from receiving Government contracts unless an agency determines there is a compelling reason to allow an award to proceed. Similarly, outside of the Federal procurement context, excluded entities also may not participate in a “covered transaction” which includes, among other things, grants, cooperative agreements, scholarships, fellowships, loans, loan guarantees, subsidies, and insurance. Importantly, a covered transaction need not involve Federal funds. The exclusion also bars the entity from participating as subcontractor to government contractor or grant recipient. Prime government contractors are barred under FAR 52.209-6(b) from entering into subcontracts in excess of $35,000 with an exclusion record in SAM. Similarly, the OMB’s Government-wide Guidance requires federal grantees to verify that they do not enter into subcontracts or subawards with excluded entities. See 2 CFR § 180.300. The Government is not required to terminate existing government contracts or grants if an entity becomes excluded after award. Some state and local governments follow SAM’s exclusion records or will use a Federal suspension or debarment as a basis to starts their own inquiries.
How to contest Suspension and Debarment.
Suspension and debarment proceedings vary by agency. Some agencies, like DOL and EPA, have formal, well-defined rules. Others merely follow the process set out in FAR subpart 9.4 or the OMB Guidelines. The process must allow an entity the opportunity to submit information and argument in opposition to the proposed action. An entity suspended or proposed for debarment has 30 days from receipt of the notice from the SDO to submit its opposition. This submission is critical because it may be the entity’s only chance to supplement the record. The SDO is required to exercise discretion in deciding whether suspension or debarment is appropriate based on the administrative record before them. The factors the SDO should consider include:
- Did the entity have effective standards of conduct and internal control in place at the time the misconduct occurred?
- Did the entity bring the misconduct to the attention of appropriate Government agency in a timely manner?
- Did the entity fully investigate the misconduct and share those results with the Government?
- Did the entity cooperate fully in any Government investigation?
- Did the entity pay fines, penalties, liabilities, or restitution?
- Did the entity take appropriate disciplinary action against the responsible individuals?
- Did the entity implement remedial measures?
- Did the entity institute a new or revised review and control procedures and ethics training program?
- Has the entity had adequate time to eliminate the causes that allowed the misconduct to occur?
- Does the entity recognize and understand the seriousness of the misconduct and implement measures to prevent recurrence?
These guidelines highlight the key factors that should be addressed in an opposition to a suspension or debarment. Depending on the circumstances, the entity should focus on its robust response to the misconduct. Where possible, emphasize remedial measures put in place before the Government became involved or, at least, prior receipt of the notice of suspension/debarment proceedings.
Details can prove critical in avoiding suspension or debarment. Err on the side of being over-inclusive in the response. If new policies where put in place, provide copies. If personnel received training, include the training materials and records of who received the training. If fines or penalties were paid, include evidence of these payments. This submission is not the time or place to relitigate or minimize the underlying conduct. After all, the misconduct was enough to spur the SDO to act. The tone should be one of contrition and seriousness.
In many situations, the SDO will wish for the entity to commit to additional remedial measures or to continue with changes the entity has already put into place in order to resolve suspension or debarment proceedings. These are referred to as administrative agreements. If such an agreement is put into place, it will appear in the entity’s Federal Awardee Performance and Integrity Information System (FAPIIS) record and will be available to the public until the agreement expires. It is possible to have the entity’s proprietary and confidential information redacted from the public version of the administrative agreement available on FAPIIS consistent with Exemption 4 to the Freedom of Information Act.
How to avoid Suspension and Debarment.
While suspension and debarment are not intended to be used as a penalty, the impact on an entity’s government business and reputation can be devasting. The best course is to avoid being one of the over 2000 business entities referred for suspension or debarment each year. Here are a few recommendations to consider:
- Walk the talk: Avoiding suspension and debarment starts with well-developed business ethics and compliance programs. But these programs cannot sit on the shelf collecting dust. They must be regularly updated and put into practice with regularly scheduled training and periodic audits. Even if these programs fail to prevent some misconduct that leads to a referral, they are still worthwhile. SDOs are more likely to characterize misconduct as an isolated, one-off occurrence if they are convinced an entity has an overall culture of compliance.
- Cooperate, cooperate, cooperate: SDOs look very carefully into a business’s behavior immediately after potential misconduct first comes to light. Businesses that are forthcoming and open with Government investigators fare better before SDOs than ones that are defensive and insular. SDOs look favorably on businesses that show a genuine interest in partnering with the Government to discover the root cause of misconduct and developing measures to prevents its reoccurrence.
- Beat them to the punch: When potential misconduct is identified, alert the SDO for the agency administering the contract, grant, or government program. If the misconduct relates to statutes or regulations enforced by a particular agency like EPA, ICE, or DOL, alert those agency SDOs as well. For government contractors, the mandatory disclosure rule makes notification to the Government of credible evidence of certain types of misconduct a requirement. The message to the SDO is very simple—we want to make you aware of this issue, we take it seriously, and we are ready to talk if you have any concerns about our present responsibility. Anecdotally, SDOs have expressed appreciation for hearing from a business before they’ve completed a notice of suspension or proposed debarment.