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Suspension and Debarment: Two Words No Government Contractor Wants to Hear

Friday, 07 June 2013 / Published in Government Contract Law

Suspension and Debarment: Two Words No Government Contractor Wants to Hear

A business that performs work under a government contract can be devastated if the Government suspends or debars the business from participation in future contracts. From the Government’s perspective, suspension and debarment allows the Government to ensure that it does business only with “responsible” contractors and subcontractors. From the business’s perspective, the threat of suspension and debarment encourages preventive measures—avoidance of actions that may be construed as unethical—and a strong response to any questionable behavior brought to the business’s attention.

Purpose of Suspension or Debarment

Under the Federal Acquisition Regulations (“FAR”), the purpose of suspension and debarment is not to punish the contractor—that is the role of civil and criminal penalties, including those available under the False Claims Act. Suspension and debarment exist to protect the Government from unscrupulous prospective contractors. For this reason, a contractor can often avoid suspension or debarment if it demonstrates to the Government’s satisfaction that any wrong doing was an isolated instance and is unlikely to occur again.

Effect and Duration of Suspension or Debarment

Suspension and debarment have different durations and effects. Suspension is a temporary and indefinite state which is generally followed by an investigation to determine whether debarment is recommended. Suspension can last up to twelve months, and the Department of Justice may even be able to extend the suspension an additional six months. On the other hand, debarment is for a fixed period of up to three years (or five for certain Drug-Free Workplace Act violations).

A contractor that is suspended or debarred cannot obtain any new government contracts and cannot participate in many federal benefit programs. The suspension or debarment will not affect a contractor’s current contracts, but it does prevent the Government from renewing or extending those contracts. The suspension or debarment applies broadly across the entire federal government. The Government may apply the suspension/debarment to all divisions of the contractor and may extend it to affiliates of the contractor. Moreover, because many state and local governments utilize the Excluded Parties List System maintained in the System for Award Management (www.sam.gov), a suspension or debarment can prevent access to state and local

government business opportunities, too. Further, is it not easy for a suspended/debarred prime contractor to just attempt to maintain its government contracting income by shifting from a prime to a subcontractor. Any prime contractor that wants to award a subcontract to a debarred/suspended business must petition the contracting officer, noting “the compelling reason(s)” for using that subcontractor, and the agency head must give written approval.

Grounds for Debarment

The Government may debar a contractor for a variety of reasons, including for any of the grounds enumerated in the FAR or for “any other cause of so serious or compelling a nature that it affects the present responsibility of the contractor or subcontractor.” The specific grounds listed in the FAR include:

  • Conviction of, or civil judgment for, an “offense indicating a lack of business integrity or business honesty,” including fraud or antitrust violations related to a government contract or a crime of moral turpitude (e.g., lying, stealing);
  • Serious violations of the terms of a government contract;
  • Violations of the Drug-Free Workplace Act of 1988;
  • Affixing a “Made in America” label to a product made outside the United States;
  • Commission of an unfair trade practice;
  • Significant delinquent federal taxes;
  • Failure to timely disclose significant overpayments, false claims, or violations of federal criminal law involving fraud, conflict of interest, bribery or gratuities; and
  • Failure to comply with immigration-related employment procedures.

Grounds for Suspension

The grounds for suspension are substantially similar to the grounds for debarment listed above, with two key differences. First, contract violations are not grounds for a suspension. Second, mere indictment for fraud and antitrust crimes is grounds for immediate suspension. Frighteningly, from the contractors’ perspective, the Government has even suspended contractors during the investigation of such crimes, not waiting until indictment. For example, the much-publicized suspension of IBM in Spring 2008 was based on a grand jury investigation of the circumstances surrounding an IBM bid on a contract for the Environmental Protection Agency.

Proactive Prevention

Obviously, a contractor can avoid suspension or debarment by avoiding misconduct that would be grounds for suspension or debarment. Further, the Government is less likely to suspend or debar a contractor for misconduct that the contractor itself brings to the Government’s attention. Every contractor should create a corporate culture that encourages ethical behavior and should back up that culture with a strong ethics and whistleblower policy that will help the contractor’s senior management identify wrongdoing.

Ready Reaction

Although the FAR does not require advance notice, in practice, the suspension or debarment officer of the agency considering the action will often informally discuss the potential sanction with the contractor and his counsel before formally entering the suspension or debarment. (But this is not a requirement.) However, even this informal discussion period can damage the contractor’s ability to obtain government business. Thus, a contractor who receives notice of potential suspension or debarment should seek their attorney’s advice immediately. The contractor, with counsel, may then negotiate with the Suspension/Debarment Officer(s) and attempt to agree on actions that will demonstrate that the contractor is “presently responsible” (regardless of past misconduct). In this situation, the Government will typically require assurances that the contractor will not let the misconduct recur. Those assurances frequently come in the form of an enhanced ethics enforcement policy—yet another reason why every contractor should have a strong ethics policy in place from the beginning.

If the Government proceeds to an actual suspension or debarment, then the contractor will have an opportunity to dispute the suspension or debarment with the Suspension Officer or Debarment Officer of the government agency that issued the sanction. The contractor has 30 days to argue its case. The contractor can ultimately dispute the suspension/debarment in federal court, though the court will intervene only if the agency’s action was “arbitrary or capricious.”

Conclusion

Suspension and debarment are extreme measures, taken by the Government only under extreme circumstances. All government contractors should be aware of the reasons the government may take these actions, and businesses should work proactively to avoid suspension and debarment. Most importantly, a contractor’s senior management must recognize the critical importance of ethical behavior, and must implement procedures to prevent and combat unethical behavior.

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