A Practitioner s Guide to Suspension, Debarment and Contractor Responsibility

Transcription

1 A Practitioner s Guide to Suspension, Debarment and Contractor Responsibility Introduction Rodney A. Grandon Deputy General Counsel (Contractor Responsibility & Conflict Resolution) Department of the Air Force * As the world s largest consumer of products and services, the United States Government expects its contractors and subcontractors to conduct themselves responsibly in their business practices. 1 Federal agencies have a collective obligation to ensure the government does business with contractors that have the ability to perform the contract, as well as a satisfactory record of integrity and business ethics. To that end, federal policy requires that agencies shall solicit offers from, award contracts to, and consent to subcontracts with responsible contractors only. 2 When a contractor demonstrates a lack of responsibility, the government is obligated to examine carefully whether it is in the public s interest to exclude that contractor from entering into new contracts and subcontracts with federal agencies through suspension and debarment. 3 Suspension and debarment are discretionary administrative actions taken pursuant to the Federal Acquisition Regulation (FAR) to protect the public s interest from nonresponsible contractors. 4 Suspension is a temporary, indefinite period of contractor ineligibility used where there is an immediate need to protect the government from nonresponsible contractors, usually during an investigation or related legal proceedings. 5 Debarment is a specific term of contractor ineligibility used to protect the government from entities found to be nonresponsible contractors. 6 Agency Suspending and Debarring Officials (SDOs) are vested with authority to suspend or debar contractors. 7 Given the severe nature of suspension and debarment, SDOs may impose these remedies only in the public interest for the government s protection, and not for purposes of punishment. 8 Not every act of misconduct that triggers a cause for suspension or debarment results in such an action, as there are many factors mitigating and aggravating that have significant impact on decisions to suspend or debar. SDOs must focus on whether the contractor is presently responsible, even where the evidence establishes a cause for suspension or debarment. Defining contractor responsibility, however, can be challenging, as contractor responsibility touches on almost every aspect of a contractor s activities, including the conduct of the individuals employed by or acting on behalf of that enterprise; the nature of business operations and related risks; the contractor s internal policies, practices, and controls; the contractor s leadership; and the overall culture of the workforce. * The views expressed in this paper are the views of the author and do not necessarily represent the views of the Department of the Air Force.

2 This paper first presents an overview of suspension and debarment, how the remedies are the same and how they differ, along with an examination of the scope and impact of suspension and debarment. Next, the paper takes a closer look at the authorities, processes, and practices associated with suspension and debarment, with a view towards enabling practitioners to navigate successfully the challenges associated with suspension and debarment, while avoiding many common pitfalls. The final section of the paper examines contractor responsibility, as contractor responsibility is the ultimate focus of suspension and debarment actions. Suspension and Debarment Similar, Yet Different As noted above, suspension and debarment are tools available to the government to ensure agencies solicit offers from, award contracts to, and consent to subcontracts with responsible contractors. The practitioner must understand the difference between suspension and debarment in terms of the purpose and the scope of each type of action, as well as the evidentiary standards necessary to support suspensions and debarments. Suspension. SDOs may suspend a contractor to protect the public s interest based on adequate evidence of the commission of specified crimes or other specified misconduct, or the commission of any other offense indicating a lack of business integrity or business honesty that seriously and directly affects the present responsibility of a contractor or subcontractor. Indictment for any of the specified causes constitutes adequate evidence for suspension. 9 SDOs may also suspend a contractor upon adequate evidence of any other cause of so serious or compelling a nature that it affects the present responsibility of a contractor or subcontractor. 10 As a general notion, adequate evidence is analogous to probable cause. A suspension is for a temporary, undefined period, pending completion of legal proceedings (including appeals) or the government s investigation of the allegations. 11 The suspension may not exceed one year, however, unless (i) the contractor has been indicted, or (ii) the Department of Justice requests an extension for an additional 6 month period so as to enable the completion of the investigation. 12 Debarment. SDOs may propose contractors for debarment or debar contractors based on a conviction or civil judgment for specified crimes and other misconduct. 13 SDOs may also debar contractors based upon a preponderance of the evidence for specified conduct, including willful or repeated violations of the terms of a government contract or subcontract, 14 and for any other cause of so serious or compelling a nature that it affects the present responsibility of the contractor or subcontractor. 15 Debarments shall be for a period commensurate with the seriousness of the underlying causes, but generally, in the absence of a stated exception, should not exceed three years. 16 If suspension precedes a debarment, the suspension period shall be considered in determining the debarment period. 17 Vicarious Liability. Following a determination that a contractor has engaged in actionable misconduct, the SDO may suspend or debar an affiliate of that contractor, if the affiliate is given notice and an opportunity to respond. 18 Generally, persons and entities are affiliates of 2

3 each other if either have the power to control the other, or a third party has the power to control both. 19 Indicia of control include interlocking management or ownership, identity of interests among family members, shared facilities and equipment, common use of employees, or a business entity organized following the suspension, debarment or proposed debarment of a contractor which has the same or similar management, ownership, or principal employees as the ineligible contractor. 20 An SDO also can suspend or debar a person or entity, even if that person or entity has not directly committed any misconduct or is not an affiliate of the wrongdoer, based on the imputation of actionable misconduct of others to that person or entity. 21 The fraudulent, criminal, or other seriously improper conduct of any officer, director, shareholder, partner, employee, or other individual associated with the contractor may be imputed to the contractor when the conduct occurred in connection with the individual s performance of duties for or on behalf of the contractor, or with the contractor s knowledge, approval, or acquiescence. 22 Conversely, the fraudulent, criminal, or seriously improper conduct of a contractor may be imputed to any officer, director, shareholder, partner, employee, or other individual associated with the contractor who participated in, knew of, or had reason to know of the contractor s misconduct. 23 Compelling Reason Determination. Contractors debarred, suspended, or proposed for debarment are ineligible to receive contracts and certain subcontracts, and federal agencies shall not solicit offers from, award contracts to, or consent to subcontracts with the contractors, unless the agency head determines there is a compelling reason for such action. 24 This prohibition extends to placing orders exceeding guaranteed minimum quantities under indefinite delivery, indefinite quantity contracts; placing orders under the Federal Supply Schedule contracts, blanket purchase agreements, or basic ordering agreements; or adding new work, exercising options, or otherwise extending the duration of current contracts or orders unless the agency head determines there is a compelling reason for such action. 25 Federal agencies may enter into new contracts with contractors, even after they are debarred or suspended, if a determination is made that there is a compelling reason to do so. 26 If the property or service is available only from the suspended or debarred contractor, or if the urgency of the requirement dictates use of the suspended or debarred contractor, a factual basis may exist for a compelling reason determination. For example, an agency would be able to obtain widgets from Company A even after its debarment, if widgets are critical to the government mission, and there are no other sources of the specific widgets reasonably available in time to meet the government s requirement. Note, however, agencies rarely use a compelling need determination to override a suspension or debarment. 3

4 Suspension and Debarment Considerations for the Practitioner Suspension and debarment are discretionary actions. The SDO must determine whether taking action is necessary to protect the government s interest. The existence of a cause for suspension or debarment is not necessarily dispositive. Determining whether a contractor should be suspended or debarred requires the SDO to consider first whether evidence in the administrative records supports the underlying cause for suspension or debarment by the required evidentiary standard. This evidentiary burden falls on the government. 27 If the government satisfies the evidentiary burden the examination shifts to determining whether the contractor is presently responsible, notwithstanding the existence of the underlying cause. The contractor (often referred to during the pendency of an action as a Respondent ) must meet the burden of establishing present responsibility. 28 The suspension and debarment process requires all parties to engage in an exchange of information necessary to create a well-developed administrative record upon which the SDO may make a business decision on behalf of the government. While the process includes many of the elements encountered in litigation notice, opportunity to respond, evidence, due process, decisions, hearings, etc. agencies should keep the process as informal as practicable, consistent with principles of fundamental fairness for the contractor. 29 All communications with the SDO must be based on open, honest dialogue. A contractor should consider opening a dialogue with the SDO as soon as possible after discovering activity that may undermine its standing as a responsible contractor. By bringing the matter to the attention of an appropriate government agency the contractor gains positive consideration under the FAR suspension and debarment factors. 30 Such conduct also demonstrates cooperation with government agencies 31 and management recognition and understanding of the seriousness of the underlying conduct. 32 Respondents should avoid a confrontational tone or elusive approach with the SDO. First, such an approach would be at odds with the factors set forth at FAR Second, such an approach does little to facilitate the information exchange necessary to assess present responsibility. A respondent should recognize its response to alleged misconduct (i.e., how did it respond once it discovered misconduct) often is more important for establishing its present responsibility than disproving or minimizing the alleged misconduct. Initiating the action. Suspensions and debarments generally can be described as being either judicial-based actions (i.e., based on an indictment, a criminal conviction, or a civil judgment), or fact-based actions requiring either adequate evidence to support a suspension or a preponderance of the evidence to support a debarment. SDOs may initiate actions against contractors for any of the causes set forth in the FAR where the contractor s conduct demonstrates a lack of responsibility, including conduct unrelated to a government contract (e.g., a matter involving violation of the Foreign Corrupt Practices Act). 4

5 Once the SDO determines there is sufficient evidence to support a suspension or debarment, as well as a need for an exclusion, the SDO initiates the action by sending a notice to the contractor. Among other requirements, the SDO s notice must advise the contractor of the action being considered, the reasons for the action in terms sufficient to put the contractor on notice of the conduct upon which the action is based, the effects of the suspension or debarment, and the contractor s opportunity to respond to the action. 33 The contractor s name is then posted onto the System for Award Management (SAM) website ( signifying the person s immediate ineligibility for new contracts. 34 Under appropriate circumstances, SDOs may elect to initiate an exchange with the contractor in a manner that does not impose an exclusion. One common tool for doing so is referred to as a Show Cause Letter. Show Cause Letters are used by SDOs to provide notice to the contractor of serious concerns relating to the contractor s present responsibility and an opportunity to respond to the SDO s concerns. SDOs frequently use Show Cause Letters where there is sufficient information to establish a cause for exclusion, but where the information may be too one-sided or where the SDO may be concerned about the credibility or even the staleness of the factual record. Another non-exclusionary tool is referred to as a Request for Information. Like a Show Cause Letter, the Request for Information provides the contractor notice of the SDO s concerns and an opportunity to respond. SDOs frequently use Requests for Information where the public record (i.e., a press report) raises concerns about the contractor s responsibility, but where there is not yet a more reliable record upon which to begin a responsibility review. Show Cause Letters and Requests for Information in many cases result in establishing a contractor s present responsibility without the need for an exclusion. Note, however, a contractor s failure to respond to such correspondence from the SDO, or failure to adequately address the concerns raised in a Show Cause Letter or Request for Information, could result in the agency initiating an action to exclude the contractor. Administrative Record. The documentary evidence considered by the SDO constitutes the administrative record. The record generally starts with a rather one-sided set of documents developed by the government team recommending the action, but expands as information is presented by the contractor and government stakeholders over the course of the proceeding. The FAR does not expressly require the government to provide respondents with a copy of the record. Notwithstanding the lack of such language, SDOs provide contractors with a copy of the administrative record, although some agencies like DoD agencies do so only upon the respondent s request. 35 Respondents are not entitled to conduct discovery. 36 (This holds true even if the respondent files suit in federal district court seeking review of the SDO s decision under the Administrative Procedures Act. 37 The court s review is limited to the administrative record considered by the SDO. 38 ) Expect Parallel Proceedings -- Coordination of Procurement Fraud Remedies. DoD Instruction , Coordination of Remedies for Fraud and Corruption Related to Procurement Activities (May 12, 2014), mandates that each DoD component shall monitor, from its inception, all 5

6 significant investigations of fraud or corruption related to procurement activities. 39 The monitoring shall ensure that all possible criminal, civil, contractual, and administrative remedies are identified... and that appropriate remedies are pursued expeditiously. 40 Moreover, when appropriate, contractual remedies or suspension and debarment may be taken before final resolution of the criminal or civil case after appropriate coordination. 41 When misconduct is discovered, contractors should expect the government to pursue all appropriate remedies. The practitioner must recognize that suspension and debarment are only two of the many remedies available to the government to address contractor misconduct. These remedies can be worked sequentially or concurrently. When worked concurrently, these efforts often are referred to as parallel proceedings. In most cases, the Department of Justice (DoJ) will coordinate civil and criminal remedies among the appropriate DoJ divisions and U.S. Attorney offices. Agencies have responsibility for coordinating contractual and administrative (i.e., suspension and debarment) remedies, and for ensuring appropriate coordination with and support for the civil and criminal cases. Fortunately, DoJ also recognizes the need to coordinate remedies, and, where appropriate, pursue parallel proceedings. In a memorandum dated January 30, 2012, the Attorney General reiterated the importance of pursuing appropriate remedies through parallel proceedings: Department policy is that criminal prosecutors and civil trial counsel should timely communicate, coordinate, and cooperate with one another and agency attorneys to the fullest extent appropriate to the case and permissible by law, whenever an alleged offense or violation of federal law gives rise to the potential for criminal, civil, regulatory, and/or agency administrative parallel (simultaneous or successive) proceedings. By working together in this way, the Department can better protect the government s interests (including deterrence of future misconduct and restoration of program integrity) and secure the full range of the government s remedies (including incarceration, fines, penalties, damages, restitution to victims, asset seizure, civil and criminal forfeiture, and exclusion and debarment). 42 Of significance, the Attorney General s memorandum notes the need for early and appropriate coordination of remedies. 43 From the agency s perspective, early coordination is critical to achieve an effective fraud remedies response. Early coordination of remedies allows the government stakeholders the opportunity to share and to take advantage of information developed through various investigations and remedial efforts. For example, information gained through the criminal investigation and related proceedings with the exception of information protected by Rule 6(e) and other information that the government must closely control to preserve the integrity of an investigation can be shared by investigators with agency SDOs and government acquisition officials. Likewise, information gained by acquisition officials and SDOs can be shared with criminal investigators, as well as the government attorneys working the 6

7 criminal and civil cases. For businesses dependent on federal contracts or other federal funding sources, this coordinated government response presents a potential dilemma. Perhaps the greatest challenge facing contractors is determining the degree to which the contractor will cooperate with the government during investigations or court proceedings. This can present a particularly difficult challenge when the contractor is responding to several concurrent activities, including suspension or debarment. The SDO will insist on transparency, candor, and full cooperation from the contractor. Moreover, in determining whether suspension or debarment is necessary to protect the government s interest the SDO will consider factors called out at FAR 9.406, including: (1) whether the contractor brought the activity cited as a cause for debarment to the attention of the appropriate government agency in a timely manner; (2) whether the contractor has fully investigated the circumstances surrounding the cause for debarment and, if so, made the result of the investigation available to the government; and (3) whether the contractor cooperated fully with government agencies during the investigation and any court or administrative action. The contractor must expect information provided to the SDO will be shared with investigators, as well as those government officials working the civil, criminal, or contractual remedies. Conversely, contractors should also expect the SDO s office will be kept abreast of most developments in the civil or criminal cases. What does this mean for the practitioner? It requires legal counsel to recognize the multiple internal and external stakeholders (e.g., acquisition officials, agency leadership, offices of inspectors general, investigators, DoJ lawyers, U.S. Attorney offices, and SDOs), and the range of remedies available in a given situation. Counsel should expect agencies to move expeditiously to coordinate and to pursue appropriate remedial measures. This means that agencies are not likely to wait for indictments or convictions before beginning to pursue remedies. Rather, agencies are likely to move as quickly as the evidence and the circumstances permit, particularly as it relates to protecting the public s interest through a suspension or proposed debarment. Presentation of matters in opposition. Within 30 days after receipt of the notice, the respondent may submit in person or in writing (or both), directly or through a representative, information and argument in opposition to the action. 44 As a practical matter, many SDOs encourage respondents to submit a written response in opposition before conducting a meeting, as having the written submission before the meeting allows for a more informed and productive meeting between the respondent and SDO. Most SDOs will insist on a full and complete disclosure of the circumstances underlying the alleged misconduct, including copies of reports of internal investigations and the identification of all persons involved in the alleged wrongdoing. 45 All documents submitted by the respondent will be included in the administrative record. In any response to the SDO the respondent must provide input directly from company officials. After all, those officials should be in the best position to address matters pertaining to the company s present responsibility, including steps taken by the respondent to prevent and to 7

8 identify the circumstances that led to the action, as well as the company s response to the incident. It does little good for a company s outside counsel to address these matters without the participation of company officials. Respondents should expect the SDO to distribute their written submissions to the government proponents of the suspension or debarment action, to include the government lawyer(s) handling the action, the contracting officer, and/or the investigator(s) familiar with the proposed action. In multi-party actions involving common allegations of misconduct, the SDO may also distribute some or all portions of a respondent s submission to the other parties as part of an expanded administrative record to the extent information presented in the submission is relevant and will be considered as part of the record in the related action. In some situations it may be necessary to redact portions of a respondent s submission before releasing the submission to other parties to protect sensitive information. The need for redactions will be determined by the SDO on a case-by-case basis. As it relates to in-person meetings between the respondent and the SDO to present matters in opposition, SDOs typically invite the government proponents of the underlying action to the meeting. Respondents should not assume the government will capture and include in the administrative record new information presented during an in-person meeting the respondent deems critical to its response. SDOs typically make this clear to the respondent, and offer the respondent an opportunity to make a supplemental written submission following the meeting (the same opportunity may be presented to the government proponents). Respondents must ensure critical new information introduced during an in-person meeting is reduced to writing and made part of the administrative record. Rather than contest the facts alleged in the notice of the suspension or proposed debarment, many contractors choose to focus their submissions primarily on their present responsibility. Such an approach can be effective, particularly where the contractor had robust controls and programs in place to prevent, detect, and respond to the misconduct; where there is no dispute as to the underlying misconduct; or where several years have elapsed between the date of the actionable misconduct and the initiation of the suspension/debarment action. If the misconduct forming the basis for the cause of the suspension or debarment is proven or not in dispute, it is critical to recognize that it is the contractor s burden to demonstrate present responsibility. 46 Fact finding. In actions based on an indictment, conviction or civil judgment, disputes involving the underlying facts raised by the contractor in its submissions will not trigger a genuine dispute of material fact, because such judicial actions provide sufficient evidentiary bases for suspensions and debarments. 47 In a fact-based action, however, if the SDO decides the respondent has raised a genuine dispute of material fact as to each independent basis for a suspension or proposed debarment, then the SDO may conduct, or refer the matter to another official to conduct, a fact-finding proceeding and to make findings of fact. 48 The government is obligated to reduce those findings of fact to writing and make the findings part of the 8

9 administrative record. The SDO must base his/her decision using the findings of fact. In these fact-finding proceedings the respondent shall be given an opportunity to appear with counsel, submit documentary evidence, present witnesses, and confront any person the agency presents. 49 The agency also must prepare a transcript of the proceeding and make a copy of the transcript available to the respondent. 50 SDO Debarment Decisions. The FAR requires SDOs to decide a given matter within 30 working days after receipt of information and argument submitted by the respondent. 51 The SDO, however, may extend this period for good cause. 52 In many cases the SDO will extend the period to provide government stakeholders and the respondent an opportunity to comment on information submitted by the opposing side. Once this iterative process is completed, the SDO will close the record starting the clock on the 30 working days in which to issue a decision. After the administrative record is closed, the SDO must determine whether the facts initially alleged in the notice of suspension or notice of proposed debarment meet the required evidentiary standard in light of the information provided by the respondent. If the facts no longer provide adequate evidence supporting a cause for a suspension, or no longer establish a cause for debarment by a preponderance of the evidence, the SDO must terminate the action. If the SDO determines the evidence establishes a cause for exclusion, and the contractor failed to meet its burden of demonstrating present responsibility, the SDO likely will debar or suspend the contractor. If, on the other hand, the contractor proves it is presently responsible as a result of appropriate remedial measures and mitigating factors, notwithstanding evidence establishing the underlying cause for exclusion, the SDO likely will terminate the action. Administrative Agreements. Under appropriate circumstances an SDO may decide suspension/debarment is not necessary to protect the public s interest, provided the contractor is willing to enter into an administrative agreement. 53 Administrative agreements, signed by the SDO and the contractor, generally have a three-year term. The agreements incorporate remedial measures taken, or to be taken, by the contractor which led to the SDO s willingness to enter into the agreement, and require the contractor to prepare and submit reports to the SDO to verify compliance. 54 So long as the contractor satisfies the terms of the agreement, the contractor establishes its present responsibility. The contractor acknowledges in the agreement that any violation of the agreement evidences lack of responsibility, and may form a new (and immediate) basis for debarment. The parties should seek to tailor each administrative agreement to address the specific circumstances that led to the underlying action. The terms of the agreement should serve at least one of two general objectives: helping the contractor to implement appropriate controls, practices, and programs to establish responsibility, and/or providing necessary information to the government to facilitate appropriate oversight of the contractor s efforts. Some of the provisions typically used in the agreements include: 9

10 requiring the contractor to engage an outside consultant or independent monitor (approved by the SDO) to perform reviews of the contractor s internal controls and ethics programs and to provide those reviews directly to the SDO and to the contractor; requiring the contractor to audit and report its efforts to implement appropriate controls, practices, and programs; requiring the contractor to provide periodic summaries of calls to the contractor s Hotline, and measures taken by management in response to such calls; requiring the contractor to describe all ethics and compliance training conducted during specified reporting periods; and requiring the contractor to report all known fraud related litigation and investigations, as well as all known misconduct, regardless of whether it is the subject of litigation or investigation. Contractor Responsibility Contractor responsibility is an essential quality for any contractor seeking to do business with the federal government, and it goes to the heart of every suspension or debarment decision. That being said, what is meant by contractor responsibility is not defined or described in any single source. There are, however, various authorities that provide useful guidance for understanding what is required to be a responsible contractor, including the FAR and the United States Sentencing Commission, Guidelines Manual. FAR provides that [p]urchases shall be made from, and contracts shall be awarded to, responsible prospective contractors, 55 and that [n]o purchase or award shall be made unless the contracting officer makes an affirmative determination of responsibility. 56 Under FAR Subpart 9.1, general elements of contractor responsibility include having adequate financial resources to perform a contract; the ability to perform and deliver in accordance with the terms and conditions of a contract; a satisfactory performance record; a satisfactory record of integrity and business ethics; the necessary organization and experience; and equipment and facilities necessary to perform a contract. 57 Government contracting officers consider these elements as part of every pre-award contractor responsibility determination. 58 These elements provide a solid foundation from which to understand contractor responsibility. When presented with allegations of contractor misconduct or poor performance in the context of a suspension or debarment action the notion of contractor responsibility expands to include consideration of the factors listed at FAR : whether the contractor had effective standards of conduct or internal controls in place at the time of the actively forming the basis for the suspension or debarment; whether the contractor timely disclosed the activity forming the basis for the action to the government; 10

11 whether the contractor has fully investigated the matter and made the results available to the debarring official; whether the contractor has cooperated with the government during the investigation and legal proceedings; 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. Recognizing that contractors must conduct themselves with the highest degree of integrity and honesty, 59 the FAR provides that all contractors should have a written code of business ethics and conduct combined with appropriate training programs and internal controls. 60 Contractors awarded a federal contract with a value expected to exceed $5,500,000 and with a performance period 120 days or more are required to have a code of business ethics and conduct within 30 days after contract award, if the contractor does not already have a code in place prior to contract award. 61 In assessing contractor responsibility, SDOs will consider whether a contractor has a code of business ethics and conduct, and, provided such a code exists, the extent to which the code is actually used to govern and guide business operations and decisions. The code and related training and internal controls should be suitable to the size of the company and extent of the company s involvement in contracting with the United States Government; the code should facilitate timely discovery and disclosure of improper conduct; and they should ensure corrective measures are promptly carried out. If the contractor is required to have a code, it must, at a minimum, make a copy of the code available to each employee engaged in performance of the government covered contract; exercise due diligence to prevent and detect criminal conduct; and promote an organizational culture that encourages ethical conduct and a commitment to compliance with the law. 62 Internal Controls. Companies use internal controls to provide standardized approaches for the conduct of business operations. Through the use of standardized, consistently applied processes companies position themselves to conduct business in such a way as to deter fraud and other misconduct, to foster compliance with legal requirements, to ensure accuracy in reporting, and to facilitate audit and oversight. A contractor s need for internal controls depends greatly on the specific risks associated with its business activities. There are, however, many areas of risk common to government contractors that should be covered by appropriate company policies and 11

12 practices. Those common areas include cost estimating, cost accounting, purchasing, inspecting, hiring, exporting, security (including cybersecurity), business development, and using agents and other representatives. Contractors need to be aware of changes in legal requirements and sensitive to shifts in the business environment to ensure they have a set of controls appropriate for the current risks to which they are exposed in their business operations. Compliance Programs. An effective compliance program should be designed, implemented, and enforced so that it will motivate desired behavior, providing a firm foundation for preventing and detecting misconduct. At a minimum an effective program should include the following seven factors identified in the United States Sentencing Commission, Guidelines Manual, 63 all of which are useful for assessing contractor responsibility: 1. Similar to internal controls (internal controls should be part of the overall compliance program) the contractor should have established compliance standards and procedures to be followed by company employees and other agents that are reasonably capable of reducing the prospect of misconduct. These standards and procedures should be tailored to address the specific risks faced by the contractor (e.g., country risks; client or customer risks; regulatory risks; and business sector risks). 2. Specific senior officials within the organization should have been assigned overall responsibility to oversee compliance with the established standards and procedures. 3. The contractor should avoid delegating significant discretionary authority to those within the organization officials knew, or should have known, had a history of poor performance or misconduct. 4. The contractor should have taken steps to train all employees and other agents on its standards and procedures. 5. The contractor should have taken reasonable steps to achieve success with its standards and procedures by monitoring and auditing compliance. 6. The standards must be enforced through appropriate reinforcement of positive behavior, and disciplinary actions for engaging in misconduct or failing to detect or report misconduct. 7. Following discovery of misconduct, the contractor must have taken all appropriate steps to respond to the misconduct to prevent similar future events. Values-Based Ethics Programs. Internal controls and compliance-based rules will take a company only so far in terms of promoting overall responsibility. Compliance-based rules are designed to establish boundaries based on laws, rules, and other requirements, the violation of which generally carries adverse consequences. For purposes of assessing contractor responsibility, most SDOs treat compliance as a neutral factor after all, the company is doing merely what it is required to do. The challenge for many contractors is to take it to the next 12

13 level, a level that will prepare and assist employees with navigating unknown or uncertain circumstances; a level that will empower employees to raise concerns and ask questions without fear of retribution; a level that promotes integrity and candor within and outside the company. A values-based ethics program establishes and promotes core values; that is, values important to the organization. (By way of example, Air Force core values are: Integrity first. Service before self. Excellence in all we do.) Those core values must be driven by leaders at all levels of the enterprise, in communication and behavior, and embraced by all throughout the organization. A successful program ideally will promote a culture that will not tolerate poor performance or misconduct. Contractors should be aware of best practices among industry peers, and strive to adopt those best practices in its business operations. Ethics and compliance programs are scalable. A small business concern need not make the investment committed by a large company to achieve desired results. A small business can build a robust compliance program around strong ethical leadership committed to conducting business operations with the highest integrity, combined with common-sense policies and procedures aimed at preventing misconduct, identifying problems when they arise, and a willingness to respond responsibly when faced with questionable conduct. Relatively low-cost options to achieve these objectives include promoting open communications throughout the workforce to allow employees to raise concerns without fear of retribution; an ongoing assessment of operational risks; appropriate policies, procedures, and training tailored to the risk environment; and designating a single person in the organization as the compliance champion. A successful ethics and compliance program must address, at a minimum: What does the contractor intend to do to prevent misconduct from occurring? What controls does the contractor intend to impose to help identify misconduct? How does the contractor intend to respond once the problem is discovered? Robust contractor programs to prevent, identify, and respond to misconduct should be an integral part of a contractor s business operations. Even with robust world-class programs, however, for some contractors it will be impossible to prevent acts of misconduct within their organizations. Recognizing that reality, in many cases the more critical questions for SDOs are 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? Conclusion Suspension and debarment are powerful remedies available to the government to respond to contractor misconduct. Contractors should recognize, however, that not every misstep will cost them their opportunity to conduct business with the federal government. SDOs exercise independent discretion to suspend or debar. That discretion is important. For many contractors it will be impossible to prevent every act of misconduct within their operations. Accordingly, while evidence of the alleged misconduct has a significant bearing on whether to suspend or 13

14 debar, the more critical questions for SDOs often focus on other matters bearing on the contractor s present responsibility: 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? How did the contractor respond once the problem was discovered? Robust programs to prevent, identify, and respond to misconduct must be at the core of the contractor s business enterprise, as they go to the heart of contractor responsibility. With these programs in place, a contractor should be well situated to avoid suspension and debarment altogether. Should problems arise, however, contractors with robust programs in place will find they are in a better position to engage with an SDO for purposes of establishing present responsibility. 1 See FAR FAR 9.402(a). 3 This discussion is limited to the application of suspension and debarment in the U.S. DoD procurement context. FAR Subpart 9.4, Defense Federal Acquisition Regulation Supplement (DFARS) Subpart 209.4, and individual agency FAR supplements (e.g., Air Force Federal Acquisition Regulation Supplement (AFFARS) Subpart ) set forth the policies and procedures governing suspensions and debarments by the DoD SDOs. In accordance with Public Law , Section 2455 (31 U.S.C. 6101, note), and Executive Order 12689, any debarment, suspension or other government-wide exclusion initiated under the Nonprocurement Common Rule implementing Executive Order on or after August 25, 1995, shall be recognized by and effective for Executive Branch agencies as a debarment or suspension under FAR Subpart 9.4. Similarly, any debarment, suspension, proposed debarment or other government-wide exclusion initiated on or after August 25, 1995, under FAR Subpart 9.4 shall also be recognized by and effective for those agencies and participants as an exclusion under the Nonprocurement Common Rule. FAR FAR 9.402(a). Contractor is defined as any individual or legal entity that (1) directly or indirectly submits offers for or is awarded, or reasonably may be expected to submit offers for or be awarded, a government contract, or a subcontract under a government contract; or (2) conducts business, or reasonably may be expected to conduct business, with the government as an agent or representative of another contractor. FAR FAR FAR See Defense Federal Acquisition Regulation Supplement (DFARS) for a list of DoD SDOs. 8 FAR 9.402(b). 9 FAR (b). 10 FAR (c). 11 FAR (a). 12 FAR (b). 13 FAR (a). 14 FAR (b). 15 FAR (c). 16 FAR (a). DoD SDOs have debarred contractors for much shorter periods than three years, based upon a showing of mitigating circumstances, and for decades based upon findings of egregious or repeated misconduct. 17 FAR (a)(2). 18 FAR (b); FAR (c). See also Agility Defense & Government Services v. U.S. Department of Defense, No. 5:11-cv CLS (11 th Cir. Dec. 31, 2013) (the court concluded the indictment of a contractor authorized the government to suspend affiliates of the indicted contractor, without any showing of wrongdoing by the affiliated contractor, for the duration of the legal proceedings against the indicted contractor). 19 FAR Id. 21 FAR ; FAR FAR (a); FAR FAR (b); FAR FAR 9.405(a). 14

15 25 FAR (b). 26 FAR 9.405(a). 27 FAR (d)(3); FAR (a). 28 FAR (a); FAR (b)(2). 29 FAR (b)(1). 30 See generally FAR ; FAR (a)(2). 31 FAR (a)(4). 32 FAR (a)(10). 33 FAR (c); FAR (c). 34 The exclusion is immediate; it is not dependent on receipt of notice or any other events. 35 DFARS App. H-101: A copy of the record which formed the basis for the decision by the debarring and suspending official will be made available to the contractor. If there is a reason to withhold from the contractor any portion of the record, the contractor will be informed of what is withheld and the reasons for such withholding. 36 See Commercial Drapery Contractors, Inc. v. United States, 133 F.3d 1, 7 (D.C. Cir. 1998). 37 Administrative Procedures Act, 5 U.S.C. 551, et seq. Claims that an SDO s decision are arbitrary, capricious, and in violation of federal regulations and statutes are reviewed under the Administrative Procedures Act, see 5 U.S.C. 706(2)(A), (B), which limits review to the administrative record... except when there has been a strong showing of bad faith or improper behavior or when the record is so bare that it prevents effective judicial review. Commercial Drapery Contractors, at 7, citing, Citizens to Preserve Overton Park v. Volpe, 401 U.S. 402, 420 (1971); Community for Creative Non-Violence v. Lujan, 908 F.2d 992, (D.C. Cir. 1990). 38 Commercial Drapery Contractors, 133 F.3d at DoD Instruction (May 12, 2014), at Id. 41 Id. at Memorandum, Office of the Attorney General, Coordination of Parallel Criminal, Civil, Regulatory, and Administrative Proceedings, January 30, Id. 44 FAR (c)(4); FAR (c)(5). 45 See FAR (a)(2). SDO s should consider whether the contractor has fully investigated the circumstances surrounding the cause for debarment and, if so, made the result of the investigation available to the debarring official. As a matter of advocacy, the report of internal investigation provided to the SDO should be the one drafted for management. A sanitized copy prepared for the government will be less persuasive. 46 FAR (a); FAR (b)(2). 47 FAR (b)(2) & (d); (b). 48 FAR (d)(2)(i); FAR (d)(2)(i). 49 FAR (b)(2); FAR (b)(2). 50 Id. 51 FAR (d)(1). 52 Id. 53 DFARS (a). 54 Id. 55 FAR 9.103(a). 56 FAR 9.103(b). 57 FAR FAR 9.103(b). 59 FAR (a). 60 FAR (b). 61 FAR (a); FAR (b)(1). 62 Id. 63 United States Sentencing Commission, Guidelines Manual, 8A1.2(3)(k) (Nov. 1993). 15