Bob Wagman

Guaranteed to create uncertainty, the Consolidated Appropriations Act of 2012 (Pub. L. 112-74), which President Obama signed into law on December 23, 2011 (the “Act”), included several little-noticed provisions generally excluding the use of federal funds for any corporation convicted of a felony within the past 24 months. All of these provisions establish a unique procedure whereby the statutory exclusion is only triggered when the awarding agency is “aware of the conviction” and the agency’s consideration of suspension and debarment provides the relief from the statutory exclusion for the contractor. 

And it gets even more curious. The Act is a consolidation of nine different appropriations bills (delineated as Divisions under the Act) appropriating funds for FY 2012. As set forth below, Congress has inexplicably included the exclusion provisions in only five of the nine divisions comprising the Act, and equally inexplicably used different standards in the exclusion provisions. The covered divisions of the Act and the specific language include:

DIVISION A—DEPARTMENT OF DEFENSE APPROPRIATIONS ACT, 2012

SEC. 8125. None of the funds made available by this Act may be used to enter into a contract, memorandum of understanding, or cooperative agreement with, make a grant to, or provide a loan or loan guarantee to, any corporation that was convicted of a felony criminal violation under any Federal law within the preceding 24 months, where the awarding agency is aware of the conviction, unless the agency has considered suspension or debarment of the corporation and made a determination that this further action is not necessary to protect the interests of the Government.

DIVISION B—ENERGY AND WATER DEVELOPMENT APPROPRIATIONS ACT, 2012

SEC. 504. None of the funds made available by this Act may be used to enter into a contract, memorandum of understanding, or cooperative agreement with, make a grant to, or provide a loan or loan guarantee to any corporation that was convicted (or had an officer or agent of such corporation acting on behalf of the corporation convicted) of a felony criminal violation under any Federal law within the preceding 24 months, where the awarding agency is aware of the conviction, unless the agency has considered suspension or debarment of the corporation, or such officer or agent, and made a determination that this further action is not necessary to protect the interests of the Government.

(emphasis added). 

DIVISION C—FINANCIAL SERVICES AND GENERAL GOVERNMENT APPROPRIATIONS ACT, 2012

SEC. 631. None of the funds made available by this Act may be used to enter into a contract, memorandum of understanding, or cooperative agreement with, make a grant to, or provide a loan or loan guarantee to, any corporation that was convicted or had an officer or agent of such corporation acting on behalf of the corporation convicted of a felony criminal violation under any Federal law within the preceding 24 months, where the awarding agency is aware of the conviction, unless the agency has considered suspension or debarment of the corporation, or such officer or agent and made a determination that this further action is not necessary to protect the interests of the Government.

(emphasis added).

DIVISION F—DEPARTMENTS OF LABOR, HEALTH AND HUMAN SERVICES, AND EDUCATION, AND RELATED AGENCIES APPROPRIATIONS ACT, 2012

SEC. 433. None of the funds made available by this Act may be used to enter into a contract, memorandum of understanding, or cooperative agreement with, make a grant to, or provide a loan or loan guarantee to, any corporation that was convicted (or had an officer or agent of such corporation acting on behalf of the corporation convicted) of a felony criminal violation under any Federal law within the preceding 24 months, where the awarding agency is aware of the conviction, unless the agency has considered suspension or debarment of the corporation, or such officer or agent and made a determination that this further action is not necessary to protect the interests of the Government.

(emphasis added).

DIVISION H—MILITARY CONSTRUCTION AND VETERANS AFFAIRS AND RELATED AGENCIES APPROPRIATIONS ACT, 2012

SEC. 514. None of the funds made available by this Act may be used to enter into a contract, memorandum of understanding, or cooperative agreement with, or to make a grant to, any corporation that was convicted of a felony criminal violation under any Federal or State law within the preceding 24 months, where the awarding agency is aware of the conviction, unless the agency has considered suspension or debarment of the corporation and made a determination that this further action is not necessary to protect the interests of the Government.

(emphasis added).

There appears to be no rational basis for Congress including the statutory exclusion in only five of the Act’s nine divisions. Likewise, there does not appear to be any logical reason for the substantial and meaningful variances between the five provisions. Our research has revealed only very limited legislative history, which is not substantive and does not offer any guidance into Congress’ rationale. Nonetheless, based on the plain language of the various provisions, the only apparent reasonable reading is that Congress has established disparate standards for different agencies depending on the source of funding. 

More unsettling, the Act also leaves open a number of questions, which may be resolved through litigation. For example, the exclusion is only triggered if the “awarding agency” is “aware” of the conviction. However, the statute does not specify who must be aware – e.g., the contracting officer or any particular government official. Thus, presumably, the statutory trigger could be interpreted extremely broadly to mean any employee in the entire agency. Additionally, the statute refers to “any” felony, which is much broader than those crimes related to a government contract that would require reporting under the mandatory disclosure obligations, ORCA, or FAPIIS. There is nothing in the statute which dictates how an agency could become aware of a conviction.

Further, the statutory exception—“the agency has considered suspension and debarment”—creates its own questions. For example, if DoD has determined that suspension or debarment is not warranted based on a felony conviction, does GSA have to make a separate determination before awarding a contract to that contractor? Even if GSA can rely on DoD’s determination about the contractor, does GSA need to make another determination if individuals were also convicted because of the different standards between the Act’s various provisions? 

Another ambiguity in the Act’s statutory exception is whether “this further action” refers to suspension and debarment or the statutory exclusion established by the Act. The ultimate determination to suspend or debar a contractor can often take several months after a plea agreement is reached. Even if “this further action” is interpreted to mean the Act’s statutory exclusion, each of the provisions in the Act provide that the agency “has considered” suspension and debarment, as opposed to is already considering. Does the past tense make the agency’s determination as to suspension and debarment a prerequisite to the determination called for under the Act? This would likely put time pressures on agency suspension and debarment officials (“SDOs”) to reach determinations.

Another ambiguity is the statute refers to “corporations” as opposed to “contractors.” This raises the question of whether a conviction in any company under a corporate umbrella would result in exclusion of all companies in the corporation or just the individual offeror.  Further, the statute is unclear whether it applies to subcontractors. 

Finally, the statute only prohibits the use of funds to “enter into” a contract or other funding instrument. Based on the plain language, it appears that existing contracts are beyond the reach of the Act, and funds could be used to pay for on-going contracts. The statute, however, is silent on the award of task or delivery orders issued under multiple award contracts—such as existing GSA schedule contracts—leaving open the question of whether affected funds can be used to place new orders.

Because the exclusion provisions are included in appropriations statutes, the restriction attaches to the use of specific funds as opposed to imposing blanket prohibitions on awarding contracts. Accordingly, the source of funds being used by an awarding agency to enter into a contract will be a fact-specific inquiry. The one bit of good news is that the statutory exclusions included in appropriations bills will expire at the end of the fiscal year. Hopefully, Congress will not re-enact these ambiguous provisions in next year’s appropriations. Until then, it could be a bumpy ride.