Recent legislative trends appear to be squarely at odds with the stated purpose of suspension and debarment. The Federal Acquisition Regulation (FAR) describes a process focusing on “present responsibility,” an express acknowledgement of the potential for contractor rehabilitation, providing discretion to the suspension and debarment official (SDO) to determine the proper outcome of a contractor’s misconduct. Fiscal Year 2012 legislation and proposed legislation, however, suggest a punitive purpose for suspension and debarment, replacing discretion with mandatory outcomes.

The FAR describes the policy of suspension and debarment in subpart 9.402. Agencies are to do business “with responsible contractors only.” Using discretion, agencies are to suspend or debar to protect the government’s interest in contracting with responsible contractors. Because of the “serious nature of debarment and suspension,” it is a tool that should be used “only in the public interest for the Government’s protection and not for purposes of punishment.” FAR 9.402(a)-(b). It is the SDO’s responsibility to assess whether suspension or debarment is in the government’s interest—the  mere existence of grounds for suspension or debarment does not require suspension or debarment. FAR 9.406-1(a); 9.407-1(b)(2).

Rather, the SDO is encouraged to consider a list of contractor mitigating factors, many remedial in nature, before imposing suspension or debarment. Various of the remedial actions (including internal disciplinary action, enhanced review and control procedures and training programs, and management recognition of the seriousness of the misconduct) are best characterized as a contractor’s rehabilitation to status as a responsible contractor. FAR 9.406-1(a); 9.407-1(b)(2). Once a contractor returns to being presently responsible, it may continue to do business with the government. Penalties for contractor misdeeds may be pursued instead through various remedies available to the Department of Justice, such as the False Claims Act or Foreign Corrupt Practices Act. (For a discussion of FY 2011 DoJ Fraud and False Claims recoveries, refer to an earlier post).

In contrast, recent legislation—and proposed legislation—paints a black-and-white, punitive role for suspension and debarment. The Consolidated Appropriations Act of 2012 (Pub. L. 112-74, Dec. 23, 2011), for example, prevents agencies from funding contracts, agreements, grants, or loans to companies convicted of a felony crime of which the agency is aware unless the agency affirmatively considers the company for suspension and debarment and determines that no further action is necessary. In certain divisions of the Act, the funding prohibition extends to convictions of an agent of the company. (For more details, refer to earlier posts (1/18/12, 2/23/12)). This law also raises questions about the role and authority of the lead agency if every agency must make these affirmative findings for each new contract award and risks doing so in an inconsistent manner.

A later proposed legislation, the Comprehensive Contingency Contracting Reform Act of 2012, would further erode agency discretion and the role of contractor rehabilitation. S.2139, 112th Cong. (2nd Sess. 2012). The Reform Act would provide for automatic suspension of a contractor if, among other things, the contractor is (1) charged with a criminal offense related to performance of certain contracts or (2) if the federal government alleges fraud against the contractor, its employee, affiliate, subsidiary, or other controlled business, in a civil or criminal proceeding related to a federal contract. S.2139 sec. 113. This provision is intended to encourage aggressive agency action in response to contractor misconduct; leading, presumably, to increased suspension and debarment of contractors without regard for the mitigating factors listed in FAR 9.406-1. 4/17/12 Hearing, Senate Ad Hoc Subcommittee on Contracting Oversight, statement by Chairman McCaskill. (For more details, refer to earlier posts (3/15/12, 4/24/12)).

Neither piece of legislation approaches suspension and debarment as a “prophylactic measure” related to present responsibility of the contractor. See Acquisition Reform Working Group 2012 Legislative Recommendations (Apr. 10, 2012) at 29. It is this black-and-white, punitive approach that the Acquisition Reform Working Group advocates against in its recent legislative recommendations. Id. at 29-33. The Group notes that the punitive approach fails to recognize that companies are not always equivalent to their bad-actor employees who may be terminated as part of a rehabilitative action. The Group cautions that a punitive approach not only hurts the punished organization, but also its employees and the government when suspension and debarment results in lay-offs or a company closing its doors because revenue generation is arrested. Additionally, the present character of a company may not mirror the company that existed when the misconduct occurred.

Instead, the Group points to the positive effect of a suspension and debarment program run according to the FAR, in a discretionary and rehabilitative manner. Such a program first and foremost enables SDOs to work with a contractor to identify and require corrections to its business operations, most particularly its ethics and compliance programs, so that it may return to “present responsibility,” protecting government funds, insuring a stable of competitive companies to bid on government projects, and enabling economic health for companies and their employees. To this end, the Group presents several recommendations to legislators considering “reform” of suspension and debarment procedures. These include a transparent suspension and debarment process, retention of SDO discretion, coordination of SDO efforts with other agency SDOs, providing contractors an opportunity to respond prior to action being taken, and a prohibition against measuring SDO performance merely by the number of debarment actions taken.  Id. at 31-33.

If Congress is intentionally moving to a punitive and non-discretionary model of suspension and debarment—it appears that it might be—then Congress might do well to recognize the potential bigger picture impact of such a trend. In addition to punishing the company and its employees for past bad acts, suspension and debarment might result in a less competitive and innovative marketplace for federal procurement when used as a blunt tool. Even if suspension and debarment actions do not directly cause companies to go out of business, a hyper-aggressive approach may discourage participation in government procurement as the risks (especially for new participants) begin to outweigh the benefits.